HDB Loan VS Bank Loan: Which Should You Get?

A HDB flat may be the biggest purchase you will make in your life. As such, even the smallest of details, such as choosing the type of loan is an important decision to make. 

Choosing between a bank loan or an HDB loan is not an easy decision. There are many factors to consider before making an informed choice. As such, we will walk you through the pros and cons of getting either an HDB Loan or a Bank Loan, so that you can evaluate which is better for you! 

HDB loan eligibility criteria

Not everyone is eligible for a HDB Loan. To be eligible for a HDB Loan, you will have to first satisfy the following conditions:

  • At least one buyer for the HDB is a Singapore citizen
  • Have not taken two or more housing loans from HDB previously
  • Average gross monthly household income is less than S$14,000
  • Average gross monthly household income is less than S$7,000 for singles buying 5-room or smaller resale flat or 2-room new flat in a non-mature estate
  • Must not own or have disposed of any private residential property in the past 30 months before the date of application for an HDB Loan Eligibility letter
  • * For HLE applications and flat applications received before 11 September 2019, the income ceilings are S$12,000 for families, S$18,000 for extended families, and S$6,000 for singles.

If you do not meet the above conditions, you can still opt for a bank loan. The eligibility for a bank loan is relatively simple. Usually, having a good credit score is good enough to get you a loan! 

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

Getting a HDB loan or a bank loan has distinct differences. Below are some of the key differences you should take note of when deciding between the two: 

HDB LoanBank Loan
Interest Rate2.6%
( 0.1% above the CPF Ordinary Account interest rate.)
About 1.3% – 2.4%
(Dependent on the type of bank. Floating interest rates may also fluctuate) 
Downpayment 10% in Cash or CPFAt least 5% in cash and 20% in cash or via your CPF OA account. 
Maximum Loan New flats: 90% of the purchase price. 

Resale flats: 90% of the resale price or market valuation, whichever is lower.
75% of the purchase price.
Minimum Loan None~S$100,000
Late Payment Penalty Currently 7.5% per annumDepend on banks, usually higher than HDB. 
Eligibility Income + citizenship requirementsNo requirements. Usually a decent credit score.
Source: HDB Website 

Pros and cons of getting an HDB Loan VS a bank loan

From the above table, you will be able to see the advantages and disadvantages of getting either a HDB Loan or a Bank loan. While deciding between the two, here are some factors you should take into consideration: 

Pros of getting a HDB Loan over a bank loan 

Generally, the HDB Loan is a more popular financing option, especially for young couples and working adults. These are some of the reasons why some may choose a HDB Loan over a Bank Loan. 

1. No early repayment penalty for HDB loan 
One of the key attractiveness of getting a HDB Loan is in its flexible repayment period. If you take on a HDB loan, you will not be penalised if you choose to repay your loan early. 

In retrospect, a bank loan does not allow you to pay off your loan early, and you may even incur an early repayment penalty by doing so. 

Furthermore, should you choose to repay your loan earlier, you will not be required to pay the remaining outstanding interest committed initially to HDB. The interest you have to pay will be based on the remaining HDB balance. 

2. Those taking a HDB loan can choose to switch to a bank loan 
For those who choose to take up a HDB Loan, you can choose to refinance and take up a bank loan instead. Since there is no lock-in period for HDB Loans, HDB Loan borrowers can freely choose to switch to a bank loan at any time, without incurring a penalty. 

However, if you opt for a bank loan, you will not be able to change to a HDB Loan during the mortgage period. This means that taking a HDB Loan will give you more flexibility when it comes to early repayments, and the option to switch to a bank loan.

3. HDB loan has a lower initial downpayment 
Another reason why many people would choose a HDB Loan over a Bank Loan would be the lower initial downpayment that they have to pay. With a downpayment of 10% of the flat’s value, this is much lower than the 25% downpayment required by banks. This means that for a $400,000 flat, you will need to pay $40,000 in downpayment via your CPF, via the HDB loan.

If you’re taking a bank loan instead, you may have to fork up $100,000 in downpayment, of which $20,000 has to be paid in cash. Especially for couples who’ve just started out in their working careers, the latter may seem relatively unaffordable. 

Furthermore, HDB Loans also include a Staggered Downpayment Scheme. This means that you can pay your downpayment in two parts: the first 5% will be paid during the signing agreement for lease, while the other 5% will be paid during key collection. You can find out more in the table below: 

FactorsHDB LoanBank Loan
Maximum Loan That Can Be Granted 90%75%
(Signing of the Agreement of Lease) 
15% (CPF OA or Cash) 5% (Cash) 
5% (CPF OA or Cash) 
(Keys Collection)
5% (CPF OA or Cash)15% (CPF OA or Cash)
Source: HDB Website

Pros of getting a bank loan over a HDB loan

Of course, there are also drawbacks when it comes to getting a HDB Loan. Here are some reasons why you should opt for a bank loan instead. 

1. Lower interest rates 
One of the biggest downsides of getting a HDB Loan would be the high interest rate. At an interest rate of 2.6%, you will potentially be paying more for your flat than intended. For example, if you have a $400,000 mortgage loan from HDB over a period of 25 years, you will be paying $1,815 monthly for your flat. Over 25 years, this amounts to $544,500, which means you will be paying about $144,500 in interest for your flat! 

Conversely, if you decide to take a bank loan at an interest rate of 1.5%, you will be paying $1,800 a month for your flat. Over 25 years, you will be paying $540,000 for your flat. By choosing a bank loan over a HDB loan, you will be saving about $4,500 in interest over the course of 25 years! 

However, do note that most bank loans are pegged to a floating interest rate, so you may not be paying a constant interest rate throughout your loan tenure. 

If you’d like to calculate your monthly mortgage repayment, check out Planner Bee’s Mortgage Calculator to better plan your finances!

2. Easier Eligibility Requirements 
As mentioned above, you may have to go through multiple hoops to be eligible for a HDB Loan. So for foreigners or couples earning a higher income, a bank loan may be your best bet as eligibility requirements are much more flexible! 

Getting a mortgage loan in Singapore 

With a clearer picture of what HDB and Bank Loans entail, you can now decide which financing option is best for your needs! 

If having a debt scares you, here are some quick and powerful tips that you can adopt to manage your loans and debts. 

This article was originally published on Planner Bee.

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