Between 2022 to 2024, this question wasn’t very relevant. Taking a Housing Loan from HDB meant you would have to pay 2.6% p.a., while taking a bank home loan cost around 3.0 to 3.5% p.a.
Today, market interest rates have fallen, and this question is valid once again, especially since a home mortgage may be one of the biggest loans you will ever take in your life. Proper research needs to be done so that you don’t end up spending more than required on your mortgage repayments. Mortgage rates can vary, depending on the cost and size of the property as well as your age and employment status.
You can use various home affordability calculators, including HDB’s payment plan calculator or CPF’s Home Purchase Planner, which takes reference to your purchase price and available funds, consisting of cash and CPF savings. These tools make it easy for potential buyers to see just how much you can afford when selecting a property in Singapore, based on your income and the current mortgage rates.
When looking to purchase property in Singapore, you can choose to take either a Housing and Development Board (HDB) loan or a bank loan. Each choice comes with pros and cons, which should be considered carefully.
Why You Should Choose A HDB Loan
Today, close to 80 per cent of Singaporeans live in HDB flats. These flats are in estates or towns that are self-contained and include medical facilities, education facilities, shopping centres and other recreational grounds for their residents to enjoy.
Flats sold by the HDB are also subsidised. The overall aim of these flats is to provide Singaporean citizens with high-quality homes, vibrant towns and a real community-based area so that they can thrive within the area in which they live.
HDB loans are not available to all buyers as there are criteria for eligibility. For instance, at least one buyer must be a Singapore citizen with a total household income below $14,000. This means that PR couples who buy HDB flats cannot take up a Housing Loan from HDB.
If you’re eligible, you can apply for an HDB loan after receiving a HDB Flat Eligibility (HFE) Letter. This letter will inform you of the maximum mortgage amount that you may borrow, the expected payment period and the monthly instalment amounts. You can apply for the HFE on HDB’s website. You will need your pay slip and CPF contribution histories.
A HLE letter is valid for a total of 9 months from the date of issue. If you do not purchase your HDB flat within 9 months, you will need to reapply for it.
An HDB loan is available to eligible buyers at a concessionary interest rate of 2.6% per year. This rate is set at 0.1% higher than the interest rate paid by the CPF Ordinary Account – which is currently the floor rate of 2.5% p.a.
Taking an HDB loan, while more expensive today, comes with some advantages, including more flexible payment and management. On the other hand, bank home loans offer a cheaper mortgage rate today.
Read Also: Here’s Why It Doesn’t Make Financial Sense To Repay Your HDB Flat Home Loan Early
Why Choose A Bank Loan?
Bank home loans are particularly useful for those who do not qualify for an HDB loan, leaving a bank loan as their only option.
One advantage of using a bank loan is the variable interest rates, which fluctuate based on the overall interest rate environment. Most bank loans in Singapore refer to the Singapore Overnight Rate Average (SORA).
In a low-interest-rate environment, banks may offer more competitive interest rate home loan packages compared to a concessionary HDB home loan. For example, from 2009 to 2021, home buyers in Singapore were able to finance their property purchases for generally under 2.6% p.a. using bank loans.
On the flipside, as interest rates climbed from 2022 to 2024, so did interest rates on bank loans – which simply reflects the current market rate. During 2022 to 2024, it was not uncommon for interest rates to be above 3% p.a or even close to 4%. All the while, though, the HDB concessionary loan remained unchanged at 2.6% p.a., making bank loan rates more expensive.
Aside from the interest rate, there are other factors that we need to consider when taking out a bank loan. This includes a higher initial downpayment requirement of 20% during the signing of the Agreement for Lease and another 5% during the collection of keys. In contrast, those taking a HDB concessionary loan only need to pay down 10% when they sign the Agreement for Lease, and pay the remaining 15% when they collect their house keys.
Taking an HDB home loan also comes with more flexibility – allowing you to pay down your home loan without any penalties. For those on a bank home loan, pre-payment of your home loan will typically come with an early repayment fee of about 1.5% of your outstanding loan amount.
Finally, if we decide to take out a bank loan for our HDB property, we should be aware that we will not be able to convert it back to an HDB loan. On the other hand, if we chose an HDB loan first, we can always convert to a bank loan at a later time if we decide to.
Read Also: Step-by-Step Guide to Refinancing Your Home Loan
Which Type Of Home Loan Financing Should You Choose?
Whether you choose an HDB loan or a bank loan depends on your circumstances, taking into consideration your needs and abilities.
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.
Read Also: HDB Or Bank Loan: Pros & Cons To Consider Before Deciding On Which Housing Loan To Take
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