By this point in your life, you might have noticed that paying the mortgage really sucks. I’m here to tell you that it’s not so bad. Paying the mortgage every month only scratches the surface of the “things that suck” category.
There are many other layers below that, such as reading the ingredients of a discount Chinese pork bun only after you’ve swallowed, or hearing your son say “that’s what I think” after Donald Trump is done talking on TV. Those are pretty bad, but here’s one that’s even worse: finding out you’re unable to pay the mortgage.
1. What happens if you can’t pay the mortgage on your flat?
There are a range of solutions that can apply here. We at 99.co are a reassuring and positive bunch, so here’s what I can tell you: all of these solutions are slightly less unpleasant than replacing your dentist with a crowbar.
(Read: they all suck, which is why we always suggest building an emergency fund of at least six months of your mortgage repayments. Save up to build it. While it might take you a few years to do that, it will take a lot of pressure off you when financial accidents happen).
2. If you are permanently unable to pay the remaining mortgage, the Home Protection Scheme kicks in
If you are absolutely unable to pay any more, such as through a permanent inability to work or death, then the Home Protection Scheme (HPS) kicks in. The HPS is a mortgage reducing insurance scheme, and you can pay it with your CPF. You can check how much you pay on their site’s calculator.
HPS pays out the remainder of your mortgage, in the event of permanent disability, terminal illness, or death. It is more or less similar to Mortgage Reducing Term Assurance (MRTA), which is used to cover private homes. HPS covers you till the age of 65 or your mortgage is paid.
Note that you only pay for 90 percent of the coverage period (so if your mortgage is 25 years, you only pay premiums for 22 years and six months). This is because the amount of the mortgage decreases, so the insurance policy becomes less valuable as time goes on (and no one would pay premiums that would exceed the pay out, they’d just let the policy lapse).
3. You may be allowed to rent out a room
If it’s a short-term situation (you cannot pay the full mortgage for a year or two, but can pay it partially), HDB might allow you to let out a room. In dire situations, they may even make an exception for usual rules, such as the Minimum Occupancy Period (but don’t count on it).
This really just feels like they’re punishing you. You’ll have to put up with having a stranger in your house, and there isn’t any real “profit” since you’re just making ends meet. It’s kind of like having a cat, with the added disadvantages that it’s not cute, still messes up the toilet, and talks back when you complain.
4. Temporary reduction or deferment of mortgage repayments
This is also used for short term situations, often when you can’t make the mortgage for a year or two due to job difficulties. Age and health play a big part here; HDB will make an assessment on how long it takes for you to get on your feet, and act accordingly.
So if you are 50 and retrenched, you might get your mortgage deferred for a year. If you’re a 25 year old dock worker with a broken leg, you may just get your mortgage deferred till your MC runs out.
The emphasis here is on the word “temporary”. In some cases, your loan tenure will be changed (such as changed from a 25 year loan to a 30 year loan). But forget about getting off without paying; you’ll still cough up the cash somehow.
5. Enlist your children
If it’s a long term situation, and your children are working adults, HDB may ask that you add them as joint owners. Your working children join in to pay the mortgage, and their name goes on the deed as well.
This results in an administrative process that would make a lawyer cry. It can raise issues such as how much of the house they own, or what happens if they want to buy private property later (but you still want the flat). Nonetheless, you’ll be counselled throughout the process, and the administrative officers involved will presumably have counsellors of their own when they see the paperwork.
6. You get help with right-sizing
In a last ditch scenario, HDB will help you right-size your home. That’s a polite way of saying they’ll help you find a smaller, cheaper flat, and your current one goes on the market. If for some reason you still wouldn’t be able to afford anything, HDB will find you a public rental flat.
So to be absolutely clear: taking a HDB loan does not mean you will never lose the flat if you can’t pay. It means you get a lot of chances to recover. Which leads us to…
What happens if I took a bank loan for my HDB flat?
In this situation, HDB can intervene to try and restructure your loan with the bank. This usually works, as banks (for reasons we can’t get into here) really hate having to repossess property. The devil wants souls, not real estate.
This often results in the bank reducing or deferring your mortgage repayments, just as HDB would. However, the bank is far less lenient, and is perfectly within its rights to seize your flat once they feel you’ve run out of chances.
So the lesson here is simple…
Build your emergency fund, and pay for the mortgage insurance. No matter how secure you think your job is, or how good your health is, always have a fallback.