Unpegging HDB Concessionary Interest Rate for Housing Loans from Prevailing CPF Ordinary Account Interest Rate
Ministry of National DevelopmentSpeakers
Summary
This question concerns MP Louis Chua’s inquiry on whether HDB housing loan funds are derived from the Central Provident Fund and if the concessionary interest rate could be unpegged from the prevailing CPF Ordinary Account (OA) rate. Minister for National Development Desmond Lee clarified that HDB obtains its funding from the Development Fund at the CPF OA rate to provide stability and reflect the opportunity cost of using retirement savings for mortgage repayments. He explained that the Government will maintain the peg at 0.10% above the OA rate, a spread intended to recover HDB’s administrative costs. The Minister noted that the interest rate, currently 2.6% until 31 December 2022, is reviewed quarterly in tandem with the CPF OA rate. This policy ensures certainty for the majority of borrowers who service their loans using their CPF savings.
Transcript
23 Mr Chua Kheng Wee Louis asked the Minister for National Development (a) whether the funds obtained by HDB to issue housing loans are derived from the CPF; and (b) whether the Government can consider to unpeg the HDB concessionary interest rate for housing loans from the prevailing CPF Ordinary Account interest rate and, if not, why not.
Mr Desmond Lee: The funds obtained by HDB to issue housing loans are from the Development Fund, not the Central Provident Fund. Monies in the Development Fund are used for purposes necessary or related to the development of Singapore, and this includes providing funds to issue HDB housing loans, to support Singaporeans in their home ownership aspirations. MOF provides these funds to HDB at the prevailing CPF Ordinary Account (OA) rate.
The HDB concessionary interest rate will continue to be pegged at 0.10% above the prevailing CPF OA interest rate. This ensures stability and certainty for borrowers on HDB concessionary loans since most borrowers service their mortgage repayments using their CPF OA savings. Pegging the HDB concessionary interest rate to the prevailing CPF OA interest rate also reflects the opportunity cost to the borrowers for using their CPF OA savings for mortgage repayments, instead of saving towards retirement. HDB obtains the funds to issue housing loans from the Government at the CPF OA rate, and the spread of 0.10% is meant to recover HDB’s cost of administering loans.
The HDB concessionary interest rate is, currently, 2.6% per annum and will remain at this level until 31 December 2022. HDB reviews the HDB concessionary interest rate every quarter, in tandem with the CPF OA rate reviews.