Refinancing of HDB Flats

The article sets out general policies/procedures in relation to refinancing of HDB flats.

With effect from 1 January 2003, HDB has ceased to provide market rate loans for purchase of HDB flats. Buyers of HDB flats who are not eligible for HDB concessionary interest rate loans and require a housing loan, will have to obtain their loan from banks/financial institutions. Lessees can also refinance their existing flat with banks and financial institutions licensed by the Monetary Authority of Singapore.

With approximately 85% of Singapore’s population living in HDB flats, the advent of bank mortgages on HDB flats has significantly changed the local conveyancing market. The number of conveyancing cases handled by small and medium practices appear to have significantly increased, with a few law firms/corporations setting up branch offices in Toa Payoh, the hub of HDB flat transactions.

Information Sources

HDB’s practice circular on Mortgage of HDB Flats with Banks and Financial Institutions dated 2 January 2003 can be found in the Law Society of Singapore’s website at www.lawsociety.org.sg. General information on HDB flats is also available at HDB Infoweb at www.hdb.gov.sg.

HDB Conveyancing Services

HDB provides conveyancing services for lessees in purchase, sale and refinancing transactions. However, HDB is not empowered under the Housing and Development Act (Cap 129) to act for banks or financial institutions in the fresh mortgage of the flat, nor for guarantors in the signing of guarantees as additional security for the loan. HDB’s schedule of conveyancing fees is set out in the Housing and Development (Conveyancing Fees) Rules 2002.

Conveyancing Procedures for Refinancing of HDB Flats

Notice of redemption of HDB loan

Notice of redemption of the existing HDB loan should be served on the HDB Branch Office administering the flat.

Legal requisitions

The HDB Branch Office will send the redemption statement to the lessee’s solicitors and reply to requisitions on outstanding fire insurance premiums and upgrading costs. Outstanding fire insurance premiums should be paid at the HDB Branch Office prior to completion of the refinancing. Enquiries on whether service and conservancy charges have been paid up to date should be sent to the relevant Town Council.

Documentation

A copy of the title deed to the flat, together with the HDB Certificate of Correctness format where applicable, will be sent by the HDB Legal Department to the relevant solicitors to facilitate preparation of the discharge and fresh mortgage documents. The actual title deed will be handed over to the bank/financial institution’s solicitors upon completion. In cases where the lease has not been issued and where the HDB loan details are incorporated in the Agreement for Lease, HDB will sign a confirmation of discharge of loan in favour of the lessees. A specimen format of the confirmation of discharge of loan will be given to solicitors for cases in which it is applicable. Otherwise, the usual Total Discharge of Mortgage for cases where the lease has been issued and Deed of Reassignment, in which HDB executes by Common Seal for cases where the lease has not been issued, will be applicable.

Central Provident Fund monies

Solicitors arranging for part payment of the redemption amount using Central Provident Fund (‘CPF’) monies must ensure that the application for use of CPF funds is made in time. The CPF funds will be sent directly from the CPF Board to HDB.

In cases where HDB provides conveyancing services for the lessees in the redemption of HDB mortgage and solicitors are appointed to act for the lessees in the fresh mortgage, any intended part payment of redemption amount and payment of legal fees from CPF funds should be stated in the solicitors’ CPF withdrawal form. This is because only one CPF withdrawal form is accepted per refinancing case.

Completion

Advance notice must be given to the HDB Legal Department and Branch Office in respect of any change in redemption date. For postponement of redemption date within the same month, a fresh redemption statement need not be obtained; the additional interest can be calculated at the rate set out in the redemption statement. For postponement of redemption date beyond the original month, a fresh redemption statement must be obtained from the relevant Branch Office.

Completion for the redemption of a HDB loan will be at the HDB Legal Transaction Counter at 3rd Storey Atrium, HDB Hub.

Payment of the redemption amount should be by way of cashier’s order in favour of:

• ‘HDB’; or
• ‘H.D.B.’; or
• ‘Housing & Development Board’; or
• ‘Housing and Development Board’.
  

Additional interest due to postponement of completion date can be paid by cash. Law firm/corporation’s cheques are acceptable for payment of HDB’s conveyancing fees for the discharge of mortgage.

The notice of assignment, for cases where the lease has not been issued, can be sent to the HDB Branch Office, copied to the HDB Legal Department.

Once the HDB loan has been refinanced with a private bank/financial institution, lessees will not be able to revert to an HDB loan in respect of the flat. However, lessees, who are eligible, can apply for a HDB concessionary loan when they purchase a subsequent HDB flat.

HDB’s Consent

Under s 50 of the Housing and Development Act, no HDB flat can be mortgaged without the prior written consent of HDB.

The Housing and Development (Mortgage to Lender) Rules 2000 provide for blanket consent to bank/financial institution mortgages subject to terms more specifically set out in the rules. In particular, the mortgage shall be security solely for the repayment of a housing loan granted to the mortgagor to finance or refinance the purchase of the flat. For refinancing cases, the loan granted must not exceed the redemption amount payable upon completion. The fresh loan cannot be granted in respect of HDB upgrading costs. Persons who are not lessees of the flat cannot be included as borrowers. However, lessees who do not meet the bank/financial institution’s credit assessment criteria can request to be excluded as borrowers, although they must remain as mortgagors of the flat.

HDB’s endorsement of consent on the mortgage documents is not required where consent has been granted under the Housing and Development (Mortgage to Lender) Rules.

Recess Area

Where lessees are eligible and intend to purchase the recess area adjoining the flat, it is advisable for the recess area purchase to be settled before embarking on the refinancing. This is to avoid having to discharge the mortgage on the flat and to remortgage the flat and recess area pursuant to the recess area purchase. Lessees can apply for purchase of the recess area at the relevant HDB Branch Office. Where the lease of the flat has been issued, the purchase of the recess area involves a Surrender of Lease of the flat, and a fresh Agreement for Lease in respect of the flat and recess area. This Agreement for Lease can be assigned to the bank/financial institution as security for the loan. After survey and issuance of a fresh strata lot number for the flat and recess area, HDB will issue a fresh lease of the flat and recess area in favour of the lessees. Where the lease to the flat has not been issued, HDB will enter into a Supplemental Agreement to transfer the recess area to the lessees.

Power of Attorney

Currently, HDB does not have a standard Power of Attorney for refinancing cases. Clauses relating to redemption of the existing HDB loan, fresh mortgage and revised CPF clauses on use of CPF funds where applicable, based on HDB standard Power of Attorneys for sale and purchase, should be included in the Power of Attorney for refinancing. The draft Power of Attorney can be sent to the HDB Legal Department for approval prior to execution by the donor.

Lina Chua
HDB Legal Department
E-mail: [email protected]