What are Contra and Enhanced Contra Facilities? Should I be using them?

While we are always writing about buying and selling your home in no relation to each other, it is almost always the case that we would be doing both at the same time. But nobody wants to be left without a roof above their heads.

And when you intend to upgrade from your current HDB to another HDB that suits better to your needs, which could be the size and location to your preference. You might have come across the terms Contra and Enhanced Contra facilities.

But what exactly are they?

HDB Contra Facility vs HDB Enhanced Contra Facility

Image courtesy HDB

Quite simply, the difference between the two is the type of property that you are purchasing.

Those who are looking to purchase a new HDB flat will be using the HDB Contra Facility, whereas the Enhanced Contra Facility is used in buying a resale HDB flat.

Both essentially do the same thing – it is an additional loan that makes up the shortfall in funds while waiting for the sale proceeds from your resale of the current property. Allowing you to sell your existing HDB flat in order to upgrade to another resale HDB flat back to back, using the sale proceeds and refunded CPF monies. This helps to reduce the cash obligation from out of your pocket.

When will you need to use a Contra Facility?

Most often, homeowners have to rely on the proceeds from the sale of their current home to fund the purchase of their next home. As such, this often creates the dilemma and difficulty of timing their next home purchase – whether to sell first or buy first.

Furthermore, due to the limits of the Total Debt Servicing Ratio (TDSR) it is likely impossible to get a second bank loan until you have been relieved of all obligations for your first mortgage.

Hence, using a Contra Facility will help to bridge the gap between the sale and the purchase, enabling you to directly use the proceeds of a sale, think of it as a temporary loan while waiting for your sale proceeds.

Caveats/Eligibility of using a Contra Facility

  1. Your CPF Ordinary Account must have sufficient funds to pay stamp duty fees.

    • Since the refunded CPF monies from the sale of your current HDB flat cannot be used to pay stamp duty fees and conveyancing fees

    • Otherwise, one would have to top up with cash

  2. It could be somewhat stressful and difficult to time the sale and purchase simultaneously; not only do you have to find a suitable buyer for your current HDB flat, but you would also have to find a suitable HDB property on sale, which is willing to accept your offer.

  3. Only a single party can utilise this facility.

    • The buyer of your current HDB flat AND the seller of the HDB flat that you intend to purchase from must not have applied for contra facilities for their transactions.

    • In other words, neither the buyer nor seller can proceed with using a contra at the same time.

    • Only either the buyer or seller can use the contra, and both parties have to agree on who gets to utilise the contra facility.

  4. Users of contra must be currently using a HDB loan, and for their next home must be also utilising a HDB loan or intend to make a full payment. Those intending to utilise a bank loan will not be eligible to use a contra facility.

For more detailed information about eligibility conditions for Contra Facilities, do head on over to HDB’s website.

Benefits of using Contra Facility

Instead of waiting for a month for your fund transfer to be completed, the completion date for the sale and the completion date for the purchase can now fall on the same date. This will allow you to have the entire three-month extension to make the necessary preparations, such as doing some renovations. Typically the main impact of using a Contra Facility is on the time you have to make renovations to your new home before moving in.

Tackling tight HDB timelines?

While tackling tight timelines between the purchase and sale of a HDB flat can be rather stressful, having an experienced property agent can help alleviate the stress by handling all these property jargon and procedures for you!

For all your property needs, get in touch with the PropertyLimBrothers team! We will always be happy to help. In the meantime, take care, and keep a lookout for our next article!