When buying a HDB flat in Singapore, you can either seek a HDB loan or bank loan. Until recently, the choice between the two loan types was easy. Bank interest rates were very low, and although HDB loansare advertised as concessionary housing loans, the HDB loan interest was higher than what banks offered.
However, in 2022, the US Federal Reserve began to raise interest rates steadily, and local mortgage interest rates rose in tandem.
The bank loan HDB mortgage rates got to 3.75% and 4% for floating and fixed rate packages, respectively. Today, HDB loans appear to be the better alternative with their stable 2.6% interest rate.
However, still, homeowners are in a dilemma, wondering whether the bank loan interest hike could be only a temporary change and the loan rates will fall again. They also wonder if, given the terms of each loan type, it would still be prudent to go for the expensive bank loans.
In this article, we comprehensively compare the two: HDB loan vs bank loan, and we explain the pros and cons of each loan option. We hope to help you make an informed decision that should save you some bucks in the long run.
HDB Loan Vs Bank Loan
Here’s a table showing the Bank Loan vs HDB Loan main differences:
| HDB Loan | Bank Loan | |
|---|---|---|
| What It Is | Mortgage HDB loan given by the Housing & Development Board (HDB) | HDB mortgage loanissued by Singapore banks like UOB, DBS, and others |
| Eligibility Criteria | It has several eligibility requirements like an age requirement, citizenship, income ceiling, and others | No restrictions, but must have a good credit score |
| Property Eligibility | Used for HDB flats only | Used for both private property and HDB flats |
| Types Of Loan Packages | A single type | Floating rate packages, fixed rate packages, hybrid packages |
| Minimum Loan Amount | None | At least $100,000 |
| Maximum Loan Amount | 85% of the purchase price for new flats 85% of the market valuation or resale price (Whichever is lower) for resale flats | Maximum bank loan for HDB is 75% of the property purchase price |
| Downpayment | 20% of the purchase price, which you can pay using your CPF ordinary account savings. | 25% of the purchase price (5% of it should be made in cash, 20% in cash orfrom the CPF OA savings) |
| Interest Rates | HDB loan interest is 2.6% (Is pegged at +0.1% of the prevailing CPF OA interest rate) | HDB loan interest is 2.70% for floating rates, 3.45% for fixed rates (rates depend on market condition) |
| Maximum Loan Tenure | Up to 25 years | Up to 30 years |
| Repayment Amount | Relatively stable because interest rates are stable too | Varies, even fixed rates are only valid for 2-3 years |
| Early Repayment Penalty | None | 1.5% to 1.75% |
| Late Repayment Penalty | 7.5% per annum, negotiable | Depends with each banks’ terms Typically, not as lenient as HDB |
Pros And Cons
The tables below highlight the pros and cons of each loan type to help you decide which is more favourable: the bank loan or HDB loan
Pros And Cons Of A HDB Loan
| Pros Of A HDB Loan | Cons Of A HDB Loan |
|---|---|
| Interest rate for HDB loan is stable, not prone to fluctuations | High interest rate (currently at 2.6% per annum) |
| Downpayment to pay is smaller, only 20% of the purchase price, which can be paid using CPF OA savings | Accumulated payable amount is higher due to higher interest rate and higher LTV |
| A higher LTV, allows you to get up to 80% of the purchase price | |
| Flexible refinancing options, can refinance with a bank loan | |
| No early payment penalties | |
| More forgiving for late repayments |
Pros And Cons Of A Bank Loan
| Pros Of A Bank Loan | Cons Of A Bank Loan |
|---|---|
| Traditionally has lower interest rates compared to HDB loans | Imposes early repayment fines, usually 1.5% of the principal loan amount |
| Less stringent eligibility criteria | Interest rates fluctuate |
| You can refinance your mortgage HDB loan | The HDB bank loan downpayment required is higher |
| Refinancing options are limited, you may not switch to a HDB loan | |
| Tough measures for late repayments or defaults | |
| Needs constant refinancing or repricing to continue enjoying lower interest rates | |
| Has a minimum loan amount requirement of $100,000 |
TDSR And MSR
The Total Debt Servicing Ratio (TDSR) and the Mortgage Servicing Ratio (MSR) apply to both HDB and bank loans. These ratios are restrictions the government puts in place to keep the people from borrowing much more than they can afford.
TDSR
The TDSR is a ratio that restricts the sum of all your liabilities to ensure that if you are already servicing other debts, you are only eligible for a small home loan if any or none at all.
So whichever loan you apply for, whether a HDB or bank loan, the lender will sum up your debt first to determine if you qualify for another.
The property cooling measures of December 2021 revised the TDSR from 60% to 55%, meaning that your monthly debt repayments must not exceed 55% of your income.
MSR
The Mortgage Servicing Ratio (MSR) is the portion of the gross monthly income that a borrower puts towards repaying property loans, which includes the loan the borrower is applying for.
The MSR restricts your monthly mortgage HDB repayments to 30% of the monthly income for single and joint borrowers.
Key Considerations For A HDB Loan Vs Bank Loan
Taking note of these key considerations may make the HDB loan vs bank loan decision easier:
1. A Bank Loan Requires A Larger Downpayment, And This May Be Difficult To Achieve If You’re Having Cashflow Problems
Know that the HDB bank loan downpayment is much higher (25%) than a HDB loan downpayment (20%).
Of the 25% downpayment, banks have a mandatory 5% cash requirement and the rest, 20%, you may pay in cash or with your CPF savings. A bank loan is not preferable if your cash savings are limited or you’re having cash flow issues.
With a HDB loan, you can make the entire downpayment using your CPF savings, which makes the HDB loan easier to access as long as you have enough savings in your CPF OA.
Nevertheless, although HDB loans require less money upfront, they may be more expensive overall, especially if you take a bigger loan to lower your downpayment.
In contrast, the HDB bank loan downpayment is much higher, but you may have some cost savings in the long run, making the bank loan cheaper.
2. The LTV Of Bank Loans Is Tighter, But It Could Get You To Save More In The Long Run
The HDB housing loan LTV is 80%, meaning that you can borrow more money if you opt for a HDB loan. This may appear to be a good thing at first, but the larger the amount you borrow, the more interest you pay.
Note, also, that the 80% borrowing limit is subject to your CPF balances. The HDB loan will get your CPF OA balance wiped out (up to a maximum of $20,000), meaning that if your CPF balance is substantial, you may fail to qualify for the 80% LTV loan.
Bank loans have a 75% LTV meaning that, at most, they cover 75% of the property purchase price.
The smaller loan amount means that you pay less interest in the long run, and your CPF savings remain intact.
3. The Interest Rate For HDB Loans Is Steady
The current interest rate for HDB loans is 2.6% and has remained the same since 1999.
Risk-averse borrowers prefer this loan type because they can predict their repayment and hence, better planning. In contrast, bank loan interest rates change as the market moves. But, borrowers with a risk appetite prefer them because they get to take advantage of market fluctuations and enjoy low interest rates. So, choose the loan to take going by your risk disposition.
4.Refinancing From A HDB Loan To A HDB Bank Loan Is Allowed, But Not From A HDB Bank Loan To A HDB Loan
If you want to switch to a bank loan after servicing your HDB loan for a few years, you may do it. But, the reverse is impossible. If you took a bank loan, the only option is to refinance with a new bank loan package from your bank or a different bank whose interest rates are more competitive.
5. Bank Loans Have Higher Penalties
Home loans are a long-term commitment, and therefore, as you apply for them, consider that future changes could impact your repayment ability. Typically, HDB loans have much more wriggle room and may accommodate changes to your financial situation.
For example, if you run into a windfall, you can pay off a significant portion of your HDB loan without penalty. If you opt to switch to a bank loan because it has a lower rate, you may do it comfortably. In case of financial problems, the late repayment fee is charged against the due amount rather than the entire loan principal, and you may even appeal the fine.
The situation is different with HDB bank loans. Early repayment within the lock-in period attracts a 1.5%-1.75% penalty, and late payments attract fines that are difficult to reduce or waive.
If you default on your loan payments, the bank starts exploring debt consolidation or restructuring plans. If the situation cannot be resolved, the bank repossesses your property to recover the amount you owe.
Eligibility Criteria For A HDB Loan And Bank Loan
Here’s the HDB loan vs bank loan eligibility comparison.
HDB Loan Eligibility:
- One of the buyers must be a Singapore citizen
- You should not have taken two or more HDB loans previously. The property you owned last should not have been private, whether locally or overseas. For example, it should not be a gifted property, a HUDC flat, property inherited through a will or as a provision of the Interstate Succession Act, or property acquired/ disposed of through nominees.
- The gross monthly income should be $7,000 or less for singles looking to buy a five-room or even smaller resale flat or a two-room new flat located in a non-mature estate. The gross monthly income for families should be $14,000 and $21,000 or less for extended families.
- You have not owned property locally or abroad and have not disposed of any property in the last 30 months before applying for your HDB Loan Eligibility Letter.
- You must also not own more than one market, hawking stall, commercial, or industrial property. Also, whichever one you own, you must run it personally, without any other income sources.
Bank Loan Eligibility:
- Have a good credit score.
Resolving The HDB Loan Or Bank Loan Debate
Theresolution for the bank loan vs HDB loan debate in your mind would be to get a loan offer that allows you to enjoy the best of both worlds. This may seem impossible, but it’s a reality with Lending Bee.
Lending Bee is a respected and trustworthy licensed money lender in Singapore, and we pride ourselves in offering the best mortgage HDB loans across the Island. Our HDB home loans are low interest, flexible, and generous, with an extended period.
Apply for your home loan here, and we will reach out to you promptly.
About Ashley Sim
Calling herself a “professional multi-tasker”, Ashley worked as a relationship manager in a bank for five years. She left her job just before the pandemic happened and became a freelance writer for about a year. Now, she’s making the most of her love for writing and knowledge of the banking and financial industry in her role as a content marketing lead. She hopes to help people make better financial decisions through her content and campaigns.
