How Do HDB Home Loans Work?

Ryan Ong

Ryan Ong

Last updated 20 December, 2021

First time taking an HDB home loan and not sure what to expect? Here's a breakdown of all you need to know and how it works.

HDB concessionary loans are the first kind of housing loans most Singaporeans encounter. While they are more straightforward than bank loans, getting one is still a nerve-wracking experience; it could be the biggest loan you’ll ever take. Don’t stress out, here’s a simple summary of how it works.


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What is an HDB concessionary loan?

An HDB loan is used to purchase your HDB flat. Unlike a private bank loan (which has to be used for private properties), an HDB loan can finance up to 85% of your flat’s valuation or price (whichever is higher).

So if you are getting a S$300,000 flat, an HDB loan can finance up to S$255,000 of the flat price. The remaining 15% (S$45,000 in this case) can come from a combination of cash, or your CPF Ordinary Account (CPF OA).

This means that yes, it is possible to buy a flat without paying anything from your wallet; but only if your CPF OA is sufficient to cover the full down payment.

What is the interest rate?

The interest rate for an HDB loan is often considered to be fixed; this is semi-correct. Technically, the interest rate on an HDB loan is pegged at 0.1% above the prevailing CPF OA interest rate (2.5%).

As such, the HDB loan rate at present is 2.6% per annum.

Now the CPF OA rate is revised quarterly, so in theory this is a fluctuating rate. However, most people would consider the HDB rate to be “fixed” on the basis that it rarely changes - the interest rate has remained at 2.6% for several decades now.

This makes your HDB loan one of the cheapest debts you can acquire. A personal loan is generally in the realm of 3% to 9% interest per annum.

What is the maximum loan tenure?

The maximum loan tenure (time to pay off the loan) is either 25 years, or 65 years minus the borrower’s age; so if you are 40 years old when taking the loan, the maximum loan tenure is 20 years instead of 25.

If two or more people are borrowers, such as you and your spouse, the average of your ages will be used.

How do I pay for the monthly repayments?

You can pay for it via your CPF, or pay for it in cash. Most Singaporeans prefer to use their CPF. However, if you want the guaranteed interest rates for your CPF account, you might choose to pay in cash and leave your CPF untouched.

Do I qualify for an HDB loan?

To obtain a HDB loan, you must meet the following requirements:

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 five-room (or smaller) flat or a new two-room Flexi flat in a non-mature estate
Private property ownership Buyer must not own (or have sold off) any private 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 the buyer owns only one of the above, the buyer must be operating the business there and have no other sources of income
Household status Buyers cannot have taken two 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

What is the Mortgage Servicing Ratio of the HDB Loan? 

The HDB loan has a Mortgage Servicing Ratio (MSR) of 30%. That means your monthly repayments cannot exceed 30% of your monthly income. If you are earning S$2,000 per month, for example, your monthly repayments cannot exceed S$600 per month.

If you have variable income (e.g. You earn based on commissions, or run your own business), the MSR will be based on your average monthly income, minus a 30% margin. So if you usually make S$6,000 a month working on commissions, your monthly income will count as being S$4,200.

Can I make repayments early?

Yes, unlike a bank loan there are no prepayment penalties on HDB loans. You can voluntarily pay more in order to speed up repayment. However, this is not as simple and clear cut as being able to avoid more interest.

Paying your home loan early is not the same as paying your credit card debt early! It may be financially imprudent to rush home loan repayments, as you could end up with insufficient savings to cope with emergencies. Also, you may be unnecessarily depriving yourself of returns to bolster your retirement. Speak to a financial advisor before doing this.

When do I have to apply for the loan?

You must obtain an HDB Loan Eligibility (HLE) letter before buying applying for a new flat. For resale flats, you must get the HLE letter before signing the Option to Purchase. The HLE is basically a statement by HDB saying they will lend you a given sum of money, as and when you choose to buy a flat.

Note that you cannot buy a flat without the HLE, as there is no guarantee you can get the loan to pay for it.

The HLE letter is valid for 6 months. If you want to buy a house after that, you will need to apply for another HLE letter.

Read This Next:
How Much Do You Need To Buy Your First Home In Singapore?
How To Buy A House In Singapore: A Complete Guide (2021)
How Do You Know If You're Financially Ready To Buy A House?
HDB Loan Vs Bank Loan: Which One Should You Go For?
Best Bank Loans For Each Loan Type In Singapore (2021)


Ryan has been writing about finance for the last 10 years. He also has his fingers in a lot of other pies, having written for publications such as Men’s Health, Her World, Esquire, and Yahoo! Finance.


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