MORE than 70,000 people could find their mortgages becoming a little cheaper, after the Housing Board announced it is simplifying the way it calculates the interest for its market-rate home loans.
From Sunday, its rate will be pegged to the normal rates of the three local banks - DBS, OCBC and United Overseas Bank - instead of the six institutions it now uses. The three being dropped from the HDB's list are Hong Leong Finance, Citibank and Standard Chartered Bank.
The HDB said yesterday that the changes will make its calculation method 'more transparent'. The current method, which uses a complex formula involving the normal interest rates for HDB flats used by the six institutions, was 'difficult for the public to understand', the board explained. Since the three chosen banks account for about 80 per cent of bank loans for HDB flats, their rates would be a good gauge of the market, it said.
The new method, which is based on the average of the three banks' normal rates for HDB flat loans, has so far had no impact on HDB's market interest rate, which remained at 3.72 per cent per annum yesterday. The rate will be reviewed every month, as before.
However, in the longer term, the rates could be relatively lower.
Mr Geoffrey Ying, head of the mortgage division at financial advisory firm New Independent, said that this is because local banks, unlike Citibank and Standard Chartered, tend to have more competitive rates. The changes will affect more than 70,000 borrowers, most of whom took market-rate loans from the HDB before 2003.
That was the year the Board stopped giving out market-rate loans, choosing to focus on giving concessionary loans to those who qualified.
Meanwhile, there will be no change in the way the HDB calculates the interest rate for concessionary home loans. The rate will continue to be pegged at 0.1 percentage point above the Central Provident Fund ordinary account rate.
The interest rate currently stands at 2.6 per cent.
