The POSB (also commonly known as DBS) Perfect 8 loan for HDB flats has been very popular. The features of guaranteed interest rates, together with cash rebate have attracted many HDB buyers and owners. We attempt to see who will find the Perfect 8 HDB loan perfect for their needs.
Features of POSB Perfect 8 HDB Loan
Let's recap on the features:
Guaranteed cap on interest rates at 2.5% or 0.1% below HDB concessionary loan interest rate
Gurarantee for 8 years upon loan disbursement
Zero lock in, allowing partial repayment without penalty
Cash rebate for refinancing customers of loan size from $100,000
Did you know that this mortgage product was known as POSB (DBS) Perfect 10 when launched? You might have guessed it. The guaranteed cap was for 10 years! Now it's reduced to 8 years.
Conservative Buyer Profile
Let's assume you are conservative in risk appetite yet wish to seek savings from mortgage interest rates. We see clients in this risk category comparing bank loans with HDB concessionary loan, which is currently pegged at 0.1% above CPF Ordinary Rate. It amounts to 2.6%. Do remember the HDB concessionary rate is a floating one that is revised every quarter. Many mistaken it as a perpetual fixed mortgage rate!
The above table shows that over 3 years, you would have paid almost $53,896 in repayments where 29% of it goes to interest payable, if the mortgage is from POSB. HDB loan would have resulted in additional $4,000 in repayments but a hefty 38% goes to interests. The loan amount left after 3 years also showed that $262,864 was owed to POSB and $265,337 for HDB.
Expanding the horizon to 8 years will demonstrate the widening gap. Only 26% of every $1 repaid would have gone to interests for POSB Perfect loan, but HDB loan stands at 37%. You would have paid down a lot more ($143,724) during this period and has a smaller outstanding loan at $194,341.
So if you fall into this profile, the mortgage product would be quite perfect for you. Of course, you may wonder what if interest rates goes up? Well, the POSB Perfect 8 product comes with a guaranteed cap of 2.5% interest rate for 8 years if SIBOR increases. The worst case scenario is you would still be 0.1% better off.
Apply POSB Perfect 8 Now (illustration based on $300,000 loan, 20 years tenure)
Mortgage insurance required
|Variable||Year 1: 2.08%||Year 1: $1529|
|0 Year Lock-In||Year 2: 2.08%||Year 2: $1529|
|Year 3: 2.08%||Year 3: $1529|
Aggressive Buyer Profile
Typically, our clients in this group would be looking at the cheapest interest rates available. They have a view that rates should stay low for some time and prefer to achieve maximum savings immediately. Would this product be perfect for them? Let's compare it with a cheaper mortgage with zero lock in and one of the few 1M SIBOR loan for HDB. Effective rates start from 1.31%.
Over 36 months, the cheaper product brings down the percentage of repayment that goes to interests to 22% only. For every $100 paid, only $22 goes to interests. You also would have paid lesser installments and yet have a smaller loan outstanding on the 36th month.
Moving onto 8 years period, the same positive story continues where the percentage is down to 21%.
Which mortgage product would be perfect for you? Are the savings substantial? Some prefer the 1M SIBOR loan because they think that the almost $3,000 savings in the next 3 years should be quite realistic. So why not save first and decide after 3 years? Start by providing your loan amount and tenure and calculate the interest rate savings.
These figures are based on $300,000 loan amount, 20 years tenure, 3M SIBOR at 0.375%, 1M SIBOR at 0.31% and HDB Concessionary Loan rate at 2.6%. And you should pass the HDB Mortgage Servicing Ratio criteria and the 60% TDSR threshold.