Acquiring your own house is undoubtedly one of life’s major decisions, and choosing between an HDB loan and a Bank loan is never a straightforward one. To provide everyone with a clearer understanding before making this important choice, here is a summary of the key differences between these two types of loans.
- HDB Loan
This is only applicable when you applied HDB flat! (if you are getting condo/apartment/landed property, your choice would be bank loan)
- Interest rate: 2.6% (Fixed) which is 0.1% above the CPF Ordinary Account’s interest rate.
- Loan-to-Value (LTV): Up to 80% of the purchase price/resale price or value of the property
- Downpayment: 20% of the purchase price and can be funded by CPF
In the event of early repayment of the loan amount, there will not be any penalty.
There are also certain criteria to follow in order to quality for the HDB loan.
- At least one buyer is a singapore citizen
- Buyer must not have taken two or more housing loan from HDB
- Buyer’s gross monthly household income does not exceed $14,000 or $21,000 for extended families or $7,000 for singles buying a 5-room or smaller resale flat or 2-room new flay in a non-mature estate.
- Buyers must not own or have disposed of any private residential property in 30 months(local or overseas) before the loan application.
You can find more information here
- Bank Loan
You can choose to get your housing loan from any banks in Singapore.
- Interest Rate: Varies among Financial Institutions and may change with market conditions. You can check the latest comparison here.
- Loan-to-Value(LTV): Up to 75%
- Downpayment: Up to 25% (20% can be paid via CPF or Cash but remaining 5% must be cash)
Unlike HBD loan, early repayment will incur penalty and there will be a minimum loan amount required in the bank. However, it has lesser criteria to meet in order to get a bank loan.
You can find more information here
There are also a few areas to take into consideration when it comes to the interest rate offer by the bank. Mainly you might come across FHR (Fixed Deposit Home Rate) or SORA (Singapore Overnight Rate Average) which are different benchmark interest rate that the homeowner can choose for their loan.
What is Fixed Deposit Home Rate (FDHR)?
It refers to the Singapore Dollar Fixed Deposit interest rate. Its application goes beyond determining the payouts for fixed deposit customers in banks. In Singapore, some banks also utilize fixed deposit rates to price home loans.
The interest rate for these home loans is based on the average fixed deposit rate over a specified period. The underlying idea is that if the bank increases the interest rate for home loans, it will also need to raise the interest rate for its fixed deposit accounts. While this benefits customers with increased payouts, it also results in higher costs for the bank.
Changes in fixed deposit rates by the banks will directly affect loans pegged to these rates. However, “existing” fixed deposit holders will experience minimal impact, as the changes will only apply when their fixed deposits mature or come up for renewal. Subsequently, other banks followed suit and introduced similar products, albeit with different names, a few years later.
Fixed deposit rates not only tend to be low but also remain relatively stable. Due to infrequent changes by banks, there is minimal volatility associated with fixed deposit rates.
Despite using fixed deposit rates, it’s important to note that they still fall under the category of board rates and are solely determined by the individual bank.
What is SORA (Singpapore Overnight Rate Average)?
SORA serves as an alternative benchmark interest rate and is determined by computing the average rate of all interbank lending transactions. It is highly transparent and is considered less volatile than the previous benchmark like SIBOR.
You can read more about SORA here
| HDB Loan | Bank Loan | |
| Interest Rate | 2.6%(fixed)- 0.1% above CPF OA interest rate | 1.3%-2.4% (depends on banks and benchmark) |
| Loan-to-Value(LTV) limit | Up 80% of purchase price | Up 75% of purchase price |
| Downpayment | 20% (payable by CPF) | 25% (minimum 5% in cash) |
| Early Repayment | No penalty | Likely to incur penalty (depends on banks) |
| Minimum loan | None | $100k and above |
| Late payment penalty | More Lenient- Max 7.5% late payment fees per annum | Less Lenient – Depending on banks. |
| Eligibility | Income & Citizenship | No restriction |
Based on the table provided, it’s evident that if you are a young adult with limited available cash, opting for an HDB loan might be a more suitable choice due to the smaller downpayment requirement. Additionally, the interest rate, which is only 0.1% above the current CPF OA interest rate, will consistently align with changes in the CPF interest rate. Furthermore, in the future, you will have the flexibility to switch to a bank loan should you choose to do so. On the other hand, individuals who initially choose a bank loan cannot later switch back to an HDB loan.
However, selecting a bank loan does offer its own benefits, such as lower interest rates and generally more lenient eligibility criteria.
Ultimately, whether you decide on an HDB loan or a bank loan, it’s essential to carefully weigh the pros and cons and thoroughly assess your financial situation in conjunction with your partner before making a well-informed decision.