Close to 80% of Singapore’s resident population lives in HDB flats, and more than 9 in 10 HDB households own their homes. While HDB flats are typically more affordable than comparable private properties, they can still be a major financial commitment — especially after HDB resale prices rose sharply from 2020 before easing slightly in 1Q2026.
This means taking a long-term home loan remains common among Singapore homebuyers, whether through an HDB concessionary loan or a bank loan.
We have previously written about why it makes financial sense to take the maximum HDB Home Loan you can when buying your first flat. At the same time, we also think it makes financial sense not to repay our home loan – regardless of whether it is an HDB home loan or bank loan – for HDB flats even if we have the ability.
#1 You Cannot Take Out A Home Equity Loan From Your HDB Flat
The most significant reason is that regardless of whether we take an HDB home loan or bank loan, we cannot take out a home equity loan on our HDB flat.
This means any amount we put into early repayments for our HDB flat, we cannot take out again, even if we direly need it for any reason. The only way we may be able to use these funds again is if we sell the property.
This restriction can lead to potential financial constraints.
#2 You Are Left With Less Cash Buffer
Not being able to take out a home equity loan on our HDB flat means that if we ever face any liquidity challenges, we will not have this fund at our disposal to continue paying our monthly home loan or other living expenses.
This is unlike buying a private property, where we can take home equity loans, and even investing our money in the stock market or putting it into T-bills or fixed deposits, where we can always cash out.
However, repaying your HDB flat early may still be better than contributing to our CPF, as we can still sell our home as a last resort to unlock any potential cash proceeds. Depending on how much we need to refund into our CPF Ordinary Account, we may not have as much cash-in-hand as we assume.
To lose a financial safety net for our home and living requirements may be quite a risky move, especially if we have not set other contingencies in place. This can also be exacerbated if we purchased our home thinking both us and our spouse will continue working during the entire loan tenure to repay our monthly mortgage or have financially stretched ourselves to afford the home in the first place.
Read Also: What Singaporeans Need To Know About Home Equity Loans Before Taking One
#3 Lose Your Cashflow Flexibility To Adjust Your Lifestyle
As we cannot reverse the decision to repay our home loan for our HDB flat, we also lose some cashflow flexibility to lead the life we desire.
Professionally, we may want to take the path less travelled to start a business that we’ve always thought about doing. With enough experience and the right contacts, this could be a significantly enriching and fulfilling endeavour. Ploughing our funds into our homes potentially leaves us without start-up capital or financial safety net to initially take less salary or if we face business failure.
Personally, we also give up the freedom of either us or our spouse taking some time off work, for any reason – to take a sabbatical, be a stay-at-home parent to care for our newborn, look after a loved one in need – or to work in a lower-paying but more meaningful role.
Without sufficient cashflow to bolster our finances, we may be limiting the lifestyle decisions we want to take.
#4 Your Repayments Deliver (Relatively) Poor Returns
Despite the lower interest rate environment, an HDB concessionary loan currently charges 2.6% per annum. For bank home loans, rates have eased from their 2022–2023 peaks but still typically range between about 1.5% and 2.0% per annum, depending on the package and lock-in period. You can check out the latest mortgage rates through a mortgage platform such as Cashew.
By making early repayments, we will be saving 2.6% (HDB loan) or lower (bank loan) in yearly interest payments. It’s not far-fetched to invest on our own to achieve a better return. For a start, simply contributing this sum to our CPF Special Account will yield an annual return 4.0%. We can also choose to invest in blue chip companies or country indexes, such as Singapore’s STI ETF or S&P500 ETF, to earn higher returns, of close to 6% in the longer-term.
Investing the funds rather than repaying our home loan also gives us the peripheral benefit of being able to liquidate them to pay for our home if we face any liquidity crisis. We could also liquidate investments more easily and without risking the roof over our heads for other big-ticket cost items such as our child’s university fees.
Read Also: Treasury Bills (T-bills): What Are They And How You Can Buy Them
#5 We Risk Having To Refund Our CPF Ordinary Account (OA)
We need to understand that when we sell our home, we need to refund the 1) amount we have taken out of our CPF Ordinary Account (OA) to pay for the downpayment and/or other miscellaneous charges; 2) the monthly home loan instalments we have paid using our CPF OA funds; 3) housing grants we received from the government when we bought the home; and 4) the accrued interest on items 1 to 3.
As the refund to our CPF OA takes priority over our cash-in-hand, if we sell our HDB at a poor price, we may have significantly less cash-in-hand than expected.
In this scenario, while we may be able to use the bulk of our money to buy our next home, we would have effectively converted our cash savings into CPF savings.
As an added consideration, if we are over 55 when we sell our HDB flat, we would also face significant constraints in using the funds channelled into our CPF to purchase another property as we have to lock away the Full Retirement Sum (FRS), or at the minimum the Basic Retirement Sum (BRS), in our Retirement Account (RA).
Read Also: Here’s How CPF Accrued Interest On Your Home Affects Your Retirement Planning
#6 Unable To Refinance Or Reprice Bank Loan
This only applies if we are servicing a bank loan rather than an HDB home loan. While we cannot take out money from our HDB flat, we can refinance or reprice our bank loan to get a more attractive rate.
On a bank loan, we may look to refinance or reprice our home loan every three years or so, to enjoy the best interest rate available. However, most banks require us to have a minimum outstanding home loan amount of $100,000 before giving us the option to reprice or refinance.
By repaying the outstanding amount on our HDB flat, we may reach this figure much faster and be left servicing a sub-optimal bank home loan rate until we repay the entire home loan. Unlike repaying our private properties, we can also take a home equity loan to increase the minimum outstanding home loan if it falls under $100,000.
If you are thinking of refinancing your home loan. you can check out the latest mortage mortgage rates through a mortgage platform such as Cashew.
Read Also: HDB Or Bank Loan: Pros & Cons To Consider Before Deciding On Which Housing Loan To Take
You May Have Valid Reasons To Repay Your Home Loan On Your HDB
In any decision we make, there will be pros and cons. Even if the reasons above are valid, we still realise different people face different circumstances in life, and there may exist equally good reasons for them to repay their home loans on their HDB flats. In fact, we have even published an article about why prepaying your home loan could be awesome.
The reasons can include having less mental stress to continuously pay a loan for a span of 25 years. With less stress, we may be able to make other good decisions for ourselves too.
Unlike investing our funds to earn a potentially better interest return, repaying our home loan on our HDB flat gives us a guaranteed return of either 2.6% on our HDB home loan or whatever interest rate we would be saving on our bank loan.
Read Also: 6 Investments In Singapore That Provide Guaranteed Principal And Returns
If you adopt a strategy of gradually prepaying your home loan each year, you will also be building your CPF OA balances and saving on your accrued interest over time.
Ultimately, the choice of whether to prepay or not lies with you, and you should assess your individual circumstance in life to decide whether it makes sense for you.
If you’re considering taking a bank loan or doing a refinancing, feel free to get a non-obligatory quote and consultation from RedBrick.
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