Planning on purchasing your first HDB soon? It's an exciting feeling to be able to move into your first apartment.
However, it can be a big financial commitment and you may find it difficult to save up enough funds on your own to make this purchase in one lump sum.
So if you're in search of some financial help to get you to this next step, there are two types of loans to consider.
These loans are the HDB Concessionary Loan (a.k.a. the HDB loan) or a traditional bank loan. Whether you decide on one or the other will come down to a few important factors to consider.
Differences between HDB loan vs bank loan
So how do you decide between an HDB loan and a bank loan? You might consider the following factors:
Type of property
The HDB loan is only available to those purchasing HDB property and does not apply for any other type of residential property.
If this is your first HDB property, there are many advantages to choosing an HDB loan over a regular bank loan.
For one, HDB loans provide more leniency in the event you can't make your payments on time, with a current penalty rate of 7.5% per annum. Bank loans typically offer penalty rates higher than this, but the exact amounts vary amongst individual banks.
The maximum amount for the loan goes up to 90% of the purchase price of the new HDB property, or 90% of the resale price or market valuation in the case of resale flats.
There are also no minimum amounts set for an HDB loan so you'll only need to borrow what you need, avoiding higher payments in interest.
Down payment amounts
On top of that, the down payment for an HDB loan is lower than a bank loan at 10% in cash or CPF funds. Meanwhile, a bank loan requires 5% in cash, plus 20% in cash or CPF Ordinary Account (OA) funds.
However, there are drawbacks to HDB loans you'll want to consider.
| See also: How does TDSR affect your home loan application? |
First off, interest rates are considerably higher than other bank loans at 2.6%. Generally, bank loans range between a lower percentage of 1.3% - 2.5%.
This is the most important factor to consider when choosing an HDB loan. You'll need to make sure you can manage your repayments on time to avoid racking up the interest fees.
At the same time, it is important to understand that although HDB loan interest rates are generally higher than bank loans, HDB loan interest rates are not subject to fluctuations in the market and are currently fixed at 2.6%.
Meanwhile, bank loans are subject to market fluctuations whether you opt for fixed or floating interest rates which can increase or decrease. This means that just because you sign up for a home loan with an interest rate of 1.5%, for example, this does not guarantee this is the rate you will have to eventually pay for the duration of your loan. It may be higher or lower.
Mortgage servicing ratio
Apart from that, HDB loans have a set mortgage servicing ratio (MSR) which only allow you to use 30% of your monthly income to service your loan. Hence, there may be a lack of flexibility when it comes to how long it takes to pay back your loan compared to bank loans where monthly repayment amounts can be higher.
Eligibility for an HDB loan:
- At least one owner is Singaporean
- You are applying for a loan to purchase an HDB flat
- You must not have taken 2 or more housing loans from HDB previously
- You must not own any private residential property or disposed of one within the last 30 months
- Your income falls below the set income ceiling of S$12,000 (or S$18,000 for extended families)
Bank home loan
Compared to an HDB loan, a regular bank home loan generally has fewer restrictions and less criteria in terms of eligibility.
You don't need to be a Singaporean citizen to apply for a home loan with a bank, nor is there an income ceiling which means you can apply even if your income exceeds S$12,000.
However, keep in mind that while HDB loans do not have early repayment fees, certain bank loans may be fixed and require you to pay exit fees or early termination fees for home loans. So if you'd like to avoid extra interest paid, an HDB loan might still be the better option for you.
HDB loans vs Bank loans
( 0.1% above the CPF Ordinary Account interest rate)
|Currently 1.3% - 2.4%
(Varies with bank, benchmark and interest rates fluctuations)
10% in Cash
|At least 5% in cash, and
20% in cash or using CPF OA savings
||New HDB flats: 90% of purchase price.
Resale HDB flats: 90% of resale price or market valuation, whichever is lower.
|75% of purchase price.
||Usually $100,000 (subject to individual banks)
|Late Payment Penalty
||Currently 7.5% per annum
||Generally less lenient than HDB loans, varies according to individual banks
- Income ceiling
- Citizenship requirements
We hope we've helped you decide whether an HDB loan or bank home loan is right for you. To help you further, why not check out GoBear's nifty comparison tool for side-by-side rates of the best HDB and bank home loans available in the market.
Consider us your dedicated mortgage partner to help you find the best home loan rates in town, and find HDB or bank home loans with interest rates as low as 1.43%!