I receive a huge number of enquiries asking me if they should refinance our of HDB as bank interest rate is very low now.
This is something I dont encourage. I started advising loan back in year 2005 and i can still recall that no one ask for bank loan if they are qualify for HDB loan. Back then, an average bank loan interest rate for HDB property is about 3 – 3.5%. HDB offer a lower rate at 2.6%. However, the situation is different today.
What goes up must come down and what is down will go up eventually. I believe the lending rate will not stay low forever. Therefore, if the interest rate increases, for those who refinance out from HDB to get a bank loan will have problem going back to get a HDB loan again.
To add on – banks usually provide a legal subsidy of 0.4% of loan amount. If a HDB loan outstanding is at 300k, upfront the owner will need to pay a legal cost of about $1300 ($2500 average legal cost – 0.4% x 300k legal subsidy). For a 300k loan, refinancing to a lower interest rate (example 3% to 1.5%) can potentially help you save about $100-$200 per month. It takes about 7-8 months to break even and start saving. By then, interest rate would have change.