We plan to take up a longer HDB loan tenure. Why is it capped at 25 years?
A long loan tenure may mean smaller repayment amounts, but it also results in flat owners having to sustain the monthly instalments as they grow older and more interest paid over time. HDB has capped our loans at 25 years to encourage flat buyers to exercise prudent financial planning.
Profile of Typical New Flat Buyers
Most buyers will find that the maximum loan tenure of 25 years is adequate for them to finance their purchase, while giving them generous space to make adjustments when their financial situation improves down the road.
In general, most new flat buyers use less than 25% of their monthly household income to service their monthly instalments, for a 25-year loan. For 4-room flats, which form the bulk of new flat supply, flat buyers would use about 26% of their monthly income if they choose a 20-year loan. These are still well below the 30% to 35% rule of thumb for affordable housing.
Flat buyers can use a combination of their CPF and cash savings to service their loan. This flexibility lets flat buyers choose a payment plan that suits their long-term financial needs and goals.
Saving More by Making Partial Capital Repayment
There are flat owners who have chosen to shorten their loan repayment period through making partial capital repayments towards the housing loan and save on interest payments. This is can be done at any time with no administrative charge. Many have done so, either because their household income has increased or when they have accumulated sufficient savings as part of their long-term financial planning goals.
Mr and Mrs Ong, aged 32 and 33, bought their first flat – a 4-room BTO in Bukit Panjang for $282,300, in 2014.
Their household income was $5,370 at the time, and they took a 25-year loan of $186,400 from HDB, at the prevailing HDB concessionary interest rate of 2.6% per annum. They were able to service the monthly loan instalment of $850, using just their CPF monies.
Over time, with accumulated savings, they decided to make a partial capital repayment of $20,000 towards their loan in 2017. This shortened their remaining loan tenure to about 18.5 years. They also saved about $13,900 in interest*.
* Interest savings vary from case to case, depending on the loan balance, remaining loan period and on the basis that the monthly loan instalment is paid promptly.