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Bearing in mind that the huge majority of Singaporeans reside in HDB flats, you had imagined that we’d be straightforward about the best practices, policies and guidelines of purchasing and residing in HDB flats. The fact is that there are lots of frequently perpetuated legends about HDB flat possession which are all mistaken. Read on to find out more!
HDB flat ownership myth No. 1: You should pay your HDB flat as early as possible
We can see why this myth exists. Impulsively speaking, you would imagine that it would be better to pay your HDB loan as fast as possible, but actually, you may be better off detaining to some of that debt.
One fault that many individuals make is to combine all of their money towards paying all of their debt, when they must actually be hiding a portion of their savings as an emergency fund. It pays to be ready for rainy seasons – in an occasion that you get reduced or get into an accident and must undergo expensive surgery, you will want to have enough money to surge you over without mortgaging your condo unit.
A good rule of thumb? Allocate your 6 months’ worth income as a “rainy season saving”.
Another mistake that people usually make in this part? Exposing their retirement strategies so that they can pay off their flat earlier.
Here’s an example:
Let us just assumed that you have borrowed $315,000 from HDB on 2.6% interest annually. Your monthly savings and CPF contributions command that you can either:
1. Put $500 into a retirement portfolio and make monthly compensations of $1,261 over 30 years, or
2. Make monthly compensations of $1,761 over 22 years, and begin conserving for separation after you have paid off your very own flat.
If you are partial to choice A, you are on the correct path. $500 monthly may not sound like much, but if you place it into a graceful folder consisting of unit trusts, donation policies and ETFs, you can sensibly look forward to compounding earnings of around 4 percent every year. Because of this, you will be earning $349,000 worth of retirement funds (on top of your completely paid up flat) after 30 years.
Instead picking choice A, you selected choice B, then you may have a little problem on that. Exactly, you’ll have fully paid up your flat for the past 8 years, but 8 years is a very short period of time to create a retirement fund, and you are not capable of enjoying as much as compounding effect as you will have in situation A. So don’t be afraid about owing HDB for too long a period of time – just only give attention on creating your retirement fund as soon as possible.
HDB flat ownership myth No. 2: HDB loans are more inexpensive than bank loans
This really depends on the marketplace – if you notice at the statistics in the past ten years, you will realize that bank loans are more inexpensive than HDB loans from now and then.
Here’s an example:
As of now, loans in HDB come with an interest value of 2.6 percent, nevertheless DBS’s fixed rate loan will charge you only 1.8 percent in interest for the first 4 years.
Thereafter, you will be giving Fixed Deposit Home Rate 9 (FHR9) + 1.6 percent of interest, with the FHR9 being attached to the usual 9 months’ Singapore Dollar settled deposit interest rate of DBS Bank. The present FHR9 is 0.25 percent, so supposing that this remains reliable, your interest rate from your 5th year ahead will upsurge somewhat to 1.85% (which is still lesser than HDB’s 2.6%).
HDB flat ownership myth No. 3: If you are not a first-timer, you can overlook on gaining grants
Though you won’t be qualified for fixed grants as a non-first-timer, there are still other subsidies which you can claim for.
For example, HDB homeowners who formerly purchased a 2-room subsidized flat, and are currently thinking of acquiring a new 3-room flat in a non-mature estate are qualified for the Step-Up CPF Housing Grant.
Furthermore, there is also the Proximity Housing Grant which affirms that families who purchase a resale flat close to each other will accept $20,000. You can only have this subsidy once, but it covers to all families – even those who have earned other housing grants previously.
HDB flat ownership myth No. 4: Your BTO flat will be financed if you live close to your parents
As stated a while ago, those who purchase resale flats close to their parents will obtain the Proximity Housing Grant. If it is a BTO flat which you are after, sorry, you don’t acquire any additional subsidies – though you do get more ballot opportunities.
HDB flat ownership myth No. 5: If you wish for a new flat, you use to wait for 3-5 years
Think there is no way to get around the terribly long 3-5 year wait if you wish for a new flat?
Think again!
Instead of a BTO flat, deal with applying for a Re-offer of Balance Flat (ROF) or Sales of Balance (SBF) flat. ROF flats, indicate to the remaining flats which are not sold during SBF exercises. While, SBF flats refer to the units which were formerly taken up, but are back in the market (the former owners may have separated, or ran into funding problems).
With ROF and SBF flats, there are so many units in the projects which have already been accomplished (or are approaching their completion date). It all depends on the unit which you select, but by going down the ROF or SBF way, you can possibly have a new flat in just three months of your buying date.
