If you have been engaged with HDB bank loan bankers who confuse you with jargon, financial terms, and HDB bank loan calculator computations, I suggest you sack that banker and look for another one. A banker’s job is not just to close a deal. They are suppose to break down jargon and explain to you everything about the HDB bank loan in terms that you understand.
If your request for clarification on jargon that you don’t understand is met with more confusing terms, either the banker does not know his stuff or he is sneakily attempting to drag you through the deal.
A common tool that you may be looking out for is a HDB bank loan calculator. It is basically a tool that shows you more details on the HDB bank loan that you are applying for or taking up.
A proper HDB bank loan calculator should show you details on your loan tenure, interest rates, monthly payment break down into principal and interest, annual fees and charges that you can expect to be charged.
A client came to us because she was shocked when she realised that she had to pay stamp duties for her property. No one including her property agent and mortgage banker informed her of these charges at all. They were only interested in closing the deal so as to earn their commissions without a thought for the client’s interest. Because she was a highly leveraged, she had to scramble to find the cash for the stamp duties.
Back to the HDB bank loan calculator.
The information require from the user is the HDB bank loan amount, the required and qualified tenure and interest rate. Plug in the information and the whole repayment schedule can be observed.
When your loan interest rate is pegged to SIBOR or SWAP your monthly payments can vary when these rates fluctuate. However the HDB bank loan calculator assumes that interest rates remain the same throughout the mortgage loan tenure.
Although the HDB bank loan calculator will show your monthly mortgage loan payments as equal payments, you have to be aware that the payments consist of partly your principal and partly interest.
HDB bank loans are structured in a way that a much larger portion of the monthly instalment consists of interest during the beginning stage of the mortgage loan. As the monthly instalments of the same amount are made going forward, the interest will reduce in portion while the principal increase in portion.
In the diagram below, you will see the amortization in a clearer way.
As illustrated, as you progress further into the term of the mortgage loan, you will be repaying more and more of the principal amount to slowing clear your HDB bank loan.
This in effect will show that the principal loan that you borrowed will only gradually decrease in the initial years of the mortgage loan. And the outstanding balance will decrease sharply in the later years of the mortgage loan.
It would make sense to add up the total amount of interest you will pay, divide it with your principal, and divide it again with your tenure in years, to find out what interest rate you will be paying if you convert the total interest payable into a “flat” rate.
From the HDB bank loan calculator, you can probably see that if you were to redeem your mortgage loan immediately after the lock-in period, you will still have a significant amount of outstanding principal balance to repay.
There is a common misunderstanding made by HDB home buyer because they thought that the instalments made consist of half interest and half principal. So there is an illusion that the principal outstanding should be a lower amount that what is really is. If you are thinking about refinancing your HDB bank loan each time the lock-in period has expired, do note that although your can possibly get better rates from refinancing your property, your principal outstanding amount will not be significantly lower each time you refinance.
When you are conducting HDB bank loan comparison, the HDB bank loan calculator will not show any significant difference (if any) if all the information input into it are the same. So a HDB bank loan calculator is not meant to help you compare HDB bank loans between 2 different lender. It is merely to help you have a better picture of what you are paying for throughout the mortgage repayment schedule.