HDB Loan vs Bank Loan

So you’ve decided it is time to take the next big step in life – becoming a homeowner!

Plus, you’ve found your dream flat that checks off everything in your list. The location’s perfect, there’s a range of amenities conveniently located nearby, the neighbourhood is surrounded by lush greenery and more.

Now the question is… how are you going to finance your flat?

Buying your own home is a big financial commitment that could stretch up to 25 years. It’s important to put careful thought into how you will finance your flat, because the type of housing loan you opt for can have an effect on your ability to pay off your loan.

We understand how choosing between a HDB loan and bank loan can be daunting, so here are 5 key considerations to think about before making your decision:


HDB Loan

Bank Loan The Verdict

What is the maximum amount I can borrow?

New flats: Up to 90% of purchase price
Resale flats: Up to 90% of the resale price or value, whichever is lower

Up to 75%
(as of 6 July 2018)

The amount granted by HDB loans are higher.
How much downpayment do I have to make?
10% using CPF and/ or cash

20% using CPF or cash
5% in cash

Bank loans require a higher downpayment.

What’s the interest rate for my loan?

2.6% per annum (prevailing HDB concessionary interest rate)

Differs according to each bank, but some rates are lower than HDB’s

While the interest rates for HDB loans may be higher than a bank’s, the rates are fixed and stable. Bank interest rates are prone to fluctuations

Can I repay my loan earlier?

Can make partial or full capital repayment of the loan without any penalty

Penalty imposed (usually about 1.5% of loan amount) if partial/full redemption is made during the commitment period. Conditions vary between banks.

HDB loan repayment plans are more flexible.

I’ve changed my mind, I want to switch to the other type of loan!

Can refinance your HDB loan to a bank loan; but will not be able to switch back to HDB loan subsequently

Cannot switch to an HDB loan after taking up a bank loan

Factor in all considerations before deciding on the type of loan!

*The HDB housing loan will be pro-rated from the 90% Loan-to-Value limit, if the remaining lease does not cover the youngest buyer/ owner at the age of 95 and beyond at the point of the flat application.

For more information on HDB loans, click here.

For more information on bank loans, click here.

To put both options into perspective, we spoke to two couples on their home-buying journey.

Newlyweds Ashraff and Shila, who recently collected the keys to their BTO flat in Tampines, decided that an HDB loan was more suitable for them. The couple felt that the 10% downpayment for an HDB loan, which they paid fully using their CPF, was relatively easier on the wallet. This helped to free up some cash for their home renovation.

For husband and wife Joseph and Michelle, who live in a resale flat in Hougang, one of the benefits they have enjoyed from taking a bank loan is the lower initial interest rates. “Plus, our bank loan offers us the flexibility to refinance after 2 years, giving us the opportunity to readjust our rates to prevailing market conditions,” said Michelle.

Ultimately, the type of housing loan you choose really depends on your lifestyle, your priorities and your ability to service your loan. Do take the time to weigh the pros and cons of each type of housing loan, and see how it suits your needs – now and in the future.

Remember, regardless of the type of loan, your housing loan must be approved before you can purchase your flat. To check on your eligibility for an HDB loan, click here.

Which loan is more suitable for you? Share your thoughts with us in the comments below! Or, check out these other articles for more information on financing your home.

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