How is HDB Loan Amount Calculated?

HDB Loan Eligibility Criteria

Before diving into the calculation, it’s essential to understand the eligibility criteria for an HDB loan. Only Singapore citizens can apply for this loan, and they must meet specific income ceilings. For example, the monthly household income should not exceed SGD 14,000 for families, SGD 21,000 for extended families, or SGD 7,000 for singles buying a 5-room flat or smaller.

Additionally, applicants must not own any private residential property or have disposed of any within 30 months before the application. They must also have a good credit history to be eligible for the loan.

Determining the Loan Amount

The loan amount you can obtain from HDB is primarily determined by the following factors:

1. Loan-to-Value (LTV) Ratio: The LTV ratio is a crucial factor in determining the loan amount. As of 2024, the LTV ratio for HDB loans is capped at 80% of the property’s purchase price or market value, whichever is lower. This means that if you are buying a flat worth SGD 500,000, the maximum loan amount you can get is 80% of that value, which is SGD 400,000.

2. Income and Age of Applicants: The loan amount is also influenced by the combined income of all applicants and their ages. HDB uses a Mortgage Servicing Ratio (MSR) to determine the amount you can repay. The MSR is capped at 30% of your gross monthly income. For instance, if your monthly household income is SGD 10,000, the maximum you can pay monthly for your mortgage is SGD 3,000.

3. Financial Commitments: Your current financial commitments, such as existing loans (personal loans, car loans, etc.), credit card debts, and other liabilities, will also affect the loan amount. The Total Debt Servicing Ratio (TDSR), which is capped at 55% of your gross monthly income, is used to calculate the maximum debt repayment you can afford.

4. Loan Tenure: The tenure of your loan plays a significant role in determining the amount you can borrow. HDB loans can have a tenure of up to 25 years or until the youngest borrower turns 65, whichever is shorter. A longer tenure usually results in a higher loan amount, but it also means paying more interest over time.

5. Interest Rate: The interest rate on HDB loans is pegged at 0.1% above the prevailing CPF Ordinary Account (OA) interest rate. As of 2024, this rate is 2.6% per annum. Although this rate is relatively stable, any increase in the CPF OA interest rate will affect your monthly repayment and, subsequently, the loan amount.

Loan Calculation Example

Let’s consider an example to illustrate how the HDB loan amount is calculated. Suppose a couple with a combined monthly income of SGD 12,000 is purchasing a 4-room HDB flat worth SGD 600,000. Here’s how the calculation would proceed:

1. LTV Ratio: 80% of SGD 600,000 = SGD 480,000 (maximum loan amount).

2. MSR: 30% of SGD 12,000 = SGD 3,600 (maximum monthly mortgage payment).

3. Loan Tenure: Assuming a loan tenure of 25 years, the monthly repayment amount is calculated using the formula for a fixed-rate mortgage:

   $M=\frac{P\times r(1+r{)}^n}{(1+r{)}^n-1}$M=(1+r)n−1P×r(1+r)n​

   Where:

   • $M$M is the monthly repayment
   • $P$P is the principal loan amount
   • $r$r is the monthly interest rate (annual rate divided by 12)
   • $n$n is the number of payments (loan tenure in months)

   For a loan amount of SGD 480,000 with a 2.6% interest rate over 25 years (300 months), the monthly repayment would be approximately SGD 2,170. This amount is well within the MSR limit of SGD 3,600, so the loan is affordable for the couple.

4. TDSR: If the couple has other loans totaling SGD 1,500 monthly, their total debt repayment would be SGD 2,170 + SGD 1,500 = SGD 3,670. This is 30.6% of their gross monthly income, well within the TDSR limit of 55%.

5. Final Loan Amount: Based on the above calculations, the couple can secure the full SGD 480,000 loan from HDB.

Other Considerations

While the above factors are the primary determinants of the HDB loan amount, several other considerations can influence the final decision:

1. CPF Contributions: Your CPF savings can be used to finance the down payment and monthly mortgage payments. Using CPF reduces the amount you need to borrow, which could lower your monthly repayments and total interest paid.

2. Resale Levy: If you’re purchasing a second subsidized flat, you may have to pay a resale levy, which could reduce the amount available for your next flat purchase.

3. Grants: First-time buyers may be eligible for housing grants, which can reduce the loan amount needed. The Enhanced CPF Housing Grant (EHG), for example, can provide up to SGD 80,000, depending on your income.

4. Early Repayment: If you plan to repay the loan early, you won’t face any penalties, but doing so reduces the overall interest paid. However, be mindful of your liquidity needs before deciding to make early repayments.

Conclusion

Calculating the HDB loan amount involves understanding various factors, including the LTV ratio, income and age of applicants, financial commitments, loan tenure, and interest rate. By carefully considering these elements and utilizing available resources such as CPF savings and housing grants, you can make an informed decision and secure the best possible loan for your home purchase.

It’s advisable to consult with HDB or a financial advisor to get a precise calculation based on your specific circumstances. This will ensure that you understand your financial obligations and can comfortably manage your mortgage payments over the loan tenure.