Choosing between an HDB loan or bank loan is never a straightforward decision. Your financial situation and personal preference will almost invariably play a big part in helping you and your partner decide on the loan that suits your requirements.
Once you’ve made the big decision to apply for an HDB flat (congratulations!), the next step would be to choose between an HDB loan and a bank loan. Should you go for the HDB loan with more flexibility, smaller down payments but higher interest rates? Or, should you sign up for a bank loan with lower interest rates but more restrictions and a higher down payment? These aren’t easy questions to answer — we get it.
So, here’s elaborating on everything you need to know about both HDB loans and bank loans, including their respective pros and cons.
- All about HDB loans
- All about bank loans
- HDB vs bank loans
- Key differences between HDB and bank loans
- Which to go for?
What is an HDB loan?
An HDB loan is only applicable only if you’re buying a HDB flat. This loan is given to you by the Housing and Development Board. This loan won’t be applicable if you plan to purchase a private residence.
HDB loan at a glance:
- Interest rate: 2.6% p.a. (pegged at 0.1% above the prevailing CPF OA interest rate which stands at 2.5%).
- Loan-to-Value limit (LTV): For new flats, this is up to 80% of the purchase price, after 30 September 2022 onwards. The same applies for resale flats, up to 80% of the resale price or value, whichever is lower. However, if the remaining flat lease cannot cover the youngest buyer to the age of 95 at the point of the flat application, the LTV will be pro-rated from the maximum possible of 80%.
- Downpayment: Up to 20% (full amount can be paid using cash, CPF, or a combination of both)
- Early repayment will not incur a penalty
- Couples combined income has to be less than S$14,000
For HDB loans, the housing loan amount offered depends on the buyers’ age, monthly income and financial situation. If you buy an uncompleted flat, such as a Build-To-Order (BTO) flat, direct from HDB, HDB will review your financial standing close to the completion of the flat for a housing loan disbursement.
See also: Your Go-to Personal Loans Guide in Singapore
HDB loan eligibility criteria
Before you consider a HDB loan, the first thing you should check is if you’re eligible for it. Here’s the eligibility criteria to apply for a HDB loan in Singapore.
| HDB loan eligibility criteria | Details |
| Citizenship | At least 1 buyer must be a Singapore citizen |
| Monthly income ceiling* | S$14,000 for families S$21,000 for extended families S$7,000 for singles buying a resale 5-room (or smaller) flat or a new 2-room Flexi flat in a non-mature estate |
| Private property ownership | Buyer must not own (or have disposed of) any private residential property in the 30 months before the date of application for an HDB Loan Eligibility (HLE) letter. Buyer does not own more than one market/hawker stall or commercial/industrial property. If buyer owns only one of the above, buyer must be operating the business there and have no other sources of income |
| Household status | Buyers cannot have taken 2 or more housing loans from HDB. In short, you may not apply for a third HDB loan Buyers who have taken one HDB housing loan, the last owned property cannot be a private residential property. |
*This average gross monthly income is calculated during your HLE application. For HLE applications and flat applications received before 11 September 2019, the income ceilings are S$12,000 for families, S$18,000 for extended families and S$6,000 for singles.
Pros and cons of choosing an HDB loan
| Pros of choosing HDB loan | Cons of choosing HDB loan |
| Smaller downpayment amount to pay: Downpayment of just 20% of the purchase price is required, which can be fully paid using CPF OA funds, cash, or a combination of both | Higher interest rate: HDB loans are currently at 2.6% p.a. (pegged at 0.1% higher than the CPF OA interest rate) while bank loans are typically lower. |
| Interest rates less prone to fluctuations: Unlike bank loans, HDB loan interest rates are less likely to fluctuate as they’re pegged to the CPF OA interest rate | Higher accumulated payable amount: A higher interest rate and a higher LTV would mean a higher amount payable, translating into less savings overall |
| Flexible refinance options: No lock-in period and can be refinanced to a bank loan. | |
| No penalty for early repayment: You can pay off your HDB loan early without any penalty to reduce the total interest you pay over the years. | |
| Higher LTV: You can loan up to 80% of the purchase price. |
Though the table alone makes it seem like an HDB loan takes the crown, the higher interest rates for HDB loans are a huge factor when deciding which loan you should go for, as it means more savings in the long run.
What is a bank loan for housing?
You can get a housing loan from any of the financial institutions regulated by the Monetary Authority of Singapore. Here’s giving you a quick glance at bank loans:
- Interest rate: Variable interest rate packages; typically ranges between 1.2% to 3% p.a.
- Loan-to-Value limit (LTV): Up to 75%
- Downpayment: Up to 25% (whereby at least 5% must be paid using cash)
- Early repayment will incur penalty
- Minimum loan amount required
There are different types of bank loans available. You can choose from a fixed rate package, floating rate package or a combination of both. As we’ve stated earlier, interest rates of bank loans are pegged to the SIBOR or SOR (Singapore Swap Offer Rate), or based on the Fixed Deposit Home Rate (FHR).
Fixed rate packages provide you with a fixed interest rate for a specific period of time, typically between 1 to 5 years. For example, there are 2-year, 3-year and 5-year fixed rate packages available. And there’s usually a penalty incurred for early repayment of the loan during this period.
Floating rate packages typically vary in terms of the interest rate, lock-in period and minimum loan amount.
Pros and cons of choosing a bank loan
| Pros of choosing bank loan | Cons of choosing bank loan |
| Lower interest rate: Generally lower than the 2.6% p.a. for HDB loans. | Early repayment penalty: The lock-in period for bank loans restricts you to repay your loan early, and penalty is usually 1.5% of the loan amount. |
| Eligibility criteria is easier to meet: Lower restrictions like the lack of an income ceiling. | Interest rate fluctuates: Interest rates are according to market fluctuations and are inconsistent. |
| Refinance or reprice your home loan: Enjoy the lowest interest rates in the market by refinancing or repricing your home loan | Higher downpayment required: You need to fork out 25% for downpayment, and at least 5% must be paid in cash. |
| Limited refinancing options: You cannot change to an HDB loan during the mortgage period. |
HDB loan vs bank loan: A summary
Now that you have a clearer picture of what the HDB and bank loans entail, here’s a side-by-side comparison of these two housing loan types.
You could also use this handy calculator from CPF to help you estimate the monthly instalment payable on a housing loan.
| HDB loan | Bank loan | |
| Interest rate | 2.6% p.a. | 1.2% - 3% p.a. Depending on market fluctuations |
| Repayment amounts | Consistent due to stable rates | Mostly inconsistent (fixed rates are only valid for two to three years) |
| Loan-to-Value limit (LTV) | 80% (From 30 September 2022 onwards) | 75% |
| Downpayment | 15% (can be fully paid using CPF, cash or combination of both) | 25% (5% must be paid in cash and remaining 20% paid either in cash or CPF, or combination of both) |
| Minimum loan amount | None | Usually at least S$100,000 |
| Borrower eligibility | Stricter (more requirements like income ceiling and citizenship requirements) | Less strict (only requires a good credit score) |
| Property eligibility | HDB flats only | Both HDB flats and private property |
| Early repayment | No penalty | Usually a 1.5% penalty |
| Late repayment | Relatively lenient: 7.5% p.a. late payment fee per year | Less lenient: late payment fee depends on the bank |
| Refinance option | Can switch to bank loan | Can switch between banks, but cannot switch to HDB loan |
What key differences should I take note of?
Here are some key factors that could determine whether you would want to take up an HDB loan or a bank loan.
1. HDB loan down payments are lesser and payable by CPF
Younger couples who do not have tens of thousands of dollars casually sitting in their savings account might want to pay attention to this. If you take up an HDB loan, the downpayment that you’ll have to fork out is significantly lesser at 20% (or even 5% when you sign the lease of agreement, if you are eligible for the staggered downpayment), compared to a hefty 25% if you take up a bank loan.
Aside from that, HDB loans also allow you to pay fully with your CPF funds from your Ordinary Account (OA), which means that you won’t need to take out too much cash from your own pocket. In comparison, bank loans require you to pay at least 5% of the downpayment in cash, which might add up to about S$20,000 for a typical four-room flat. This allows you to have more cash on hand for other costs like renovations and investments.
2. Bank loans come with lower interest rates
You might think that HDB loans come with lower interest rates, but it is actually the other way round. The interest rate for HDB loans stands at 2.6% p.a. currently (just 0.1% higher than your CPF OA interest rate), while bank rates usually fluctuate between 1.2% to 3% p.a.
Though the cap is at 3% p.a., bank loans usually do not go up that high that often. They peg their interest rates to the Singapore Interbank Offered Rate (SIBOR) or fixed deposit home rates, and fluctuate according to market conditions. So if you want to save up on the accumulated interest rate in the long run, bank loans will be the better option.
3. But HDB loans are more stable
As tempting as it is to opt for bank loans because of the lower interest rates, those that need stability in their monthly payments may find HDB loans more appealing.
HDB loans are set at a fixed rate of 2.6% p.a. So while you may accumulate more interest over the years, HDB loans give you peace of mind with consistent repayments, allowing for better budget planning on a monthly basis. On the other hand, the interest rates of bank loans are always fluctuating, while fixed rates are only constant for a few years and not the entire loan. So while you may benefit from a lower interest rate now, the rate may increase in the future unexpectedly.
4. HDB loans have a higher LTV, which means more interest
Young homeowners-to-be may benefit the most from the 80% LTV (subjected to CPF balance) for HDB loans since they most likely would need a larger loan with their lower monthly incomes. But it may not be good in the long run as a higher loan amount will accumulate more interest.
On the other hand, a bank loan covers up to 75% of the purchase price of the house. Though this translates into a higher down payment, the smaller loan size and lower interest rates will result in more savings overall in the long run.
5. There is an early repayment penalty for bank loans
You may think that paying off your loan early will be a win-win for all since you’ll pay less accumulated interest and the bank gets the money, right? Wrong. The bank is actually losing out on revenue from the generated interest for the whole tenure period. This is why there is an early repayment penalty of about 1.5% for bank loans during the lock-in period.
On the other hand, HDB loans do not have any lock-in period, which means that you can always choose to repay your loans early. Whether you have a sudden influx of cash from winning the lottery or want to reduce the total payable interest for the mortgage period, you’re free to repay your HDB loans early without incurring any penalty.
6. Bank loans are less forgiving
If you’re forgetful and often find yourself making late payments, don’t expect the banks to waive your penalty when you make an appeal. They are generally less forgiving when it comes to penalties and fees.
As for HDB loans, they are easier to negotiate with. If you make a late payment, you can make an appeal, which will normally result in a fee waiver or reduction. But of course, if you’re a repeat offender, they probably won’t let you off too many times. Their late payments are usually 7.5% of the amount that is late, and not the full loan.
7. You can refinance only from an HDB loan to a bank loan
If you’re taking up an HDB loan, the good thing about it is that you have the flexibility of refinancing to a bank loan if you ever change your mind because it does not have a lock-in period. But if you’re taking a bank loan, there is no way you can refinance to an HDB loan. You can only either reprice from the same bank or refinance with other banks.
So, should you get an HDB loan or a bank loan?
Those who are not financially strained and have more cash on hand for the downpayment can consider a bank loan. Not only are the interest rates generally a lot lower, but the LTV of 75% will help you free up more savings in the long run because of the smaller loan size. But do be sure to make payments on time to avoid late penalty fees.
If you and your partner are a younger couple who’ve just stepped out into the workforce, chances are you won’t have that much spare cash lying around. HDB loans will be more beneficial as they require a lower down payment of 20% of the purchase price, and you can even pay fully with your CPF! It also has a fixed rate to allow consistent payments, making financial planning a lot easier if you’re working towards a wedding or a car in the near future.
Having come to a decision on which home loan to pick is great – that's the real first key to the keys to your new house! But wait, that isn't the end of the story; as you put the finishing touches with the decor and furnishings, don't forget one last essential: home insurance.
Read these next:
HDB BTO Launches In 2021 (Bukit Batok, Tengah, Kallang – Whampoa, Toa Payoh – Bidadari)
Complete Guide To HDB Grants: How Much Can You Get?
Fixed vs Floating Home Loan Rates: Which One Is Suitable For You?
Home Insurance: Why Is It Important And How Do You Compare The Best Plans?
Newly Weds: Where Can You Stay If Your House Is Not Ready Yet (And How Much Will It Cost)
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