Taking A HDB Loan - Should I Wipe Out My CPF OA?

Starting from August 2018, we do not need to wipe out our CPF OA anymore when taking a HDB loan. Now, we can have the flexibility to leave up to $20,000 in our CPF OA when we take a HDB loan. For a couple, this means a total of $40,000 in their CPF OA ($20,000 each). 

The question now will be should we wipe out our CPF OA or leave $20,000 in our account? Leaving $20,000 in our CPF OA means taking up a higher mortgage loan and paying more loan instalment and interest per month. This may not be a bad thing. Let's look into detail on this. 

Setting out the scenario

Let's assume the following scenario for a couple who has bought a house and looking to take HDB loan:

1. Bought a house at $400,000
2. Has $100,000 each in CPF OA
3. Wants to take HDB loan at 2.6%

Now, this couple wants to consider whether to leave $20,000 each in their OA or wipe out totally to pay lesser monthly instalment? 

If they wipe out their CPF OA and take a loan of $200,000 for 25 years, their monthly loan instalment will be $908/month. 

If they leave $20,000 in their CPF OA each (total of $40,000) and take a loan of $240,000 for 25 years, their monthly loan instalment will be $1,089/month. 

Looking at the above, most couple will choose to go for the lesser monthly loan instalment right? It seems like a logical choice but unfortunately logic does not always prevail. 

Interest gained for $20,000 left in CPF OA 

The decision now is whether to leave $20,000 in CPF OA. First, we must know how much interest we would have gained if we leave it in CPF OA. Here's a table to summarize:

	$20,000 @ 2.5%
15 years	$9,088
20 years	$12,957
25 years	$17,341

The above is the interest we would have gained for leaving $20,000 in CPF OA for 15, 20 and 25 years at 2.5% interest. Doesn't look a lot but let's move on to how much more interest we would have paid if we take up a bigger home loan if we have not wiped out our CPF OA. 

*Do note that CPF OA is actually giving 3.5% interest for the first $20,000 so the amount should be larger.

Interest paid on $240,000 vs $200,000 home loan

In order to know whether it is good to leave $20,000 in our CPF OA accounts, let's take a look at the interest we would have paid on a $240,000 vs a $200,000 home loan. 

	25 years	20 years	15 years
$200,000	$72,121	$68,711	$59,081
$240,000	$86,618	$82,497	$70,921

The above shows the cumulative interest paid for a $200K vs $240K home loan for 25, 20 and 15 years at 2.6% interest rate. Now, let's calculate how much more interest we would have paid on a $240,000 home loan should a couple not leave $20,000 in each of their CPF OA. 

	25 years	20 years	15 years
Additional interest on $240K vs $200K loan	$14,497	$13,787	$11,840

Now, the additional interest paid on that additional $40,000 loan doesn't seem like a lot. Will the interest gained on the $20,000 each in a couple's CPF OA be more than the above interest paid?

Let's bring the numbers together. 

Taking HDB Loan - Should I Wipe Out My CPF OA?

Now, with all the calculations, will we see higher interest gained for leaving the $20,000 in our CPF OA? The answer is yes. Let's look at the table below. 

	25 years	20 years	15 years
Additional interest on $240K vs $200K loan	$14,497	$13,787	$11,840
Interest gained in CPF OA ($20,000 each for couple)	$34,681	$25,915	$18,177
Net Interest gained for leaving $20K in CPF OA	$20,184	$12,128	$6,337

While the net interest gained is more for the above, we still have to consider the higher mortgage paid per month for taking a $240,000 loan vs a $200,000 loan. The difference in monthly instalment is $1089-$908=$181 per month for 25 years mortgage. This sum will be left in our CPF OA earning 3.5% interest which can be quite significant. 

Apart from the interest point of view, leaving $20K in our CPF OA can be used as emergency fund just in case when we lose our job later. If we do not have leftover in our CPF OA, then we will have to pay our housing loan in cash at that time which makes it worse for our financial circumstances during that tough period. 

CPF OA monies can be invested as well for sums more than $20K. Leaving $20K in oir OA will enable us to invest the accumulated sums thereafter (above $20K) and may earn more interest higher than 2.5%. However, as with all investments there are always risks involved. 

Deciding on whether to wipe out our CPF OA is not an easy decision. It depends on what we really want. Nevertheless, this gives us the flexibility to choose based on our risk appetite.

Should I Get A BTO or Resale Flat?

There are pros and cons of getting a BTO vs a resale flat. In Singapore, a BTO flat is heavily subsidised by the government and we try our luck to ballot for a chance to select a unit. These flats are build to order (BTO) meaning those who managed to get a unit will have to wait about 3-5 years before they can collect the keys to their flat.

I would think most people will go for the BTO option first if they have the time to wait. However, even if you have the time to wait doesn't mean you will have the luck to get one of the units. The next best choice will be to go for resale flats which will ultimately cost more as compared to a BTO flat.

The Process of getting a BTO flat

BTO flats are launched every quarter which means we have 4 chances a year to try our luck. I have tried since 2016 but till now I didn't manage to get a good number. When people say its hard to get a good location through BTO, it is really true. Non-mature estates such as Sengkang & Punggol are generally easier to get precisely because the demand is not so high there. I did managed to get a queue number to select a flat in Sengkang but in the end decided to give it up as after consideration for the long term, the location is still important for me and my partner.

The process to getting a BTO flat can be quite long so if you're planning to get married in the next 3 years, then its better to start your BTO process earlier. The balloting process is fuss free. It can be done online and no documents need to be submitted in the early stages. You just have to fill in some information of yourself which takes less than 10 minutes.

BTO balloting guide

Have you wondered how the BTO balloting process work and how people are chosen to select a flat? Let me try to explain it based on the information I managed to find.

Firstly, first timer applicants will always have the priority in the balloting process. 85% of the 4/5 room flats and 70% of the 3 room flats are set aside for first timer applicants for non mature estates. For mature estates, 95% of the 3/4/5 room flats are set aside for first timers. If you think that its easier for first timers to get a unit in mature estates since 95% of the flats are set aside, its not true as there are many other first timers also aiming for a flat in the popular mature estates.

How the BTO balloting process works is unclear to many as HDB did not really state clearly how it is done. I tried to find as much information as I could and summarise my findings in this post. In essence, there is no way to get any advantage from the balloting process. HDB tries to ensure fairness to all parties in this process. As a first timer, even though you get to enjoy priority in getting a queue number, it does not mean you will get a good queue number. I will explain this in the next section below.


Why its so hard to get a good queue number?

The balloting process is completely random and it very much depends on our luck in order to get a good queue number. After the application closes, HDB will first shortlist first timer applicants based on the percentage of flats set aside for them. Then, HDB will shortlist second timer applicants based on the percentage of flats set aside for them. After the applicants are shortlisted, they will all go into a computer system and be assigned random queue numbers. Both first timers and second timers are in this pool. This means that even if you are a second timer applicant and you managed to get shortlisted into the ballot pool, you may still get a better queue number than a first timer.

There are also other priority schemes. The 2 main schemes are the Parenthood Priority Scheme (PPS) and the Married Child Priority Scheme (MCPS). For BTO, 30% of the flats are set aside for PPS and another 30% set aside for MCPS. Let me explain more on these 2 priority schemes.


Parenthood Priority Scheme (PPS) 

The PPS is for those who have kids or are going to have soon.

The eligibility condition as stated on HDB website is as such:

"You must be a first-timer applying as a married couple. In addition, you must either be expecting your first Singapore Citizen child at the time of your application, or have at least 1 Singapore Citizen child aged below 16 (natural offspring from the lawful marriage or legally adopted)."


Married Child Priority Scheme (MCPS)

The MCPS in essence is for those who apply for a flat to stay with their parents or near their parents. For those who apply to stay with their parents, the parents name must be included in the application. For those who apply to stay near their parents, as long as it is within 4km of your parents house, you will be eligible for it. Do note that for staying near parents, there is a restriction that your parents must continue to live in the same town or within 4km of your new BTO flat for 5 years after you collect your keys.

For more information on the priority schemes, you can refer to HDB website here.


Balloting process scenario

Now, let's get back to the balloting process and why its so hard to get a good queue number. As a first timer applicant, 70%-95% of the flats are set aside for you depending on the type of flat and the location. Within the 95%, 30% are set aside for PPS and another 30% for MCPS.

Let's take for example the following scenarios:

Location: Toa Payoh (Mature Estate)
Flats available: 1000
Total number of applicants: 2000 (Oversubscribed)

• PPS applicants: 400
• MCPS applicants: 400
• Other first timers: 400
• Second timers: 800

1. Flats for first timer: 950 (95%)

• Flats for PPS: 300
• Flats for MCPS: 300
• Flats for other first timers: 350

2. Flats for second timer: 50 (5%)

Now, with the above scenarios, we can predict how the ballot process will work. This is just based on my understanding but it may not be exactly how it is done.

First, HDB will shortlist applicants up to 100% of the flat supply. There are 1000 flats available in this instance. 

Step 1: 

PPS applicants will be shortlisted first. 400 PPS applicants are shortlisted for 300 units set aside for them. This means that 100 PPS are out of the shortlist. 

Step 2: 

MCPS applicants will be shortlisted. 400 MCPS applicants are shortlisted for 300 units set aside for them. This means that 100 MCPS are out of the shortlist. 

Step 3: 

Other first timer applicants will be shortlisted. There are 400 other first timer applicants plus 100 PPS who failed in step 1 and 100 MCPS who failed in step 2. They will probably be shortlisted in this step 3 as well. This part is unclear as I could not get any information from HDB. If the PPS and MCPS are put in this pool as well, we have a total of 600 applicants who will fight for 350 units. This means 250 first timers (regardless of priority schemes) will be out of the 1000 queue number. 

Step 4:

Now, second timers will be shortlisted. 800 second timer applicants will be shortlisted for 50 units set aside for them. This means that 750 second timer applicants will be out of the shortlist. As a second timer applicant, you must be really lucky if you can get shortlisted within the 100% supply of flats. 

Final step:

The final step is all those who are shortlisted (first and second timers) will now be assigned random queue numbers. A first timer applicant can still get the last queue number 1000 and a second timer applicant can get queue number 1. Those who are out of the 1000 flat supply will still be assigned queue numbers as HDB gives out queue numbers for 300% of the flat supply. 

By now, if you managed to follow the above scenario, you would have realised that the balloting process is completely based on luck to get a good queue number. It doesn't matter if you applied under any priority schemes. The priority schemes only increase your chance of being assigned a queue number but not your chance of a good queue number. 

Increasing your chance to get a BTO flat

Even though the ballot process is completely based on luck, there are still ways to increase our chance to get a BTO flat. 

Firstly, we can consider non mature estates which are not too high in demand. If you don't mind that its far from the city and not near the MRT, applying for a flat in a non mature estate will definitely increase your chances of securing a unit. The prices are much cheaper too. A 4 room flat in a non mature estate cost about $300K to $350K while the same flat in a mature estate can cost more than $500K. 

Secondly, if you still want to get a BTO in a good location, you can consider applying for a 3 room flat instead of a 4 room or larger flat. The demand for 3 room flats is definitely much lower even in mature estates and I think it is probably due to the fear of not enough rooms if you have more than one kid. However, I think 3 room flats in a good location is still a good consideration at least for a start. The price of 3 room flats in good location is also much lower than a 4 room flat.  

How about resale flats?

If all else fails and there is just no luck to get a BTO, then the plan will be to get a resale flat. Resale flats although they are more expensive, there are still grants available. The resale grant for first timer families is currently $50,000 and an additional $20,000 if you stay within 4km from your parents.

A quick check on the price of resale flats in non mature estates can be selling as high as $500,000 for a 4 room flat near Buangkok MRT. If the flat is further away from the MRT, it'll be about $50K to $100K lesser. For mature estates, we should be looking at around $500K to $600K for a 4 room flat.

There is also a visible advantage when buying resale flats. We can view the actual flat itself before committing to buy the flat. This cannot be done with a BTO flat. However, resale flats tend to be older and needs more renovation as compared to a new flat. This can be overcome by buying a newer resale flat (5-10 years old) with good renovation already done by the previous owner although there is almost certainly a premium price to be paid for this kind of flats.

Buying a resale flat will let us be able to move in almost immediately as compared to the waiting time of a BTO which can range from 3 to 5 years. If we buy a resale flat and take the grants available, we will automatically be considered as second timer if we ballot for a BTO in the future. If you still want to be considered as a first timer for BTO even after buying a resale flat, you have to make sure you do not take any CPF housing grants when you buy the resale flat. In this way, you can still have a higher chance of balloting for a BTO flat while staying in your resale flat. However, do take note that the 5 years MOP will still be applicable before you can sell your resale flat and buy another HDB.


Should I Get A BTO or Resale Flat? 

Buying a flat can be a long process so opening up this conversation early with your partner is important. There is much planning to do in terms of deciding on a location, planning for the finances and also deciding whether to go for a BTO or resale flat.

If you and your partner decides to go for a BTO flat, it is always better to apply earlier as it can be quite long before you can get your desired flat. If you fail to get a BTO or running out of time, resale flat is definitely another option worth a consideration. Nevertheless, having a stable relationship before committing to a flat purchase is important too since this is a long term commitment with great financial responsibilities.

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Visualisation of HDB resale prices in Singapore

Have you wondered where is the best place to buy a HDB resale flat in Singapore considering your budget or the remaining lease left in different towns in Singapore? I've been exploring data analysis through visualisation and did up a dashboard of the various resale prices in different towns in Singapore. This is done using the data on data.gov.sg.

It is often hard to find all the information we need as its all over the place even when we have Google search. With visualisation, we can see the data at one glance. The visualisation software I am using for this post is called Microsoft Power BI which I've been learning and using for my work as well.

The average HDB resale prices below are based on the sale transactions from 2015 to 2018 February.

Average HDB resale prices by town

Let's first look at an overview of the average HDB resale prices by town. Using a treemap, we can straight away see that Bukit Timah town has the highest average HDB resale price and Yishun has the lowest:

It may be too small to view on my blog so you can click on the image to have a better view. I've set the diverging colour to be green for the lowest prices, amber for mid range prices and red for the highest prices.

Average HDB resale prices by town treemap

To illustrate the resale prices more clearly, you can refer to the bar chart below:

Average HDB resale prices by town bar chart

Do take note again that the prices above are based on the resale sale transaction prices from 2015 to 2018 February for all room types so if a town has more 2 room or 3 room flats as compared to 4 room or larger flats, then the average price will be lower.

Average HDB remaining lease by town

When buying a HDB, we may also consider how old is the estate as the remaining lease does have an impact on the prices of the HDB as well. From the bar chart below, we would be able to see that the newest towns with still quite a lot of lease remaining is Punggol and Sengkang while the oldest towns seems to be Marine Parade and Geylang. This is probably due to the fact that Marine Parade and Geylang doesn't really have much new flats being built there so the town's average remaining lease is much lower as compared to other towns.

However, Geylang town had some good new BTOs being launched there just a few months ago in Eunos and Ubi which could change this in the future.

Average HDB remaining lease by town

Average HDB resale price by remaining lease

To confirm if remaining lease has an impact on HDB resale prices, I also did a visualisation to sort the HDB resale prices by its remaining lease.

Yes, it does seem the general trend is that the lower the lease remaining, the resale price of HDB is lower as well.

Average HDB resale price by remaining lease

More exploring of HDB resale prices 

I decided to go on further to see the real price of HDBs by flat type in some towns. Let's start off with Punggol which is on the far north east of Singapore. Do you think the flats are still cheap there? Not really actually. Let's take a look:

The average price for a 4 room flat in Punggol is about $442K

In Bishan, executive flats are going for an average price of about $893K

From previous analysis, we see that Yishun has the lowest HDB resale price among all other towns. Let's take a deeper look at Yishun.

Yes it seems like Yishun is still affordable with 4 room resale prices at around $359K.

That's all for the visualisation of HDB resale prices in Singapore. I hope this post let's you have a glimpse of the HDB flat prices in Singapore. If you find that the housing prices are too expensive, you would be happy to know that there are several grants for HDB resale purchases. You can refer to my previous post here on the various grants for HDB resale purchases.

Do take note the proximity housing grant has been enhanced as announced in budget 2018. You can refer to the info-graphics from HDB below for the changes:

*All data used in this post are HDB resale prices from 2015 to 2018 adapted from data.gov.sg.

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The Rising Property Market And Interest Rates

Most of us would know that housing prices is rising again in Singapore. The sales of new private homes are also going up where we see more and more people getting interested to buy properties now. This seems to be the right time to purchase a property at the right price and also when loans are still cheap.

The following chart shows the SRX non-landed private property index from January 1995 to December 2017. We see a dip in the property market after the high in February 2013. The lowest price recorded was in December 2014 and November 2016. At current prices, it has almost reached the high back in February in 2013. It seems like the property market may breakthrough that level and continue to go higher soon. This explains why many people are entering the private property market now hoping that prices will continue to go higher.

For HDB, it is a totally different picture. Resale prices of HDB seems to be continuing on a downtrend after falling from the high in March 2013. The regulations for HDB flats such as the 5 years minimum occupation period, the limitation of loans to 30% of your gross monthly salary, the maximum loan tenure of 25 years as compared to 30 years for private properties and the restrictions of not being able to rent out your HDB flat even if you purchase a private property makes it hard for the prices to go up.

This is in line with the government's push for affordable public housing in Singapore. I don't see HDB as an investment at all because the main use of it is still for personal accommodation. However, I do foresee that private home prices should continue to go up moving forward with better economic outlook.

For those who already own a property

On the other side, many people would have already bought a property previously. If you've bought your private property at a high back in 2013, the good news is that prices are going above that soon. For HDB, its a different story.

With better economic outlook and rising property prices, interest rates are rising as well. If your housing loan is still currently on a floating rate package, its time to take a look at it before it creeps up. The SIBOR, which is the Singapore Interbank Offer Rate is the most commonly used benchmark for housing loans in Singapore. The 3M SIBOR now stands at 1.42% and the 12M SIBOR is at 1.66% as at 5th January 2018. You can refer to the official SIBOR rates here. The 3M SIBOR has increased more than 0.5% from the previous low.

Interest rates will surely go higher from here. There is no doubt about that. Its just a matter of time interest rates will increase. With the US Federal Reserve hinting on more rate hikes and stock markets across the globe rising to record levels, interest rates should not be remaining low forever.

How Much Your Loan Instalments will Rise? 

If you have a $300,000 loan, a 1% increase in interest rates will result in your monthly instalment increasing by close to $150/month. That is additional $1800/year. For a $500,000 loan, an increase in interest rates of 2% will result in your monthly instalment increasing by about $500/month. This is $6000/year. The higher your loan amount, the greater the impact it will be.

Don't forget that the norm for interest rates were about 3%-3.5% in the past. We should always be prepared for this to happen.


Refinance Your Home Loans to Lessen the Impact now

Fortunately, before the rates rise even higher, we can always refinance our home loans to lessen the impact at least for the next few years. I have worked with banks in Singapore for many years now and always on the lookout for the best loan packages for everyone.

It is recommended to go for fixed rates now and the best I can get is as below:

For both HDB and private property (Min loan amount $200,000)

2 years fixed rate

Year 1: 1.65% (Fixed)
Year 2: 1.65% (Fixed)
Year 3: SIBOR + 0.70%
Thereafter: SIBOR + 1.00%

3 years fixed rate

Year 1: 1.85% (Fixed)
Year 2: 1.85% (Fixed)
Year 3: 1.85% (Fixed)
Thereafter: SIBOR + 1.00%

For the above 2 packages, you can get cash rebate and shopping vouchers as below:

Isetan Shopping Vouchers

* Shopping vouchers applicable for both new purchase and refinancing


Cash rebate

*Cash rebate for refinancing only


If you're interested, you can email me directly at sgyounginvestment@gmail.com

I'm not sure when this fixed rate package will be revised as many banks have already adjusted their fixed rate package upwards in the last few weeks. This is the last one which still has attractive rates.

For those looking to buy a HDB flat or a private property, now is a good time to look at it. If you need assistance in your property purchase such as knowing your loan eligibility or not sure what's the process, you can email me as well. Any other questions you have, I'll try to help as much as possible too.

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Your House Is Not Really Your Asset - How a HDB flat might depreciate over time?

Recently, a particular news shocked many people in Singapore. For the first time, the government has confirmed to take back 191 plots of land in Geylang Lorong 3 when their 60-year lease expires in 2020. For a long while, many people do not believe their housing price will go to zero when the lease expires. This is a confirmation of what is to happen in decades to come for the other housing estates which will have their leases expire in the future.

SLA has said no compensation will be given and no extensions are allowed. Unlike land acquisition by the Government, where compensation is given for the remaining lease, Geylang Lorong 3 residents will not get any since the lease will have run out in 2020, said the Law Ministry's deputy secretary Han Kok Juan.

Your House Is Not Your Asset In Singapore

This is quite scary for many Singaporeans who thought their house is their asset and they can cash out of it when they are old. This can only happen if your house still has a long lease left. To put the matter into perspective, let's see what happens to the value of your house as the lease gets lesser and lesser.

Adapted from The Straits times

Click to enlarge

The Straits times has a very good chart to show the value of a HDB flat depreciating as the lease expires. There are a few critical points before the value of the flat goes to zero. If your HDB flat or any leasehold property has 45 years or less lease currently or reaching the 45 years mark, its time to take note of what is going to happen should you still decide to hold it.

1. No Bank loans with less than 35 years lease left

Banks do not lend out for properties with less than 35 years lease left. This means if your property is less than 35 years lease now, a person who buys your property cannot loan from the bank. This is a very big restriction for any buyers of your property and if they do not have cash to pay for your property, they can't buy it as well. This makes it very difficult for you to sell your property to potential buyers. As such, at the 35 years lease mark, the value of the property greatly depreciates.

2. With less than 30 years lease left

At the 30 years lease mark, the property value greatly depreciates again. This is due to the fact that CPF cannot be used for any downpayment and mortgage servicing. On the other hand, HDB loan is still available if remaining lease covers the buyer up to age 80.

3. With less than 20 years lease left

With less than 20 years lease left, both bank loans and HDB loans are not available. It is almost impossible to sell your property at a high price now as buyers can't get any loan financing from anywhere in Singapore. If a buyer wants to buy your house, they will have to pay all in cash.


Flats with leases expiring in Singapore

National development minister Lawrence Wong said in a blogpost in March cautioning people that "As the leases run down, especially towards the tail-end, the flat prices will come down correspondingly, So buyers need to do their due diligence and be realistic when buying flats with short leases. This is especially important for young couples, who have to plan for a much longer future." He said.

For young people, it is especially important to plan ahead when buying a house especially if you're considering a resale flat. If you buy a BTO, it won't be a cause of concern as BTOs start with 99 year lease.

There are many old estates in Singapore which are in prominent locations around Singapore. These are especially popular for young people because of the location. But, the lease expiry is a concern now as confirmed by the news of the flats being taken back by the government at Geylang Lorong 3 and also how the value of the HDB flat depreciates over time.

To check the leases of HDB flats in Singapore, you can refer to HDB website here. I will list down some of the areas that has lesser leases in Singapore.

1. Toa Payoh (Lor 4) - 50 years lease left

Some flats in Toa Payoh has about 50 years lease left. If a buyer buys a flat here and takes a bank loan, he can only get a loan tenure of up to 20 years (to 30 years lease). In 15 years, no buyers can take a bank loan for the properties here anymore.

Click to enlarge

2. Queenstown (Stirling Road) - 50 years lease left

Another estate with 50 years lease left is Queenstown. This is similar to Toa Payoh.

Click to enlarge

3. Geylang (Kallang Bahru) - 55 years lease left

Click to enlarge

4. Serangoon (Lor Liew Lian) - 59 years lease left

Click to enlarge

The above are some of the estates with HDB flats less than 60 years lease. In Singapore, out of about 1 Million HDB flats, 70,000 are more than 40 years old and about 280,000 are 30 years to 40 years old. This puts their remaining lease at about 69 years or less remaining. As a young person, if I want to stay in the house for the next 30 years, I better not buy a HDB flat that has less than 65-70 years lease. It will be very difficult to sell the flat at that time and the property price will depreciate greatly as well.

What about the Selective En bloc Redevelopment Scheme (Sers)?

Most people are still willing to pay a high price for a low lease flat because of the hope that their old flats will be redeveloped under the SERS scheme. If you're hoping your old flat will go under this scheme, it is timely to take note that it may not happen.

Since the Sers was launched in 1995, only 4% of HDB flats have been identified for Sers and the government will continue to maintain the strict selection criteria for blocks eligible for Sers. This is reiterated by Minister Lawrence Wong in his blog post in March 2017. You can read it here.


Which HDB flat should a young couple buy?

With all the above information, as a guide, a 30 year old couple should consider a HDB flat with more than 65-70 years remaining lease. This would ensure we do not meet into problems at later stages of our life.

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Can't Get BTO Flat? What Are The Other Options Available?

Applying for a BTO may not be as easy as it seems with many couples trying many times and still can't get the flat they want. BTO stands for Build To Order where the government will launch new flats every 3 months for couples to try their luck in getting one of the units. The November 2016 BTO was especially hot with good areas such as Bedok, Kallang and Bidadari (Toa Payoh). All these locations were right beside the MRT and needless to say, all were oversubscribed with the highest at 9.7 times oversubscribed for Kallang Residences. The results of the BTO were out just last week.

Besides the difficulty to get a flat under the BTO scheme, couples still need to wait approximately 3-4 years for the flat to be completed. This seems like a long time and delays marriage plans for any couple. Taking into consideration the challenges, are there any other options which couples can go for besides getting a BTO? There are indeed some other options and we shall take a look at it in this article. 

Can't Get BTO Flat? What Are The Other Options Available?

I'm sure everyone will agree a flat is important for a couple to have their own private space. Some may say its ok to live together with parents or in laws but honestly, who doesn't want their own home when they get married? Yes, an option if you can't get the BTO, is to stay together with your parents or in laws. If both are fine, then this is a fuss free choice and the couple can then slowly apply for the BTO of their choice and have all the time to wait until they get the flat and for the flat to be completed. 

If staying at parents or in laws house doesn't work, the other option is to get a resale flat. Hold on... getting a resale flat does it mean I won't get the subsidies which BTO has? Will I forfeit my chance of getting a BTO if I buy a resale flat? What are the other considerations?

Buying a resale flat

The advantages of buying a resale flat is you can choose any locations you want. You can source for the best property and go house hunting to make better decisions for the purchase. Yes resale flats are definitely more expensive. A 4 room resale flat in Ang Mo Kio cost $600,000 to $750,000 while in Serangoon, it cost about $480,000 to $620,000. Of course we can also look at less centralised areas like Hougang which cost $380,000 to $520,000. All the properties are located near to MRT.

A BTO in similiar areas will cost about $50,000-$100,000 cheaper as they are subsidised flats. For resale flats, there are also subsidies for first time buyers but there are certain conditions to take note of. 

Do take note that if you're purchasing the resale flat under the Fiancé/Fiancée Scheme, you must:

• Register your marriage with the Registry of Civil Marriages or Registry of Muslim Marriages
• Submit your marriage certificate to HDB within 3 months from resale completion date 

If applying for CPF Housing Grant:

• You must submit your marriage certificate on or before the resale completion date

Subsidies for resale flats

With resale flats at higher prices, the government also provides subsidies for home buyers. Here are the subsidies for resale flats:

Family Grant

The grant available for this scheme is $30,000. To be eligible, your household income must not exceed $12,000 (revised from $10,000 before 24 August 2015). You must be a Singaporean and form a family nucleus with another Singaporean or PR. This grant is only available for first time home buyers.

Additional CPF housing Grants

Families who earn up to $5000 will be eligible for additional housing grants under this scheme. The maximum grant available is $40,000 for those with less than $1500 monthly household income and minimum $5000 for household earning $4,501 - $5,000.

Proximity Housing Grant

Under this scheme, you can receive $20,000 in grant.

The eligibility criteria is:

Your parents/ married child are:

• living with you in the resale flat
• living in an HDB flat in the same town or within 2km
• owner-occupants of private property in the same town or within 2km

If you fulfil all the above 3 criteria, you can get as much as $55,000-$90,000 in grants to buy your resale flat. This is quite a lot of subsidies. 

Disadvantages of resale flats

Even though resale flats provide the flexibility to choose and don't need to wait a long time for it, there are also some disadvantages. Firstly, choosing a good location for a resale flat is important. This is in case you want to sell it in the future. Buying a resale flat in a bad location may mean it is harder to sell it in the future. 

Secondly, some of the resale flats may be very old and their lease may be left less than 50 years only. A short lease makes it harder for other buyers to take loan from the bank and thus affects the number of buyers who can purchase your flat. This makes it difficult for selling later too. 

If buying a resale flat, it is better to choose a good location and a flat which is not too old. 

Will buying resale affect my chances of getting BTO in the future? 

Some couples may think of buying a resale flat to stay first temporarily and then try for BTO again later. In this case, will it affect your chances of getting a BTO?

Some rules which we need to take note of is when we buy a resale flat, we have to fulfil a minimum occupation period (MOP) of 5 years. This means we can only sell the house after 5 years. 

If you do not want your chances of getting a BTO to be affected, you should buy a resale flat without taking the CPF housing grants. It is stated clearly on HDB website that your BTO will be treated as a first-timer application if you and any of the other listed owners and essential occupiers meet the following criteria:

• Not the owner of a flat bought from HDB, or an EC/ DBSS flat bought from a developer
• Not sold a flat bought from HDB, or an EC/ DBSS flat bought from a developer
• Not received any CPF Housing Grant for the purchase of an HDB resale flat
• Not taken any form of housing subsidy (e.g. benefitted under the Selective En bloc Redevelopment Scheme (SERS) or HUDC estate privatisation)

It is clear that if we have received any CPF housing grants for the purchase of a resale flat, we will not be considered as a first time applicants for a BTO later on.

The Next Steps

Discussing with your partner is important if you didn't manage to get the BTO in the last exercise. There are certainly other options available which we can go for. The important thing is to plan long term as buying a house is a long term commitment. 

Looking to buy a property? Here's Your Complete Guide To Buying A Property In Singapore. 

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Tips For Refinancing Our Home Loans

Home loans... this is a major part for a property owner in Singapore. If you had bought a private property, you can only take a bank loan whereas for a HDB property, we can choose between a bank loan or a loan from HDB. 

Bank loans are structured in a way where if we do not refinance regularly, we will lose out on a lot of cost savings and end up paying more for our housing loan instalment. Many banks do not reveal that to you. It is like credit cards where they give you waiver of annual fees for first few years and start charging you later if you do not realise it. Some are smart enough to call in and cancel the card or request the fees to be waived. Others will end up paying the extra fees unknowingly.

How does bank loan work? 

For every loan package, there is a spread applied to the interest rate. If it is a sibor package, it will be something like "sibor + 0.8%". I've talked to many people before and some don't realise the rate that they are paying now is just temporary. Most of the time, after a few years (likely 2-3 years), the spread will increase. Instead of  0.8%, the spread increases to 1.2%. Some can even increase as much as 1% which is a significant amount on our loan installment. It will be a shock when we realise we have to pay a few hundred or thousands more per month later. 

Here are some tips on refinancing and when we should do it:

You should refinance as early as 6 months before lock in expires

Refinancing should not be done only when we see an increase in our loan instalment after the spread increases. We should refinance and get a better package even before our lock in expires. Yes this can be done and it can be done as early as 6 months before. 

The reason to refinance before lock in expires is simple. The minimum notice period for refinancing is 3 months which means if we only refinance after our lock in period expires, where the loan instalment will be higher, we will be stuck with the high interest rates for at least 3 months. 3 months can be a few thousand dollars paid in extra by then. 

The different variable rates to choose from

For loan packages, there are both fixed and variable rates. For variable rates, there are different options to choose from again. This is the confusing part for many people and sometimes I have to explain for quite awhile before people can understand the options available. 

For variable rates, there are mainly 3 types:

1. Bank's board rate
2. Sibor/SOR rate
3. Fixed deposit mortgage rate

As mentioned earlier, for home loans, there is a spread. For variable rates, it will be pegged to either one of the above variable factors. Thus, it can be either "board rate + 0.8%" or "sibor + 0.8%" or "fixed deposit mortgage rate + 0.8%". 

For bank's board rate, this is the most NOT transparent among the 3 types. The bank can change the rate as and when they want and then tell you your loan instalment will be higher the next month. There is no way we can check or see the rate for this. 

For sibor/sor rates, it is transparent and all banks follow the same rate. However, the rate can change quite a lot base on historical figures. It was as high as 8% in 1987, 7%+ in 1998 and almost 4% in 2007. Every financial crisis causes the sibor to fluctuate quite badly. 

For the fixed deposit mortgage rate, this is a relatively new type as compared to the bank's board rate or sibor/sor rate. This is also a transparent rate as it is pegged to the fixed deposit rate and we can see the rate published on the website of that particular bank. Many people are sometimes confused that this is a fixed rate. It is not a fixed rate. This rate is also less volatile as compared to the sibor based on historical figures. In any case, increasing the fixed deposit rate does not benefit the bank as it is also a cost to them.

Fixed rates only for short period of time

If your loan is on fixed rates, do not believe that your rate is fixed forever. There is no such thing as a long term fixed rate which means if you want fixed rates for longer term, you should refinance regularly. Most fixed rates are for 2-3 years with some extending to 5 years but that's about it so far from what I have seen among all the banks in Singapore. 

Once your fixed rate ends, it will revert to a variable rate so it is better to refinance to get fixed rates again. 

Should I switch from HDB loan to bank loan?

So far, we have discussed mostly on bank loans. If you're on HDB loan, the interest is 2.6% whereas if we switch to bank loans currently, it can be as low as 1%. However, switching to bank loans will have a huge consequence. The main issue is we would not be able to switch back to HDB loan once we go over to bank loans. 

HDB loans, although it is higher at 2.6%, but it is liken to a long term fixed rate as the rate has not changed for a long time. If we want more stability, we should stay on HDB loan.

However, if our loan is left about 5-10 years, we can consider switching to bank loan to take advantage of lower interest rates and not worry too much since the loan is going to end soon. 

What are the fees for refinancing?

Refinancing is not free. There are fees involved which we should take note of. However, if our loan amount is high, the banks will always give cash rebates or subsidies to cover most of the fees. 

The fees for refinancing are as follow:

1. Valuation fees
2. Legal fees
3. Mortgage stamp duty 

In most cases, cash rebates and subsidies can cover most of the cost which means we only need to pay less than a few hundred. Do note that all fees can be paid by CPF so no cash is needed as long as we have enough in our CPF Ordinary account. 

Where to get the best loan package for refinancing?

If you would like to find out more about refinancing and get the best rate for your home loan, fill in this form below and I'll get back to you on the best rate:

• Refinance Enquires

I will also be giving out vouchers as below for every confirmed case:

Loan amount $200K-$300K: 

$20 CapitaLand or NTUC Vouchers

Loan Amount $300K-$500K: 

$40 CapitaLand or NTUC Vouchers

Loan Amount $500K-$800K: 

$60 CapitaLand or NTUC Vouchers

Loan Amount above $800K: 

$80 CapitaLand or NTUC Vouchers

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This Will Cause Us To Be Poorer Each Day

What makes a person poorer each day? Is it his daily expenditure? His compulsive spending habits? His indulgence on food? You may be surprised that getting poorer is not so easy. Spending money on food, buying clothes etc will not make us that much poorer. To be honest, how much can you spend on food or buying clothes?

In April this year, I wrote an article declaring that I will stop tracking my daily expenses. In the past, I used to track every single spending I had in an APP but it wasn't that useful for me. Yes it made me conscious of my spending and I did save a lot of money but that is not what I want to live my life on. Being too frugal can have an adverse impact on our lives instead.

Now, I only track my expenses on a monthly basis and I found that even after I stop tracking my daily expenses, the effects are not that much of a difference, only a slight increase except for a month where I went overseas.

Expenses has gone up over the years and I'm actually happy that it has happened. The irony is when expenses went up, my income went up as well.

Now, back to what will cause us to be poorer each day. The answer is LOANS. There are many different types of loans or what we call as debts but some of them work differently from each other. Let's look at some common loans and see whether will they actually make us poorer?


Car Loans

Car loans is quite common in Singapore. Due to the high price of cars now, how many people can actually affoed to pay that $100,000+ in cash for that car?

SGCarMart has a good new car loan calculator which i'm using for the below illustration:

New Car Model: Toyota Vios 1.5 Elegance
Car Price: $104,888
Loan Amount: $73,422
Interest Rate: 2.28%
Loan Tenure: 7 Years

From the above example, the monthly instalment will be $1014. Total interest paid at the end of 7 years will add up to $11,718. This is 11.17% of the original car price. This is still 2.28% per year even though we are paying a monthly instalment whic reduces the outstanding loa amount. This is because car loans interest are always calculated base on the initial loan amount instead of the remaining loan amount


Housing Loan

Housing loan is even more common in Singapore. We can choose not to have a car but we need to have a roof over our heads. For this illustration purpose, I'll be using a mortgage calculator from MoneySense.

Price of HDB flat: $340,000
Loan Amount: $306,000
Interest Rate: 2.6%
Loan tenure: 25 years

For the above example, the monthly instalment will be $1388.23. Total interest paid at the end of 25 years will add up to $110,468.61. This is 32.49% of the property price value.

The interest paid is quite scary to be honest. This means if your property price is not more than $416,469 in 25 years and you sell it, you'll be making a loss instead. Nevertheless, if we calculate the average interest paid yearly, it is only about 1.29%. This is because housing loan interest are amortised. This means the interest is calculated based on the remaining loan amount yearly as compared to a car loan which calculates interest base on the initial loan amount.


Credit Card Debt

Credit card is not considered a loan but it is a debt if we missed the payment or did not pay the bills on time. Let's see how credit card interest is calculated and what happens if we did not pay the bills.

Credit Card debt: $1000
Interest rate: 24% p.a (2% per month)
Years of Owing: 3 years

Base on the above example, if we did not pay a single cent on the amount owing, the $1000 debt would grow to $2000 in 3 years. This is double of the initial amount of $2000. The reason why it doubles is because interest is compounded on a monthly basis. To calculate how long it takes for your credit card debt to double, you can use a simple method called the rule of 72. By using 72 divided by the credit card interest rate per annum, you will get the number of years which the credit card debt will double. In the above example, it is 72 divided by 24 which is 3 years.

Another thing to note about credit card is if we were to make partial payment, the payment paid will be used to pay for the interest first before it is used to pay for the outstanding amount. For example if the credit card debt is $10,000 and interest is $240 per month, if we just pay $240, the initial debt of $10,000 will not reduce at all. We are just paying interest every month for as long as it goes without reducing the debt amount.

Conclusion

Loans or debts can cause us to be poorer without us realising it. Our daily expenditure or spending money on food or clothes can be consciously tracked but for loans, it is sometimes hard to visualise exactly how much money we actually pay for the interest.

For the 3 different loans, all 3 of them work differently:

1. For car loans, the interest is base on the initial amount
2. For housing loans, the interest is base on the reducing balance
3. For credit card debts, the interest is base on the outstanding amount compounded monthly

Before committing to a loan, we should know how much interest we are paying. For debts, we should not get into any in the first place as it can be very hard to get out base on the example above.

Make the right financial choice today!

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9.5% Interest On Savings Account? Good Or Bad For Us Now?

POSB which was known as Post Office Savings Bank in the past has the highest interest ever recorded at 9.5% on 1 August, 1981. How many of us were there during that time to remember this historical high interest rate era? For me, I was not born yet but history shows me how interest rates have moved from the past to now. With such high interest, I can only imagine how fast my money would compound and grow over time. But, do you know that with this kind of high interest, it is actually not that good for us also?

Will Higher Interest Rates Be Good Or Bad For Us?

One thing we would be interested to know is if high interest rate is good or bad for us? If we were living in the 1970s-1980s, higher interest rates may not be that bad for us in Singapore as most people do not have huge loans back then. Fast forward to now, most people have huge housing loans coupled with car loans and also student loans.

In the past, we could get a decent 4 room HDB flat for a family of 4 at just ~$50,000. If we take a loan for this $50,000 at an interest of 3% for 25 years, the total interest we would have paid is about $21,000. Now, to get a 4 room HDB flat would cost about $350,000 and more if in a mature estate. Let's suppose we take a $350,000 loan at 3% for 25 years, how much would be the total interest paid? The answer: ~$147,000.

I do not know if you think that $147,000 is a significant sum of money? To me, it does sound quite significant. If interest rates increase, it will have a much bigger impact to us in Singapore where a large proportion of the population has at least one housing loan.

On the other hand, high interest is good for people who have a lot of savings in the bank. In the 1980s, this announcement by POSB was common:

Announcement * POSB Has Raised Its Interest Rates On Savings * 7% p.a. On Deposits Up To $100,000 * 5%p.a. On Deposits In Excess Of $100,000 * All Interest Earned Is Tax Exempt.
Post Office Savings Bank, 1980s

7% interest on the first $100,000 is quite a lot of interest. You get $7000 for $100,000 of savings per year. From 1974 to 1986, interest n deposits was mostly above 5%. If you had a lot of savings back then, these 12 years would have been very good for you. Your money would have doubled without any work.


How interest rates affect our investments and life?

Stocks

A rise in interest rates is a cost to businesses that have a lot of debt. Having to pay more for their debt will result in lower profits. This is something we need to take into consideration when we invest. On the other hand, businesses that lend money out such as banks will benefit from the rise in interest rates.

Bonds

A rise in interest rates will cause prices of bonds to drop. Bond prices and yield are inversely related. Those who have bond funds in their portfolio should watch this space carefully as it is expected that bond prices will drop as interest rates goes up.

Bank Deposits

How about those of us who have savings in the bank? Yes increase in interest rates may mean that we will get higher interest in our savings with the bank but do take note it may be a slow progress as banks will not increase deposit rates fast. It is a cost to them and with banks in Singapore still cash rich, there is no apparent reason for them to increase it fast to attract more customers.


I have plotted out the comparison between SIBOR and the average bank's fixed deposit rate from the data by MAS. The SIBOR is a good benchmark for housing loan rates as most housing loans are on the SIBOR rate. The bank's fixed deposit rate is the interest we get if we put into the 12 month's fixed deposit. Recently, there are also housing loan package based on the fixed deposit rate which I will explain more in this post.

Click Image to Enlarge

Interest rates have fallen over the decade from 1987. It is still near zero currently. Some countries even have negative interest rates where they charge a fee if we put our money in the bank. This doesn't sound right does it?

I do not have the data of the SIBOR from 2013 to 2016 plotted on the chart but from records, the 3M SIBOR is at the 1% range now. Most banks have a spread of about 1% on the loan package so this means those who are on SIBOR loan packages are paying about 2% or more interest now.

The rise in SIBOR will affect most people in Singapore. Then the question is, how much can the SIBOR move? Let's take a look back in 2004.

Sibor started moving up in 2004, rising to above 1 per cent. It rose to a peak of 3.5625 per cent in the middle of 2006. There were 17 Fed fund hike increases by the Fed from June 2004 to June 2006, hitting 5.25 per cent in June 2006. The Sibor is closely correlated to the US Fed funds rate, so any expectations of a hike there would move interest rates here higher.

From 2007 to 2014, the Sibor begun its 7 year fall. It rose again recently in 2015 and is expected to rise further on expectations the Fed fund rates will rise again. The federal reserve in the US raised interest rates just recently and is expected to raise interest at least another 2 times this year. The next rate hike may be as early as June in a few weeks time.


Watch Out For Your Home Loan Instalments

Over the past few months, many people have emailed me and said that they receive letters from the bank informing them that their home loan instalment has increased. What can they do about it?

The easiest way is to refinance and find a lower interest rate package. The best is we should go for fixed rates at least for the next 2-3 years. The last interest rate spike was from 2004 to 2006 which lasted for 2 years only. If we see from historical trends from the previous chart I plotted out, most of the spikes in interest rates lasted only about 2-3 years.

However, the problem with fixed rates is that it is higher than variable rates which may not be as attractive. The alternative to fixed rates is to go for a variable rate package pegged to the fixed deposit rate. Not all banks offer this option though. It is interesting to note that when SIBOR spiked from 2004 to 2006, fixed deposit rates remained mostly unchanged.

We cannot guarantee that fixed deposit rates will be unchanged in the next round of interest rates rise so if you are considering to go for a fixed deposit mortgage loan, it is better to go for a no lock in package. This means you can still switch out anytime in the event if the rate really increases.

Now, the issue is with so many banks in Singapore to choose from, which is the one that offers the best loan package and if you go to the bank, the staff from the bank will definitely say his or her's is the best one.

I've come out a solution for all readers of my blog. I will personally advise you if you are interested to get the best loan package regardless if its for a new property you're going to purchase or for your existing property which you want to refinance. I have the rates of all the banks in Singapore and will help you compare for the best housing loan package for your individual needs. Select one of your enquires below to fill in a contact form and I'll get back to you shortly:

• Refinance Enquires
• New Home Enquires
• Other Enquires

Is the increase in interest rate affecting you in a good or bad way? We can be prepared for this and even take advantage of it. Rates are near zero now and the only way for it to go is up. 

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