There are many steps involved in house hunting, and one of the biggest is deciding between getting a home loan with HDB or getting a home loan with a bank.
The choice is never straightforward. Many factors need to be considered outside of your personal preferences, such as your eligibility and financial situation. All of these will play a role in helping you choose a loan that better fits your specifications.
Now that you’ve decided to get yourself an HDB flat, you may find yourself with a lot of questions like, “How do I know if I’m eligible for a loan?”, “Is it better to get a more flexible loan that is light on monthly payments, or a stricter bank loan with a higher down payment but with significantly lower interest rates?”
Before you decide between an HDB loan and a bank loan, let’s get to know both sides and what you’re in for with each, their advantages and disadvantages, and anything else that might help you as an aspiring owner of an HDB flat.
The first question you might ask when it comes to this particular step in acquiring a home is this: “What even is the difference between these two?”
Multiple factors differentiate HDB loans and Bank Loans from each other, and we’ll be looking at 5 different criteria:
- Interest rate
- Repayment amount and early repayment
- Maximum loan amount
- Late payment penalty
HDB’s Concessionary Housing Loan is based on the Central Provident Fund Board’s Ordinary Account interest rate and is pegged 0.1% above the current rating.
As of now, the prevailing CPF (CPF Ordinary Account) OA interest rate is 2.5%, making the HDB loan interest rate at a staggering 2.6%. CPF OA interest rate is open to revision but has remained the same for more than a decade.
Bank loans, on the other hand, are numerous. There are loan packages with interest rates that number up to 3.0%, and some of the lowest have gone to as low as 1.2%.
Comparatively, most bank loan packages have lower interest rates than HDB loans, some even having a fixed deposit home rate for the first few years of the loan tenure.
While in this case, it would seem bank loans might seem the clear winner, it’s always more than meets the eye.
Bank loans are vulnerable to fluctuations depending on where the rates are based, such as SIBOR (Singapore Interbank Offered Rate), SOR (Swap Offer Rate), FHR (Fixed Home Rate), which itself is based on IBR (Internal Board Rate) itself is set entirely by the bank.
While again, fixed-rate packages exist for bank loans, you may find yourself paying entirely different amounts in the later years of your tenure.
Historically, bank home loan rates have averaged between 3.5% and 4.0% per annum.
The current low interest rate environment is due to the Global Financial Crisis in 2008, and bank interest rates have been at record lows for years. It is important to keep in mind that these rates will not always be here to stay.
HDB loans, while currently having a seemingly drastically larger interest rate, has been consistently at 2.5% since 1999, making it considerably more stable.
However, it is always ideal to consider your financial situation, as the banks’ current low rates may be favorable to you and may even let you minimize the interest rate you’ll pay in some cases.
HDB concessionary loans have a downpayment of 10%, in which the full amount can be paid for using your CPF.
Bank loans, as mentioned earlier, can be very varied, and the amount of required downpayment can value up to 25%. Your CPF OA can be used for payments; however, at least 5% of this must be paid for in cash.
Downpayments for bank loans may be higher, and the 5% cash-only payment can often be a sizable amount that you can relegate elsewhere. As is always the case, this may still be achievable depending on your capabilities and is always a viable option if you find yourself with the cash. An HDB loan is viable for aspiring homeowners looking to purchase an HDB flat with a smaller budget.
HDB loans are not strict when it comes to early repayments, allowing you to repay your entire loan if you ever find yourself able.
While often situational, there are many reasons why this can be a good thing, such as removing yourself of the burden of having an additional constant financial obligation and lessening the accumulated interest you would have to pay.
Due to the stable interest rate throughout the loan tenure, repayment amounts tend to be more consistent.
Loan packages with banks usually have lock-in periods, especially in those with fixed interest rates. It means that while—depending on your chosen package type—there may be a period of consistent repayment amounts, the value is subject to fluctuation later in the tenure.
It also means that paying off your loan early will incur a penalty fee that usually amounts to 1.5% of the loan amount.
Having the option to pay off your loan early is a good thing to have for HDB loans, especially if you want to take advantage of an influx of cash on your part.
An HDB loan will let you lend up to 90% of the purchase price. Resale flats have a similar loan to value (LTV) rate, but if at the point of flat application, the youngest home buyer to the age of 95 cannot be covered by the remaining flat lease, the loan to value (LTV) will be pro-rated from the maximum possible of 90%.
Bank loans usually allow you to borrow up to 75% of your chosen flat’s purchase price, which itself can be more than enough.
Installment payments for an HDB loan are due on the 1st of every month. Missing this window, you will incur a late payment pegged 2% above the Ministry of Finance’s average prime lending rate (PLR) of 5.5%, making the fee 7.5% of the outstanding installment per year. HDB loans are also more lenient and are open to negotiation when it comes to late repayments.
Late fees are variable when it comes to bank loans, but they usually are more strict and of a comparatively higher amount.
|HDB Loan||Bank Loan|
|Interest rates||2.6%||1.3% to 3.0% (depending on bank and loan package)|
|Downpayment||10% (full amount can be paid with CPF)||25% (5% of which must be paid for with cash)|
|Repayment||Consistent due to stable rates throughout the loan tenure||Subject to fluctuation. There are fixed rate options that protect you from rate changes for the first few years|
|Loan amount||Up to 90% of the purchase price||Up to 75% of the purchase price|
|Late payment fees||7.5% per annum, more lenient with negotiations.||Strict with repayment regularity, fees vary per bank|
|Early repayment fees||No early repayment fee||A fee of 1.5% of the loan amount for full payment before the end of the loan tenure.|
|Refinancing||Can switch to a bank loan at any point||Refinancing with other banks is possible, but cannot switch to an HDB loan.|
HDB loans have strict eligibility requirements. Here is an overview of the criteria.
|Citizenship||At least 1 buyer must be a citizen of Singapore|
|Monthly income ceiling||A borrower is viable if the average gross monthly household income is or is within:
|Household status||Buyers must not have taken 2 or more housing loans from HDB prior.
For buyers who have previously taken only a single HDB loan, the last owned property is not private residential property.
|Private property ownership||The buyer does not own more than one market/hawker stall or commercial/industrial property.
If a buyer owns one of the above, the establishment must house an operating business, and the buyer no other sources of income.
The buyer must not own (or have disposed of) any private residential property within 30 months before the date of application for an HDB Loan Eligibility (HLE) letter. Including:
Meanwhile, bank loans tend to have fewer restrictions when it comes to eligibility. It may vary from bank to bank, but this includes a good credit score and does not have an income ceiling. As such, bank loans are the only option for those who exceed HDB’s income ceiling. Some bank loans also tend to require a minimum loan amount.
Should You Get an HDB Loan or a Bank Loan?
It is sufficient to say no general answer. Each has its strong points, and their effectiveness varies on a case-to-case basis.
For example, if you are currently on a tighter budget but expect an influx of finances in the coming years, you may want to apply for an HDB loan and repay your balance early. If you feel confident in paying off your loan just outside a specific lock-in period and you have money to spare for a bigger down payment, try getting a bank loan to make sure you pay the least interest rate as possible.
It is important to use this knowledge to gauge which loan fits best with you and your preferences.
Making major life decisions is never easy, and as such, you should always review your options thoroughly, such as through Loan Advisor. It’s no different for finding the loan that perfectly fits your plans and your existing financial situation.
While there may not be an end-all-be-all right answer for which loan is better between the HDB Concessionary Loan and a Bank Loan, there is bound to be the right one for your specific case. Even when you go for a bank loan, there are many loan packages to choose from, each with their pros and cons to keep in mind.
Consider everything so that it may help you make your dream home a reality with what you’ve learned.