For many, their first home is an HDB flat financed by an HDB loan. However, new homeowners may baulk at having to make substantial mortgage repayments every month. Being in debt is not a good feeling and could lead some to wonder: should I pay off my HDB loan early?
If you find yourself in this situation, we’re here to walk you through the main reasons behind why you should consider paying off your HDB loan early, and the financial considerations that you should have in mind. We’ll also cover how to make partial payments on your HDB loan and the related charges.
Why you should consider paying off your HDB loan early
1. Greater interest savings
When you pay off your HDB loan early, you’re paying up the principal sum and forking out less on interest. Effectively, you are saving in the long run as you are reducing the total interest paid over the lifespan of the loan.
In other words, if you have a long tenure remaining, paying off your HDB loan early can reduce the amount of interest paid.
However, you’d do well to ensure you have enough cash for your daily expenses and to build an emergency fund. As much as you want to become debt-free sooner, it’s also important to maintain cash liquidity. You would not want to have your quality of life decrease dramatically just because you want to increase your savings in the short run.
It’s true that making an early repayment can generally reduce the total interest paid. But how you pay off your loan matters.
Cash vs CPF savings: Which to use when paying off your HDB loan early
If you’re repaying the outstanding loan amount in cash, you are more likely to make actual interest savings. But if you’re using your CPF savings to repay the loan, this may not translate to savings down the line. This is especially so if you want to upgrade your property.
For those intending to sell your home eventually, consider this: you’ll need to repay accrued interest based on the CPF funds used to finance your current HDB flat. This may eat into your sales proceeds and profits. When you take money from your CPF OA to pay off your HDB loan early, you’re borrowing from your future self to fund this prepayment.
Even if you do not plan on selling your property, consider how the current CPF OA interest rate is 2.5%. Prepaying from your CPF OA means giving up this potential interest and the growth your CPF savings could have earned if they were left untouched.
It’s only if the interest savings amount is greater than what you would have accumulated from your CPF OA interest, that it may make sense to use your CPF savings to pay off your home loan quickly. Additionally, do weigh how early repayment may impact your future CPF usage, namely retirement planning.
2. Ability to increase your loan quantum
If you want to buy another property and take out another loan, it may be beneficial to pay off your home loan quickly. This may be so if you’re eyeing a condo as an investment property and need to take a bank loan to finance the purchase.
According to Monetary Authority of Singapore (MAS) rules, if you have one existing home loan, your Loan-To-Value (LTV) limit for the second loan is reduced, as the table below shows. That means you’ll have to fork out more cash to finance this second property purchase.
| Outstanding housing loans | LTV limit | Minimum cash down payment required |
| 0 | 75% or 55% | 5% (for a loan with 75% LTV) or 10% (for a loan with a 55% LTV) |
| 1 | 45% or 25% | 25% |
| 2 or more | 35% or 15% | 25% |
The lower LTV limit applies if the loan tenure is more than 30 years for private property, or if the loan period extends beyond the borrower’s age of 65.
If you manage to pay off your HDB loan completely before you buy your next property, you qualify for a higher LTV limit. Plus, it is likely you are able to borrow more, after considering your existing Total Debt Servicing Ratio (TDSR).
How to pay off your HDB loan early
Image credit: Pinterest
If you do decide to pay off your loan early, the minimum amount you can make for partial repayment amounts is $500 (for those whose loan commencement date was before 1 April 2012) or $5,000 with increments in multiples of $1,000 (for those whose loan commencement date was on or after 1 April 2012).
You can make payment via several modes, namely CPF, GIRO, PayNow, AXS channels, and eNETS Debit. For payment via CPF savings, there are several criteria you have to meet and CPF rules on early repayment. You can check the HDB website for further details.
You have two options when you want to make a partial prepayment on your HDB loan.
1. Maintaining your monthly mortgage repayment amount
After submitting your payment request on the HDB e-Service portal and getting your application approved, you can submit your prepayment. Then, your repayment period will be shortened and your current monthly installment amount will remain unchanged.
2. Changing your monthly mortgage repayment amount
For those who want to change your monthly mortgage repayment amount and make a partial repayment at the same time, book an appointment with an HDB branch via the HDB e-Appointment service. HDB will then work out a repayment plan for you.
Fees to pay when paying off your HDB loan early
Unlike bank loans, there is no lock-in period, which means there are no prepayment penalties, and administrative fee when you make a partial capital repayment towards your HDB loan. However, you do have to foot the $38.30 registration fee and conveyancing charge, inclusive of current GST rates, or 9% at point of writing.
Conveyancing charges are as follows:
| 1-room HDB flat | $23.95 |
| 2-room HDB flat | $35.95 |
| 3-room HDB flat | $47.95 |
| 4-room HDB flat | $59.95 |
| 5-room HDB flat | $71.90 |
| Executive HDB flat | $83.90 |
Should you pay off your HDB loan early?
Image credit: Pinterest
While there is no real rush to pay off your mortgage, we understand how the feeling of being debt-free can be comforting. However, there is a difference between “good debt” and “bad debt”. Furthermore, paying your HDB loan early is irreversible. If you suddenly realise you need the cash to pay for an unexpected expense, there is no option to get a refund. As always, it’s advisable to speak to an expert before making any financial decisions.
For those who are thinking of using a bank loan to finance their HDB flat, here are more articles that you can read ahead of making the decision:
- How to save money on your home loan since GST is not on our side
- Ultimate guide to mortgages in Singapore
Read more articles here:
- Estate planning in Singapore
- Should you opt into the BTO OCS scheme?
- Guide to HDB’s Home Improvement Programme (HIP)
Cover image adapted from: Pinterest
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