Penalty for early repayment of a bank loan
Paying a bank loan early will earn you a hefty payment penalty if it’s still within the lock-in period. Remember that the bank counts on the interest as its income and any attempt to reduce it will result in a penalty.
On the other hand, with a HDB loan, you can accelerate the payment without expecting any penalty. The faster you pay off your loan, the less interest you pay. That means you get to save in the long run. HDB loans are easier to settle, especially if you are expecting a windfall of cash.
HDB will give you an option to defer the loan in case you have cash flow issues
If you find yourself suffering financial hardship, HDB can allow you to defer or reduce your loan repayments for six months.
On the other hand, financial institutions will not give you an option to defer, and that can affect your creditworthiness. Although no one hopes to get into such a situation, you can consider this when making your decision.
HDB loans give you the consistency you need to plan your cash flow
If you are keen on sticking to your budget, then consider a HDB loan. The interest and repayments of a HDB will rarely change. The best deal you can get from a bank is a fixed-interest rate loan, which lasts for about three years. After that, the interest rate depends on the market conditions.
So, if you are keen on sticking to your budget, opt for the HDB loan. You will know exactly how much you need each month for the loan repayment.
HDB loan gives you flexibility since it does not have a lock-in period
A HDB loan gives you flexibility, and you can convert it to a bank loan since it does have a lock-in period. However, if you opt for a bank loan, you can't refinance it with a HDB loan. The only option available for a bank loan is refinancing from the same bank or other banks.
Which loan should you choose?
The loan you choose depends on your lifestyle and status.
A HDB loan is the best choice if you are just starting out and don't have much income. It has a lower down payment and gives you a chance to defer it in case you have cash flow issues. A HDB loan is best for those who are risk-averse, as you will have access to higher cash flow.
On the other hand, a loan from a bank could be cheaper but requires you to have more cash flow. However, you will need to review the terms and conditions of the loan carefully before you sign on the dotted line.
There you have it; we hope you can make the best financing decision with ease. Should you think that a bank loan is the answer for you, you can compare and apply for the best home loans here.
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