POSB HDB Loan - First-of-its-kind HDB home loan

POSB HDB Loan was launched by DBS Bank on 1 April 2013.  The bank's POSB website summarises the 3 key benefits of the loan product as follows:

• Enjoy interest rates lower than or capped at 2.5% p.a. for 10 years
• Guaranteed lower interest rates compared to HDB concessionary loan
• No prepayment fee

Specifically, the loan pricing can be illustrated by the table below.

Loan Tenor	POSB HDB Loan
First 10 years	3M SIBOR + 1.38%
	(capped at CPF OA rate)
11th year onwards	3M SIBOR + 1.48%

At the time of the launch, the 3M SIBOR was 0.38%.  Assuming no change to the 3M SIBOR for 10 years, the POSB HDB Loan mortage rate will be 1.76% p.a.  In contrast, HDB Singapore offers a fixed rate concessionary loan at 2.6% p.a.

My analysis:-

Pros

• Mortgage loan interest savings within the first 10 years
• May appeal to HDB dwellers who plan to upgrade after meeting the Minimum Occupation Period
• May appeal to existing HDB dwellers with 10 years or less HDB concessionary loan

Cons

• Possible higher mortgage loan interest rate from the 11th year onwards
• No going back to HDB concessionary loan
• No financial assistance from HDB in event of borrower difficulty in loan repayment 

My view:-

Given the current low interest rate environment and escalating HDB housing prices, it may be worth taking a shot at the POSB HDB Loan.  However, loan takers / switchers should strive to clear the loan within the first 10 years.