HDB or Bank Loan: Which One Should You Go for?

Written by 1AP Credit on April 18, 2022

When purchasing a house, HDB flats are the most popular choice among Singaporeans. However, these loans can be used for HDB housing only; hence, you can also apply for bank loans to have more property choices.

Before applying for a loan, you must always refer to a loan repayment calculator to estimate the costs.

But the question is, which one will offer more benefits for you, HDB loans or bank housing loans?

Don’t worry; you won’t have to do any guesswork anymore; we’re here to enlighten you! Just like how we evaluate loans, in this article, we’ll discuss every aspect of these systems to help you make the right decisions.

Let’s dive into that part, shall we?

What Is A HDB Loan?

The HDB loan is provided by the Housing and Development Board of Singapore to those who want to purchase an HDB flat. However, this loan only applies to HDB housing, not any other private properties.

Let’s take a look at the features of an HDB Loan.

The interest rate of HDB loans is on the higher side; 2.6% p. a.
When it comes to the loan-to-value limit for a new place, you will get 90% of the purchase price of your house. And if you are going for a resale place, you will get 90% of the value or resale price, whichever amount is lower. Moreover, the owner has to pay the other 10% downpayment.
In case of early repayment, there will be no penalty.
If the buyer owns a private property in Singapore or overseas, the loan won’t apply to that person.
A couple’s monthly income has to be less than S$14,000, and a single buyer’s monthly income should be less than S$7000 to apply for this loan.
If the buyer has taken two HDB loans in the past, they cannot apply for another one.
At least one of the buyers has to be a Singaporean.

Pros and Cons of HDB Loans
Pros	Cons
When you take an HDB loan, you will have to pay a smaller downpayment.	HDB loans come with a higher interest rate.
The HDB loan’s interest rate is fixed, unlike bank loans.	As the interest is higher, the total payable amount will be high.
It can be refinanced to a bank loan.
Doesn’t come with a lock-in period.
You can repay your loan early to reduce the total amount without penalties.
You can get up to 90% of your HDB flat’s total value.

What Is A Bank Loan For Housing?

Suppose you don’t want to go for HDB loans. In that case, you can always get a house loan from any financial institute that the Monetary Authority of Singapore legalizes.

With this money, you can go for any house you prefer; you don’t have to spend on HDB flats specifically.

Here are the features of bank housing loans.

Unlike HDB, the bank loan interest is not fixed; it can fluctuate. The standard rate of housing loans is generally between 1.2% to 3% p. a.
You can get only up to 75% of your house’s total value. Therefore, you have to gather 25% money as a downpayment by yourself.
If you try to pay off the loan early, you will get a penalty.
A minimum loan amount will be required.
There will be different types of loans available for you. You can either go for a fixed or floating rate package, whichever you prefer. Or you can also choose a combination if you want.
If you pick the fixed rate package, you will have to pay a specific interest rate within a fixed amount of time, such as 2 or 5 years. On the other hand, the interest rate will fluctuate in the floating rate package; you will get flexibility on the loan amount and payment period.
The interest rate of the bank loans will be pegged SIBOR, SOR, or it will be based on the Fixed Deposit Home Rate.

Pros and Cons of Bank Loan for Housing
Pros	Cons
The loan is easier to get, comes with fewer eligibility restrictions.	The interest rate isn’t stable; it has ups and downs from time to time.
The loan interest is 1.2%-3%, lower than the HDB loan.	You have to pay a higher, 25% downpayment, and at least 5% of that has to be in cash.
You can refinance your housing loan to lower the interest rate.	You cannot change it into an HDB loan during the mortgage period.

HDB Loan vs. Bank Loan – Side by Side

Well, now that you are aware of everything offered by these two types of loans, let’s see a side-by-side comparison to make everything clear.

	HDB Loan	Bank Housing Loan
Interest Rate	2.6%	1.3%-3%
Loan to Value Limit (LTV)	90%	75%
Downpayment	10%	25% (5% must be paid in Cash)
Minimum Loan Amount	Not Required	Generally, at least S$100,00
Eligibility Requirement	Strict	Comparatively flexible
Proper Eligibility	HDB housing only	HDB and private property
Early Payment	No penalty	Usually, 1.5% penalty
Refinance Option	Can be switched to bank loan		It cannot be switched into HDB loans

The Key Difference Between HDB and Bank Housing Loan You Should Note

Here are the key differences you need to consider between HDB and Bank housing loans. It will help you to make the most suitable decision regarding your home.

Downpayment Is Lower In HDB Loans

HDB housing is a great option for those who don’t have tons of money in their bank account. In this loaning system, you will get 90% LTV; hence, you only need to have the rest 10% as a downpayment, which is pretty reasonable for regular people.

On the other hand, if you choose to go for bank loans, you will have to collect a 25% downpayment, hefty for many people. Furthermore, you must pay 5% in cash, though the other 20% can be paid with cash or CPF.

If you pick an HDB loan, you will have more cash in hand to renovate your house or get a car, whatever you want. So, when you don’t have many dollars to spare, you can go for an HDB loan.

Bank Loans Have Lower Interest Rate

One of the best things about the bank housing loan is that the interest rate is comparatively low than the HDB loans. Though the bank loan fluctuates between 1.2% and 3%, it scarcely reaches 3%, which is a relief!

Therefore, if you want to pay a lower interest rate every month and save some money, you can select bank loans. However, you may have to continue it for a long time. If you don’t have any issue with that, you can go for it without hesitation.

HDB Loans Are Stable

Once you take an HDB loan, you will have to pay a fixed interest rate every month until you repay the whole thing. By contrast, the bank loan’s interest rate can be low initially, but it may increase in the future, so you may have to pay more than you planned.

For this reason, picking the HDB loan can be a wise idea as it is stable and will give you peace of mind.

HDB Loan Has Higher Interest

As you will get 90% LTV from HDV, you will need to pay more interest for a longer period because the loan amount will be larger. Conversely, for a bank loan you are getting 75% LTV, so the loan amount is small, and you don’t have to keep paying for a long time and higher interest.

You’ll Have to Pay a Penalty for Early Payoff in Bank Loans

If you pay the loan early, you have to pay a 1.5% penalty for bank loans during the lock-in period. But HDB loans don’t have that, so you won’t be penalized for early payments.

HDB Loans Are More Forgiving

When you take an HDB loan, you can easily negotiate for your late payments and appeal to reduce the fee. You usually have to pay 7.5% of the late amount, which is pretty reasonable.

On the other hand, you don’t have any chance of getting a waiver on your late payments of bank loans. Well, that’s a win for the HDB loans.

So, Should You Get an HDB Loan or Bank Loan?

Life has its ups and downs. We will never know when we might need an urgent cash loan.

If you have a low income and want a reasonable and stable loan, HDB loans are the most suitable ones for you. This way, you will get a stable interest rate, greater LTV, and no penalties for early payment. Moreover, this loaning system is relatively forgiving even though the higher interest rate.

By contrast, the bank loan offers you a lower interest rate, that’s true. But you will have to gather a bigger downpayment, and there will be more penalties, which can be a little problematic.

The HDB loan seems more lucrative as you don’t have to pay more than a 10% downpayment. Hence, you can use your saved money for anything, for example, arranging your wedding. And HDB flats are as amazing as your first home; thus, you can choose them without hesitation.

But when you have bigger plans, go for bank housing loans for bigger properties and whatever suits you the best.