HDB Loan vs Bank Loan: Which Should You Choose?

Recent home loan interest rates have risen past 3% and it is expected to continue to increase in the near future. As such, you might be wondering if you should still go for a bank loan or stick with the loan provided by HDB.

Here, we will explore the differences between the two types of loans before zooming in to see which is more suitable for you.

What is an HDB Loan?

HDB concessionary loan (or HDB housing loan) is the loan provided by the Housing and Development Board. The loan is only applicable for Singaporeans buying an HDB flat.

What is a Bank Loan for Housing?

A bank loan for housing or home loan refers to a loan from financial institutions regulated by the Monetary Authority of Singapore that enables you to buy a property.

HDB Loan vs Bank Loan: Eligibility Criteria

Before deciding which loan to opt for, it is crucial to understand whether or not you are eligible.

HDB Loan Eligibility

At least one buyer is a Singapore Citizen
Household status

● Have not previously taken two or more HDB housing loans

● Have only taken one HDB housing loan and the last owned property is not private residential property (in Singapore or overseas)

*Examples of private residences are houses, buildings, Executive Condominium and HUDC flats.

Income ceiling

Must not exceed:

● S$7,000 for singles buying under the Single Singapore Citizen (SSC) Scheme
● S$14,000 for families
● S$21,000 for extended families

Property Ownership

● Must not own or have an interest in any local or overseas private residence
● Have not disposed of any within the last 30 months before applying for your HDB Loan Eligibility letter.
● Do not own more than 1 market/hawker stall or commercial/industrial property.
o If you own one of these, you must be operating your business there and have no other sources of income

* Acquired interest is deemed if the property is acquired by gift, inherited as a beneficiary under a will or from the Intestate Succession Act or property is owned/ acquired/ disposed of through nominees

*The above information is obtained from the official HDB website and is subject to future changes.

Bank Loan Eligibility

For banks, the eligibility criteria are not as stringent as HDB’s. While each bank has its assessment methods, you are likely to get the loan as long as you have a good credit score and are in good financial health.

HDB Loan vs Bank Loan: Key Differences

HDB LoanBank Loan
Interest Rate2.6%
(0.1% above CPF Ordinary Account interest rate)
2.38% – 3.08%
(differ between banks and
current interest rates)
Minimum LoanNone
At least S$100,000
Loan to Value LimitUp to 85% of property value
Up to 75% of property value
Downpayment15% of the purchase price
(can be fully paid using CPF)
25% of the purchase price
(5% to be paid in cash, remaining 20% can be paid in cash or CPF)
Early Repayment
None1.5% to 1.75%
Late Repayment Penalty7.5% per annum
Depend on the lending bank
Lock in PeriodNo lock in period
Minimum 2 years lock in period

When to choose an HDB Loan?

1. Tight cash flow and Limited CPF savings

The main selling point of an HDB Loan is the down payment requirement. HDB loans only require a down payment of 15% as compared to the 25% for a bank loan. Furthermore, the down payment for HDB Loan can be fully covered by CPF while there is a 5% cash payment requirement for a bank loan.

As such, it is generally the preferred choice by young couples or working adults who just started and are tight on cash flow or have limited CPF-OA savings.

2. Retain the option to make early repayments

Another reason why you should choose an HDB loan is that it does not have a lock-in period. This means that you have the option to make early repayments without incurring any penalties.

On the other hand, banks offer attractive rates so that they can earn through the interest rates. Hence, there will be a penalty if you decide to make an early repayment during the lock-in period. This penalty typically ranges between 1.5% to 1.75%.

3. Unstable income with the possibility of late payments

Similarly, HDB loans are more forgiving when it comes to late payments. You can write in and appeal for repayment deferment and HDB will generally do their best to help you.

For a bank loan, defaulting on mortgage payments not only comes with a hefty penalty but also reduces your credit score. The bank may explore debt consolidation plans to help improve your situation. In the worst-case scenario, your property could be repossessed and be placed on a mortgagee sale to cover what you owe.

Therefore, an HDB loan would be suitable for you if you do not have a fixed income or have a high chance of making late payments. As the HDB Loan’s interest rates are fixed, you can plan ahead to make sure you do not make any late payments.

4. Flexibility to refinance in the future

Due to it having no lock-in periods, you have the flexibility to refinance your HDB loan and take on a bank loan without any penalty. This is great for those who need a higher loan-to-value (LTV) initially but want to capitalise on the market interest rates subsequently.

However, do note that once you switch to a bank loan, you will no longer be able to revert back to an HDB loan.

When to choose a Bank Loan?

1. Ineligible for HDB Loan

Due to the stringent eligibility criteria, not everyone would be able to qualify for an HDB loan. Likewise, for those who are trying to finance a private property, your only option is to go with a bank loan.

2. Capitalise on the low-interest rates

The main upside of taking up a bank loan is the low-interest rates. Taking on a bank loan with rates lower than the HDB loan’s 2.6% would directly translate to savings from not paying the difference in interest.

A potential drawback would be that you would lose out in a rising interest environment which we are in given the current global situation and banks’ interest rates forecasted to reach 4%.

Hence, a bank loan would be a better option only if you are monitoring the interest rates actively and know the market well.

3. Stable income with a low chance of defaulting

As mentioned above, banks are less forgiving when it comes to late payments. Furthermore, there could be a lack of certainty due to the volatility in the banks’ interest rates. Therefore, having a stable income while being diligent in making payments can help curb the uncertainty while ensuring you enjoy the benefits of a bank loan.

4. Earn higher deposit rates with a bank loan

Lastly, banks such as DBS offer multiplier accounts. Taking on a bank loan with them allows you to earn additional savings or better interest rates on your deposits.

This would be a bonus if you already have such accounts with the bank and opting for a home loan with the same bank for your house unlocks additional benefits.

TLDR: Summary of which loan to choose

Deciding between the two can be a tough choice. Here’s a quick summary to help you make an informed decision.

Choose HDB Loan if you:
Choose Bank Loan if you:
Are tight on cash flow and have limited CPF savings.
Are ineligible for an HDB loan.
Want to retain the option to make early repayments.
Know the market well and can capitalise on the low-interest rates.
Have an unstable income with the possibility of late payments.
Have a stable income with a low chance of defaulting.
Are keen on having the flexibility to refinance in the future.
Can earn higher deposit rates with a bank loan.

The choice between an HDB loan and a bank loan ultimately depends on your eligibility criteria and financial situation. Therefore, it is important to take your time and weigh your financial options before committing since buying a house is considered a big purchase.

If you are interested in renting a house instead, do check out our article on how you can rent an affordable home in Singapore.

Read more: How To Make Your First Property Purchase

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