HDB Loans vs. Bank Loans: Which is Better for Your HDB Flat?
As you begin the journey of purchasing your first HDB flat, it's crucial to consider your financing options carefully. HDB loans are designed to make homeownership more accessible and often offer more favorable terms for first-time buyers and those with modest incomes.
On the other hand, bank loans provide a wider range of products, including fixed-rate, variable-rate, and hybrid loans. Should you choose an HDB housing loan or a bank loan? To help you make a better decision, here's a brief overview of each type of loan and a breakdown of the key differences between these two options.
Is A Home Loan Required For Your HDB?
Opting for a non-mandatory option
In Singapore, a housing loan is not mandatory if you have enough cash and/or CPF savings to pay for the flat in full. However, if you need a housing loan, you can obtain one from HDB or your preferred bank, provided you meet the eligibility criteria and credit assessment guidelines.
Choosing between fixed or floating rate loans
If you prefer to avoid financial risks, the HDB mortgage loan is ideal for you. This is because the HDB housing loan offers a fixed interest rate of 2.6%, requires a lower 10% downpayment (which is further split into two payments), and is known for being lenient on mortgage repayments.
However, if you are open to taking financial risks, possess the financial discipline to reprice and refinance your mortgage every few years, and have a good credit score, you should consider the various bank home loan packages. These packages offer both fixed and floating interest rates pegged to a benchmark such as the Singapore Overnight Rate Average (SORA) or Singapore Interbank Offered Rate (SIBOR, until December 2024).
Key Differences Between HDB & Bank Loans
| HDB Loan | Bank Loan | |
|---|---|---|
| Interest rates | 2.6% | 3.0% to 4.65%, expected to increase within the next 2 to 3 years |
| Downpayment required | 20% must be paid using CPF Ordinary Account (OA) or cash, or a combination of both | 25% must be paid (20% using CPF Ordinary Account (OA) or cash + 5% in cash) |
| Maximum loan amount | Up to 80% of the purchase price for your new HDB flats, up to 80% for your resale flat (resale price or market valuation, whichever is lower) | Up to 75% of the bank valuation or the purchase price of your resale or new HDB flat (whichever is lower) |
| Lock-in period | None | 1 to 5 years |
| Loan-to-Value Limit (LTV) | 80% | 75% |
| Early repayment | None | 1.5% of the remaining loan amount or as per the bank loan’s updated terms and conditions |
| Late repayment | More lenient with a late payment fee of 8.1% per annum (Note that this is from 1 Nov 2023 to 31 March 2024. The rate is reviewed bi-annually, thus refer to HDB Housing Loan page for the updated fee details.) | Less lenient and tend to have higher late payment fees than the one by HDB |
*All estimated data above are accurate at the time of writing and last updated on 6 June 2024, with reference to the latest data from the HDB website and CPF Board website.
Compare The Best Home Loans In Singapore
Other Important Considerations When Applying For HDB vs. Bank Loans
Choice of loan tenure impacts LTV
The maximum loan tenure is capped at 25 years, or until you reach the age of 65, whichever comes earlier. Bank loans offer a longer maximum tenure of 30 years. This translates to potentially lower monthly repayments, and the Loan-To-Value (LTV) limit gets reduced to 55% if the loan tenure goes beyond 25 years or extends past your 65th birthday. LTV refers to the maximum amount you can borrow against the property value. A lower LTV means you'll need a bigger downpayment upfront.
Refinancing from a bank loan to a HDB Loan is not an option
You can refinance from a government HDB loan to a bank loan, but not the other way around. This means if you're currently on an HDB loan and want to switch to a bank loan later, that's possible. However, if you already have a bank loan, you cannot refinance it with an HDB loan. Your only option for a bank loan is to refinance with a new loan package from your current bank or a different bank with more attractive interest rates.
Stricter LTV may bring more long term savings
While HDB housing loans offer a higher Loan-To-Value ratio (LTV) of 80%, allowing you to borrow more initially, it can be a double-edged sword. The larger loan translates to more interest paid over time. Additionally, this 80% limit factors in your CPF Ordinary Account (OA) balance, which can be depleted to meet the limit. If you have substantial CPF savings, you might not qualify for the full 80% LTV.
Conversely, bank loans with a 75% LTV may seem restrictive upfront. However, the smaller loan amount means you'll pay less interest in the long run and keep your CPF savings untouched, potentially offering more financial security in the future.
Heavier downpayments challenges cashflow
HDB loans offer a lower downpayment of 20% that can be entirely paid using your CPF savings, making them easier to access initially. Bank loans, on the other hand, require a higher 25% downpayment with a mandatory 5% cash portion, which can be a burden if you're short on cash.
While HDB loans offer easier access, they might be more expensive overall, especially with larger loans. Conversely, bank loans come with a steeper initial cost but could be cheaper in the long run due to potentially lower interest rates.
Frequently Asked Questions
Does a HDB loan offer a lower interest rate than a bank home loan?
- As of June 2024, the interest rate of 2.6% per annum for the HDB loan is lower than most rates by banks (typically 3.0% - 4.65%, depending on the global economic outlook) in Singapore is relatively stable, and not prone to fluctuations unlike the interest rates by banks.
Will a bank loan require a larger downpayment than a HDB loan?
- Yes. This is due to the nature of bank loans having longer maximum tenures of up to 30 years. This translates to potentially lower monthly repayments, and the Loan-To-Value (LTV) limit gets reduced to 55% if the loan tenure goes beyond 25 years or extends past your 65th birthday. LTV refers to the maximum amount you can borrow against the property value. A lower LTV means you'll need a bigger downpayment upfront.