One of the first financial decisions that Singapore families will have to make when buying an HDB flat is the type of housing loan to take.
In essence, we have two choices: an HDB housing loan or a bank loan. But which should you opt for in today’s environment?
Back in 2022 and 2023, when global interest rates spiked, many homebuyers who had previously chosen bank loans saw their mortgage payments rise sharply. At that point, the HDB loan, with its stable 2.6% interest rate pegged to the CPF Ordinary Account rate, became the more predictable and, for many, cheaper option.
Fast forward to 2025, and the picture is changing again. With the U.S. Federal Reserve starting to cut rates earlier this year, local mortgage rates in Singapore have eased from their peaks. As of October 2025, based on loan rates provided by Cashew, a loan comparison platform in Singapore, we can see that the current rates for a 3-year fixed rate with a local bank is currently 1.60%, lower than HDB’s 2.6%.
Eligibility Criteria For An HDB Loan
Before we go into the comparison, let’s first run through the eligibility criteria for an HDB loan.
> At least one buyer must be a Singapore citizen.
> Have not taken two or more HDB loans before (i.e. max two HDB loans).
> > Monthly household income not more than $14,000, or $21,000 for extended families applying together.
> Must not have owned or disposed of any private residential property in the 30 months before the date of application for an HLE letter.
If you do not meet any of the above eligibility criteria, then this comparison doesn’t matter since your only option will be to go for a bank loan.
HDB Loan Vs Bank Loan Comparison
If you are deciding between an HDB loan and a bank loan, that means you intend to buy an HDB flat. Hence, all the regulations for purchasing an HDB flat naturally apply. For example, for the first five years, you are required to live in it and cannot sell or rent out the entire flat.
We will make a reasonable assumption about the loan required for the homeowner.
Here are our assumptions.
Cost of flat: $400,000
Loan Period: 20 Years
Down payment: 25%
Loan Required: $300,000
How Much Less Will I Pay If I Take Out A Bank Loan Now?
The main reason for taking a bank loan is to enjoy lower interest rates. If we take the fixed rate today of 1.6%, this means the current bank loan is about 1% lower.
Most banks will offer interest rates tied to SORA or a Fixed Deposit Home Rate. Banks usually offer attractive teaser rates for the first two to three years to entice potential customers.
Cost of Flat: $400,000
Loan Required: $300,000 (25%)
Loan Duration: 20 Years
| Interest Rate | Monthly Mortgage | |
| HDB Loan | 2.6% | $1,604 |
| Bank Loan | 1.6% | $1,461 ( – $143) |
For a $300,000, 20-year loan, the difference in the monthly mortgage between the HDB loan and bank loan is about $143. Of course, this saving will become more substantial as the loan size increases.
For example, using Cashew’s HDB refinance comparison calculator, we can see that potential savings each year can easily be more than $3,000 for a loan amount of $600,000, taken over 25 years.
Source: Cashew
Read Also: Here’s Why It Doesn’t Make Financial Sense To Repay Your HDB Flat Home Loan Early
What Are The Disadvantages Of Taking A Bank Loan?
Now that we have explained the financial implications of taking a bank loan, let us discuss some of its other disadvantages.
# 1 Interest Rates Are Never Guaranteed
For those of you who don’t already know, interest rates offered by banks are (almost) never guaranteed past the lock-in period.
Even if you take a fixed loan package, the interest rates are only guaranteed for a limited period. After the “fixed” period, the interest rate becomes a floating rate. Most home loan interest rates are pegged to the SORA.
If you take a bank loan, be prepared that what you are paying now may not be what you will be paying in the long term.
# 2 Constant Refinancing Or Repricing Fee
To constantly enjoy the advertised (i.e. lower) interest rate, you will need to keep refinancing or repricing your existing bank loan. This is typically done once every two to three years.
Repricing is cheaper than refinancing because it means sticking with your existing bank, while refinancing involves moving the housing loan to another bank.
As a general rule of thumb, you should reprice or refinance if it allows you to save more in terms of interest (over the next three years) than what it would cost you in legal fees.
At the same time, however, it’s worth remembering that the actual savings that you derive from choosing a bank loan will be lower than expected because of the refinancing or repricing fee, even if interest rates somehow remain the same for the duration of the loan.
If you take a bank loan for 20 years, you should expect to refinance or reprice it about six times before the end of your loan. You should find out from your mortgage broker about the cost of refinancing or repricing, and add that to the savings that you think you are getting, to see if a bank loan truly makes sense.
Read Also: Refinancing VS Repricing Your Home Loan: What Are The Differences?
# 3 Early Prepayment Fee
Most homeowners don’t realise this, but there is an early repayment fee that applies if you sell your HDB flat within the commitment period for bank loans. The commitment period is typically a three-year lock-in period that takes place after you refinance or reprice your loan.
For example, if you were to refinance your bank loan today and sell your HDB flat two years later, you will be liable to pay the early prepayment fee. This is typically about 1.5% of the remaining loan amount.
The workaround here is NOT to refinance or reprice your home loan if there is a possibility that you will sell your HDB flat within the next three years. However, this also means missing out on the advertised interest rates that attracted you to a bank loan in the first place.
Read Also: Home Loan Guide – Penalty For Early Repayment
# 4 Higher Downpayment In Cash
For HDB loans, the downpayment required is 25% which can be fully paid by our CPFOA savings. However, for bank loan, at least 5% of the 25% downpayment required has to be paid using cash.
# 5 Once You Take A Bank Loan, You Can’t Switch Back To A HDB Loan
As opposed to taking an HDB loan first, where you can still convert to a bank loan in the future, taking a bank loan for your property is a one-way decision; you can’t revert back to an HDB loan.
This is also one of the main reasons why we suggest that new homeowners opt for an HDB loan first if they can. As and when you are convinced by the merits of opting for a bank loan, you can go ahead to switch again in the future.
Read Also: What A 1% Increase In Interest Rates Could Mean For Your Home Loan Repayment
# 6 Minimum Amount Required
Many people don’t realise this, but then banks may not allow you to take a loan if the loan amount is below $100,000. In general, this isn’t a big issue if you are applying for a new loan, since you would not be able to take the loan anyway.
The danger arises when you cannot refinance or reprice your loan once it falls below a certain threshold, leaving you stuck with an unfavourable interest rate. To avoid this, ensure that you refinance/reprice your loan just before it dips below $100,000 so that you are not stuck with a loan with a bad interest rate.
Which Would You Choose?
We hope that through this explanation, HDB homeowners will realise that simply opting for cheaper bank loans may not necessarily be better compared to HDB loans with slightly higher interest rates.
At the end of the day, however, it’s up to individual homeowners to determine for themselves what makes the most sense, based on their plans.
If you’d like to find the most suitable home loan among banks in Singapore, we have a guide to choosing the most suitable home loan. In this guide, we have discussed how the loan duration can affect your repayment, whether you should choose fixed or floating interest rates, and even the penalty for early repayment.
Finding the right mortgage partner is also essential. A trusted mortgage broker like Redbrick can help you evaluate whether to refinance or reprice with your current bank, and their Mortgage Experts even offer a free personal consultation to walk you through your options.
Meanwhile, digital platforms like Cashew let you instantly compare the best rates across banks and handle the entire loan application process, saving you both time and money.
Read Also: Interest Rates Are Going Up. Should I Be Refinancing My Mortgage As Soon As Possible?
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