Property Made Simple

3 days ago

The Common Mistake When Taking A 2nd HDB Loan (Even Agents Make This Mistake!)

Recently, I received a message from a reader who needed help with financial calculations for her property move.

She was planning to sell her current 4-room HDB flat to buy another 4-room flat that was closer to her child’s future primary school.

She already had an agent assisting her, but was having doubts on the accuracy of her agent’s answers.

Her main concern was simple:
After selling her current flat and taking a second HDB loan, how much cash would she have left?

This is an important question.

Under HDB policy if you’re taking a second HDB loan, 50% of your sales proceeds must be used to offset the purchase price of your next flat before the loan is granted.

The intention behind this policy is to ensure that buyers do not over-borrow and end up struggling with high monthly loan repayments.

But the problem is that many buyers (and even some agents) misinterpret this rule and calculate it wrongly.

Many people assume that the 25% downpayment for the next flat is separate from the 50% of cash proceeds.

This mistake leads to the wrong financial planning and, in some cases, even causes unnecessary financial strain.

Let me illustrate this with a simple example:

Correct Calculation
▪️A seller sells his flat and receives $400,000 in sales proceeds.
▪️He wants to buy a new $1,000,000 HDB flat and take a second HDB loan of up to $750,000.
▪️The required downpayment is 25% of the purchase price, which is $250,000.
▪️Since HDB requires 50% of the sales proceeds to be used, $200,000 will be deducted from the purchase price.
▪️This means he only needs to top up an additional $50,000 to meet the $250,000 downpayment.
✅ Total amount the buyer needs to fork out = $250,000 (includes the 50% cash proceeds rule).

Wrong Calculation (Common Mistake)
🟥 If someone assumes that the 25% downpayment is separate from the 50% sales proceeds rule, the calculation would be incorrect.
🟥 The buyer would first deduct 50% of the sales proceeds ($200,000) from the purchase price, which leaves $800,000 to be covered.
🟥 Then, the downpayment is wrongly calculated as 25% of $800,000, which is $200,000.
🟥 This means the buyer would need to fork out a total of $400,000 (including the 50% cash proceeds), which is much higher than the correct amount of $250,000.

❌ This miscalculation leads buyers to think they need more cash on hand than they actually do - which could discourage them from making a move.

For most HDB owners, selling their current flat and buying another only makes sense if they can retain some cash for renovation or reserve funds.

If they miscalculate and assume they will have little or no cash left, many would choose not to move at all.

***********

This isn’t just a mistake made by buyers.

There have been cases where agents failed to advise their clients correctly, resulting in financial misunderstandings.

In fact, some cases have even led to disciplinary action for the agent - www.cea.gov.sg/docs/default-source/module/dcCases/failing-to-advise-clients-that-50-of-cash-proce...

This is why understanding financial calculations correctly is crucial when selling and buying another HDB flat.

If you get the numbers wrong, it could completely change your decision.

Plus hold you back from making a move that could have been financially sound.

If you're thinking about selling your flat and moving to another HDB, make sure you get the right advice and calculations upfront.

A wrong assumption could cost you thousands.

Or worse, lead you to cancel a decision that actually makes sense.

Facing doubts on your decision-making process?

Let me know. Drop me a Whatsapp message to seek clarity and peace of mind.

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