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Will the HDB mortgage interest rate increase in 2022?

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Will the HDB mortgage interest rate increase in 2022?

If you’re like most Singaporeans, having your first home in an HDB apartment would be part of your “starter pack for life” as an adult. And to finance this purchase, you could take out a loan from HDB.

In an era of rising interest rates, those currently managing an HDB loan can thank their lucky stars that the HDB loan interest rate remains at an unshakable low of 2.6%. But did you know that HDB’s advantageous mortgage rate is not permanently fixed?

And given that bank mortgage rates have increased, will the interest rate for HDB loans also increase in 2022? How is the HDB mortgage interest rate calculated? In this article, we’ll walk you through these questions and more.

What is the HDB mortgage rate?

As mentioned, the current HDB home loan interest rate is 2.6%, set 0.1% above the CPF Ordinary Account (OA) interest rate of 2.5%. The HDB home loan uses the CPF OA as the reference rate because Singapore government funding to HDB is based on the same rate.

CPF OA interest rates may be adjusted during the months of January, April, July and October. But the HDB home loan mortgage rate has remained unchanged for the past two decades, since 1999. Due to the “invariant” nature of this “fixed” rate, young homeowners benefit from certainty when budgeting for their home. their HDB apartment.

So why is the HDB mortgage rate set at 0.1% above the CPF OA rate? The answer is simple: it is to cover HDB’s loan administration costs.

History of HDB mortgage rates from 1955 to today

However, just because the HDB mortgage interest rate has remained unchanged for a long time does not necessarily mean that it will remain fixed. If the CPF OA interest rate is adjusted, so will the HDB home loan interest rate.

A quick look at historical CPF interest rates shows that the highest CPF OA rates were 6.50%, from 1974 to January-February 1986.

Then the next question is: will the CPF OA interest rates then be adjusted? And if so, will HDB mortgage rates go up?

[ArticleCallout]{ “title”: “Interest Rates Set to Rise Further in 2022: How It Affects Your Mortgage in Singapore and What Homeowners Should Consider”, “excerpt”: “Read more here.”, “link “: “https://www.propertyguru.com.sg/property-guides/pgf-rising-interest-rates-post-covid-57668”, “image”: “https://img.iproperty.com.my /angel/1110×624 -crop/wp-content/uploads/sites/3/2022/09/pgf-rising-interest-rates-expected-to-increase-2022-singapore.jpg” } [/ArticleCallout]

Will HDB Mortgage Rates Rise in 2022?

The answer to the question of whether HDB mortgage rates will rise in 2022 is not so simple. But with rising interest rates and inflation fears, some believe the interest rate on HDB mortgages could also rise.

Ability to adjust CPF interest rates due to inflation

The topic of adjusting CPF interest rates to keep pace with rising inflation was also raised in Parliament in August 2022.

The CPF OA interest rate is linked to the three-month average of the fixed deposit and savings rates of DBS Bank, UOB and OCBC. However, there is a legal floor rate of 2.5% per annum – the floor rate is the minimum interest you can charge on a loan.

Because of this statutory floor rate, the Singapore government has “continued to pay generous interest rates” despite the low interest rate environment. Currently, the three-month average of the interest rates of these three banks is 0.09%, according to the latest review by the CPF Board.

Rise in bank interest rates in 2022

After the wave of recent interest rate hikes by the US Fed, interest rates are now in a new target range of 3% to 3.25%. In response, banks also adjusted their mortgage rate offers, with UOB and DBS temporarily ceasing their fixed rate mortgage offers.

According to Paul Wee, Vice President, PropertyGuru Finance, PropertyGuru Group, the 3M SORA is expected to enter the 2.7% to 2.8% range by the end of the year. Based on a 0.65% spread in the first year, interest rates are expected to reach 3.35% to 3.4% by the end of 2022.

Given these two factors, he suggests that there is a real possibility that the HDB mortgage interest rate will be adjusted.

“According to the new real estate cooling measures announced on September 29, 2022, all loans granted by HDB will be valued on the basis of a floor rate of 3%. Based on the same 0.10% spread, this could be an indication that the CPF OA rate might be about to be raised to 2.90%.

Overall, however, the spread between the CPF OA and the loan interest rate should remain at 0.10%, mitigating the risk of rising interest rates for those using their CPF funds. to service their home loans. »

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HDB loan vs bank loan in Singapore: which one to choose?

Often young couples, especially those just starting out in their careers, opt for an HDB loan because it requires less cash upfront; if necessary, you can pay the deposit with the money from your CPF OA. Additionally, you can finance up to 80% of the purchase price or valuation of your apartment (whichever is lower).

There are also advantages to applying for a bank loan. Bank mortgage rates change with the market, interest rates offered for home loans can be higher or lower than HDB’s 2.6%. For those with a greater appetite for risk, paying attention and taking advantage of these fluctuations may mean offering a package with a more attractive interest rate than HDB.

[ArticleCallout]{ “title”: “HDB Loan Vs Bank Loan 5 Key Differences: The Complete Guide to Financing Your HDB Flat in Singapore (2022)”, “excerpt”: “Read more here.”, “link”: “https:/ /www.propertyguru.com.sg/property-guides/hdb-loans-vs-bank-loans-2665”, “image”: “https://img.iproperty.com.my/angel/1110×624-crop /wp-content/uploads/sites/3/2022/07/07180618/hdb-loan-vs-bank-loan.jpg” } [/ArticleCallout]

You can use the PropertyGuru mortgage comparison tool to find the most competitive interest rates on the market. If you need help budgeting for a new home, aren’t sure which loan to take, or want personalized financial advice, contact our friendly mortgage experts, all toll-free!

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Disclaimer: The information provided on this website is general in nature and does not constitute financial advice.

PropertyGuru will endeavor to update the website as needed. However, information may change without notice and we do not guarantee the accuracy of any information on the website, including information provided by third parties, at any given time. Although every effort has been made to ensure that the information provided is accurate, individuals should not rely on this information to make any financial or investment decision. Before making a decision, we recommend that you consult a financial planner or your bank in order to take into account your particular financial situation and your individual needs. PropertyGuru makes no warranty as to the accuracy, reliability or completeness of the information contained on this website. Except to the extent that liability under law cannot be excluded, PropertyGuru and its employees accept no liability for any errors or omissions on this website or for any resulting loss or damage suffered by the recipient or any other person .

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