HDB Loan vs Bank Loan – Which Is The Best?

Deciding which type of housing loan is better? In this post, I’ll talk about the differences of each type of loan and which you should consider.Before we get into the comparison, take note that HDB loan is only eligible for HDB flats.
For Eg. BTO / SBF / DBSS / Resale flats

Private housing and ECs are not eligible for HDB loans.
Eg. EC / Private Condo / Landed Property 

Check out the other eligibility criteria for HDB loan here.

Also, note that if you take a HDB loan, you can switch to a bank loan, but if you take a bank loan you cannot switch to a HDB loan

Here’s a table I created that shows you the difference between the two.

Interest Rate % and Structure:

HDB Loan:

​The current interest rate of a HDB loan is 2.6%.

This is calculated by taking the interest rate of your CPF Ordinary Account (2.5%) and adding it by 0.1%. (2.5% + 0.1%)

The interest rate is fixed throughout the loan tenure. 

This is great if you don’t want to worry about fluctuating monthly loan installments.
Bank Loan:

​The current interest rate of a Bank Loan is around 1.8%-2.5%.

The interest rate depends on the how a bank structure it’s loans and the interest rate market.

Bank loans interest rates are usually fixed for 3 years. (5 years at most). Banks call this period the “lock-in period”.

After the lock-in period, they will revert back to a floating rate, meaning the interest rate fluctuates.

Another thing to note about bank loans is that their interest rates are pegged to indices like the Singapore Interbank Offer Rate(SIBOR), Swap Offer Rate (SOR) or an Internal Board Rate (IBR).​ 

Some banks have even pegged their interest rate to their own Fixed Deposit rate. ​


HDB Loan:

For a HDB loan, you only need to set aside 10% of the purchase price of the property as downpayment and it can either be paid in cash or your CPF Ordinary Account(OA) savings
Bank Loan:

For a Bank loan, you have to set aside at least 20% of the purchase price of the property as downpayment and a minimum of 5% must be paid in cash.

The rest of the 15% can be either paid in cash or your CPF OA savings. ​

Loan Amount

HDB Loan:

After setting aside the 10% as downpayment, the rest of the 90% can be paid via monthly home installments in cash or CPF OA savings!

This means that 100% of your property can be paid in CPF! Great if you are cash tight. However, do note that this also means less for retirement.
Bank Loan:

After setting aside the 20% as downpayment, the rest of the 80% can be paid via monthly home instalments. ​​

Max Loan Tenure

HDB Loan:

The maximum loan tenure is 25 years for a HDB loan or 65 years minus your age, whichever is lower.
Bank Loan:

The maximum loan tenure is 30 years for a bank loan or 65 years minus your age, whichever is lower.

Do note that if you take up the maximum loan tenure of 30 years, you need to be able to fork out 40% of your home for your downpayment.

If you can only afford 20% for your downpayment, then your maximum loan tenure will be reduced to 25 years.

Income Ceiling

HDB Loan:

For HDB loan, the maximum monthly gross income ceiling of your family cannot exceed $12,000.

If you are applying for a HDB with your extended family, your family’s total monthly gross income ceiling cannot exceed $18,000. ​
Bank Loan:

No income ceiling.

Early Repayment Penalty

HDB Loan:

No penalty

This means that if you are expecting a large sum of money in the future, you can pay off your outstanding HDB loan!  ​
Bank Loan:

Penalty charges depends on the bank of approximately 1.5%-1.75%.

The bank charges early repayments because they want to prevent you from repaying your loans early to make up for the interest rate that they could have earned if you didn’t make any early repayments!

Late Repayment Penalty

HDB Loan:

Current charges: 7.5% per year

Good news is that HDB allows you to defer your repayments in the form of extensions if you are unable to repay your installments on time.  ​
Bank Loan:

Penalty charges depends on the bank. Some bank may charge you at a percentage basis at about 24% per year,while other banks may charge you a fixed amount at about $50 for each missed repayment.

CPF OA Wiping Out

HDB Loan:

It is mandatory for you to wipe out your CPF OA savings.

​This means that all of your CPF OA savings will be used reduce the cost of your home before you pay the downpayment and the monthly loan installments.

Although this results in you having to pay a lesser amount of downpayment and monthly loan installments, it also results in you having lesser for your retirement.
Bank Loan:

It is not mandatory for you to clear your CPF OA savings. ​

Which is the best for you?

HDB Loan will be suitable for you if:
​​You don’t want to worry about fluctuating interest rates,You intend to pay your home all by CPF,You are unwilling or unable to fork out so much cash for downpayment,You intend to repay your loan off early​
Bank Loan will be more suitable for you if:
​You prefer the flexibility to be able to refinance your loans You believe that over the long term, the interest rate environment will be lower than HDB loan’s interest rate.You can stomach fluctuating interest rates,​You have enough cash to afford the downpayment.​​

In conclusion, both have its pros and cons and both meet the needs of different types of people. Which meets your needs best?

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