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HDB vs Bank Loan: Which is Better?

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Buying your dream home requires tons of research which includes the loan options to finance the purchase. One common dilemma of the home buyers especially the first timers is whether to take an HDB loan or bank loan.

What are some of the home loan jargons?

Term Definition
1. Loan-To-Value (LTV) The amount of loan you can take from either bank or HDB.
2. Housing Loan Eligibility (HLE) It is a requirement by HDB for you to apply if you are intending to buy a new flat from HDB or a resale flat. It will tell you the loan value and various repayment terms if you were to take up an HDB loan.
3. Approval In Principle (AIP) A notice from the bank that she is willing to extend the loan to you if you wish to carry on with the purchase of a flat, of course, the bank will assess your credit history and financial health first.

The bank will assess your income and credit records to determine your mortgage loan eligibility. It is recommended to obtain an AIP approval in order to make an informed decision prior to your property purchase.

What are differences between HDB loan and bank loan?

Factors HDB Loan Bank Loan
Down Payment for housing 10%- you can fully use CPF.

Less capital intensive, lower down payment than bank loan.

Full use of CPF to pay for the down payment is allowed.

25%- minimum 5% cash and next 20% can be from cash or CPF.

Full use of CPF to pay for the down payment is not allowed.

Loan Amount 90% of valuation price or purchase price, whichever is lower 75% of valuation price or purchase price, whichever is lower
Interest Rate 2.6%- pegged at 0.1% above the CPF interest rate, currently at 2.6% Fixed Deposit Pegged

Mostly floating interest rate, the interest rate is pegged to the fixed deposit package.

Example:

FDMR36 + 0.22%

FDMR36 = interest rate for bank’s Fixed Deposit package

0.22% = additional interest payable

SIBOR Pegged

Mostly floating interest rate, the interest rate is pegged to the fixed deposit package.

Example:

1M SIBOR + 0.60%

1M SIBOR = interest rate for Singapore Interbank Offer Rate, reviewed every 1 month

0.60% = additional interest payable

Repayment Cash/ CPF Cash/ CPF
Lock-in Period/ No lock-in period, able to switch to bank loan anytime Usually 2 years, which you have to follow through

So, which loan option is better for you?

If you are someone who is more conscious and willing to bear the risk of floating interest rate, taking up a bank loan would be your optimal choice. Bank’s floating interest rate tends to fluctuate after a couple of guaranteed years; it could rise or decrease depending on the market. As for HDB’s interest rate, it may vary if the CPF interest rate changes but it have remained constant for many years.

For more risk-averse homeowners, HDB offers the best security in comparison to a bank loan. However, bank interest rate has remained relatively low in contrast to HDB loan for many years and may continue for some time. So if you wish to leverage on this opportunity, now is the chance.

Want to secure the best loan package across all banks?

Call 6886 9009 and talk to our mortgage specialist.

Learn more about Ohmyhome’s free mortgage advisory service.

Sources: HDB, UOB

Contributor: Leow Wei Min


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