HDB Loan Vs Bank Loan: Which One Should You go For?

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Choosing between a 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 a HDB flat (congratulations!), the next step would be to choose between a 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. 

HDB loan: All you need to know 

A 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.
  • Loan-To-Value Ratio: 90% 
  • Down payment: 10% (full amount can be paid using CPF) 
  • Early repayment will not incur a penalty
  • Couples combined income has to be less than $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, directly from HDB, the latter will review your financial standing close to the completion of the flat for a housing loan disbursement. 

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* $14,000 for families
$21,000 for extended families
$7,000 for singles buying 5 -room (or smaller) resale flat or a 2-room new 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
Household status Buyers cannot have taken 2 or more housing loans from HDB. In short, you may not apply for a third HDB loan

*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 $12,000 for families, $18,000 for extended families and $6,000 for singles.

Pros of choosing a HDB loan

1. Smaller down payment amount to pay 

With a HDB loan, your down payment is 10% of your loan amount. This full 10% can be paid using your CPF Ordinary Account (OA). If you have a considerable amount saved in your CPF OA, you will not incur any out-of-pocket costs to pay for the down payment. This gives you more cash on hand for other imminent costs such as renovation, new furniture, investments and more. If you do not have enough in your CPF OA, you will have to top up the rest of the down payment in cash. 

2. Fixed interest rate 

The HDB loan interest rate does not change. It is set 0.1% above the CPF OA interest rate which stands at 2.5%. This means that you can be assured that the interest rate will remain constant throughout your loan period, and there will not be a point in time where you will have to pay more than the 2.6% p.a. interest rate. 

3. It can be changed to bank loan 

The great part about it? HDB loans do not have a lock-in period. If you want to switch your HDB loan to a bank loan, consider it done. You can choose to take up a HDB loan before refinancing with a bank a few years later for a loan with lower interest rates. However, a homeowner who chose to take up a bank loan cannot opt to switch to a HDB Loan during the mortgage period. 

4. No penalty for early repayment

You have the option to pay off your HDB loan early without having to worry about incurring a penalty. Now, there are various reasons why you might choose to do this, especially if you have the advantage of an influx of cash. You might have your reasons — reducing the total interest you pay over the years or gaining your peace of mind in the knowledge that you’re not burdened by a loan. 

While not everyone has the financial muscle to pay off their loans early, having this option to repay early is better than being committed to the entire tenure of the loan. This also means that you can opt for the longest HDB loan tenure available, with the option to pay the loan off earlier if you wish to. 

Cons of choosing a HDB loan

1. Paying a higher interest rate 

With the interest rate fixed at 2.6% p.a., this often turns out to be higher than interest rates charged by banks for bank loans. 

Banks typically peg their interest rates to the SIBOR (Singapore Interbank Offered Rate) or fixed deposit home rate. While there will be fluctuations, this interest rate tends to be lower than the 2.6% p.a. in interest that you would pay for your HDB loan.  

Bank loan: All you need to know

You can get a bank loan from local or international banks in Singapore. Here’s giving you a quick glance at bank loans: 

  • Interest rate: ranges between 1.7% – 2.8% p.a. 
  • Loan-To-Value Ratio: 75% 
  • Downpayment: 25% (5% can be paid using CPF) 
  • 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 of choosing a bank loan

1. Lower interest rate

The interest rates are usually lower than the 2.6% p.a. charged for a HDB loan. Banks also sometimes offer other perks such as 24-hour emergency home assistance. 

2. Eligibility criteria is easier to meet 

Bank loans have fewer restrictions compared to the HDB loan eligibility criteria. For example, there are no citizenship requirements and no income ceiling set for bank loans. For couples that do not meet the HDB loan eligibility criteria, such as those that earn more than the income ceiling set by HDB, your only option is to apply for a bank loan. However, bank loans also tend to have a minimum loan amount required.  

Cons of bank loans

1. Penalty incurred for early repayment 

There is usually a lock-in period for bank loans, unless you opt for a bank loan without a lock-in period. Opting to repay your loan early, within the lock-in period, will cause you to incur a penalty that is usually 1.5% of the loan amount. 

2. Interest rate fluctuates and is not guaranteed 

The bank loan’s interest rate will see fluctuations as it is affected by movements in the market. Even with a fixed rate package, this interest rate is fixed only for the first few years that is stated in the package, and not for the entire loan tenure. This also means that the interest rate you pay a few years down the road is likely going to be different from the rate you see today. 

3. Higher down payment required 

The down payment required for taking up a bank loan is 25% of the loan amount. Of this 25%, 5% has to be paid in cash with the remaining 20% being paid using your CPF OA or cash. For example, for a HDB loan of $400,000 you would have to pay at least $20,000 in cash for the down payment. If you do not have enough in your CPF OA, you will have to top up the rest of the down payment in cash. 

This could be quite a hefty amount to fork out. Especially for those that don’t have disposable income or sizeable savings, or for couples preparing for big-ticket expenses such as an upcoming wedding. 

4. Cannot be changed to a HDB loan 

Unlike a HDB loan that allows you to switch to a bank loan, the same cannot be done when you choose to take a bank loan. So, you’ve got to be sure since you cannot reverse this decision in the future. You can only opt to refinance and take another loan with the bank. 

HDB loan or bank loan: Which one should you go for? 

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.

Consideration HDB Loan Bank Loan
Interest Rates Fixed at 2.6% p.a. Ranges from 1.7% to 2.8%
Eligibility criteria – At least 1 buyer must be a Singapore citizen
– Income ceiling: $14,000 for families, $21,000 for extended families
– Must not own (or have disposed of) any private residential property in the 30 months before the date of application for a HLE letter
– Cannot have taken 2 or more housing loans from HDB
– A good credit score
– Must meet minimum loan amount
Loan-To-Value (LTV) ratio
(Maximum loan amount you can take, as a percentage of the cost of your home)
90% 75%
(as a percentage of purchase price or market value, whichever is lower)
10% (Can be fully paid using CPF) 25% (5% in cash, 20% in CPF or cash)
Early repayment No penalty Penalty of 1.5% of loan amount incurred
Minimum loan amount No minimum loan amount Between $100,000 to $300,000

Armed with your knowledge on both HDB and bank loans, you can weigh in considerations that are important for you and your partner before you come to a decision. 

Read these: 
HDB BTO Launches In 2020 (Sembawang, Toa Payoh, Choa Chu Kang, Tengah, Pasir Ris, Tampines)
Complete Guide to HDB Grants: Find Out What You Qualify For With These Five Easy Questions
How Much Can You Borrow For Your Home Loan?
How To Buy A House in Singapore: A Complete Guide
7 Important Things to Look Out For When Buying a Resale Flat

By Ching Sue Mae
A flat white, an adventure-filled travel and a good workout is her fuel. Sue Mae enjoys sharing knowledge on personal finance while chasing the dream of financial independence.