Taking advantage of the low interest rate - Changing from HDB loan to a bank loan

Monday, November 23, 2020 Jes 0 Comments

I wrote a post previously that I was still with HDB loan because of the peace of mind and lesser cash upfront needed when I purchased my house.

Now with the all-time low interest rates, I have decided to cave and change to a bank loan. Now is the time when we have 20 years lowest interest rate, I would be a fool not to consider it. Currently, I could get 1.45 to 1.5% for my home loan from various banks. The best part of all, is that DBS has a 5 years fixed interest rate. That's incredible! 

Considering I only have 21 years left, 5 years is like 25% of the loan and I happily signed on with it. A lot of you may have the same considerations as me - What if interest rates go up and higher than HDB interest rate of 2.6%? 

The last time it went anywhere near in the recent 20 years was in 2001, and the highest was 2%. My solution is to repay a lump sum if the interest rate go much higher. 

A lot of us do not know that you can actually pay the bank loan early without the 1.5% penalty - By either giving the bank 1 month's notice (check the contract terms), or after the lock-in period, which is 5 years for my case. When it's time for you to re-finance the loan, take a look if the interest rate is still acceptable, or if it's time to repay a higher amount, such that you have a lower loan value remaining and will not need to pay so much interests, even with a higher interest rate.

For that, you need to set aside some funds. which I have 5 years to do that. 

In any case, for the interest rate to go down from 2.6% (HDB Loan) to 1.5% (DBS Loan) is a huge savings of $50,000 (over a period of 20 years and only if the interest rate does not increase much)! That's compounding interest for you and shockingly huge when it's over a long period of time.

For people who are still with HDB loan, probably time for you to consider. No obligations since I am not earning any commission from any banks. I saved some money in the long run, and hope some of you will benefit too.