Getting your first home loan in Singapore can often be a steep learning curve. For most Singaporeans, it is a decision you only have to make once, yet there is so much information out there to absorb and analyse. If you are buying an HDB flat, whether it’s BTO or resale, you face a series of choices. Do you get an HDB loan or a bank loan? Do you choose fixed or floating? Is 3M SORA or 1M SORA better?
As someone who has been in the personal finance industry for over a decade, I’ve written about these choices in articles and explained the pros and cons of each. While I did not give any explicit advice to others, I felt I had enough knowledge to face the same choices and make the right decisions for myself once I applied for my HDB BTO flat almost ten years ago. But on hindsight, this is known in psychology as the Dunning-Kruger effect. Named after a 1999 study by two Cornell University psychologists, the Dunning-Kruger effect suggests that people tend to overestimate their abilities in a specific area.
As it turns out, the Dunning-Kruger effect happened to me, and my choices meant I ended up paying more than I would have if I had just stuck to an HDB loan for my BTO flat.
#1 Choosing A Bank Loan Immediately When Applying For An HDB BTO Flat
Almost 10 years ago, when I was applying for a BTO flat, I had the choice between an HDB loan and a bank loan. Having written multiple articles about this decision process, I felt confident that a bank loan would be the only smart choice.
On the one hand, the HDB loan interest rate is always pegged 0.1% above the prevailing CPF Ordinary Account interest rate. Because the CPF Ordinary Account interest rate cannot fall below 2.5%, the HDB loan interest rate has remained at 2.6% for over two decades, even though it could be higher.
On the other hand, bank loan interest rates were at an all-time low, the result of an extended low interest rate environment. This was due to the US Federal Funds Rate, better known as the US Fed rate, which Singaporean interest rates used to follow closely. Since 2009, bank offered low interest rates, much lower than the HDB loan.
Back then, it seemed obvious to choose a lower interest rate bank loan compared to an HDB loan. Despite more experienced mortgage broker friends reminding me that bank interest rates weren’t always this low and had peaked as recently as 2007, that seemed like ancient history to me.
Bank interest rates started to increase significantly in 2018, eventually peaking in 2019. Though the start of the COVID-19 pandemic had prematurely flattened interest rates for two years, the rates began rising again with a vengeance starting in 2022 before remaining high throughout 2023 and 2024.
#2 I Did Not Factor In That Loan Repayments Only Start When You Collect Your Keys
One of my biggest regrets of relying on my own knowledge to choose between a bank loan and an HDB loan was discounting the fact that my loan repayments would not start till I collected my keys from HDB. Because of the COVID-19 pandemic, my BTO flat was delayed, and it was several years before I started paying off my home loans.
This meant that I did not get to enjoy any of the time when my bank loan interest rate was less than the HDB loan interest rate of 2.6%. My bank loan, which was 1.65% when I first applied, rose to 4.45% in 2022 when I collected my keys. As you can imagine, I was definitely not happy about that.
In the home loans cycle, it’s difficult, almost impossible, to predict how things will change over three or four years, let alone more than that. Had I stuck to an HDB loan first and waited until I was closer to collecting my keys before deciding whether to apply for a bank loan, I would’ve been able to make a more informed decision based on the packages offered in 2022.
#3 Choosing A Fixed Deposit Rate Home Loan When It Was New
During the period when I first applied for a home loan, fixed deposit rate home loans were a popular innovation by banks in Singapore. The draw was that this type of home loan rate was transparent, as SIBOR-linked rates were back then, and SORA-linked rates are today. They would be less volatile than SIBOR and SORA, which change daily. Finally, because they are pegged to the bank’s fixed deposit rates, they would represent a cost to the bank, and therefore, the rates wouldn’t change unexpectedly.
Drawn by these reasons, I chose a fixed deposit rate home loan. However, because it was a relatively new product, I genuinely had no information about how such a rate would change in an evolving interest-rate environment.
A more experienced mortgage broker friend did point out to me back then that fixed deposit rate home loans were ultimately still a board rate, referring to a less transparent type of home loan package that banks used to offer. This was because banks ultimately control how interest rates are determined.
As I mentioned earlier, once I collected my keys in 2022, my home loan package had skyrocketed to 4.45% since I was on a fixed deposit rate home loan.
#4 Refinancing And Repricing In An Evolving Interest Environment
The good news is that I could refinance or reprice my home loan package as soon as I collected my keys in late 2022. The bad news was that since I was already paying an interest rate of 4.45%, I did not get the ideal home loan packages offered to me.
In 2023, I was offered a choice between a fixed rate of 4.25% for two years, or a floating 3M SORA + 0.70% package for two years. Despite 3M SORA being at 4% at that time, I knew it couldn’t last forever and was betting it would eventually drop, so I chose the floating-rate package, which did turn out to be the better choice.
But it still meant that I was paying more than the HDB home loan. Last year, the spread on my floating-rate home loan package jumped to 3M SORA + 1.25%, so I had to refinance or reprice my home loan again, as I didn’t want to pay 4.25%.
Despite the falling 3M SORA rates in 2025, or perhaps because of it, I was offered a fixed rate of 2.55% or a floating 3M SORA + 1.0% rate. This time, I chose the fixed rate of 2.55%, and for the first time as a homeowner, I was paying less than the HDB loan rate.
Ironically, it was not the best choice for me, as I could’ve saved more money if I had chosen the floating rate, but I was just relieved to be paying less than the HDB loan rate at all.
Don’t Rely On Your Own Knowledge, Speak To A Mortgage Broker
Mortgage brokers in Singapore offer their time and advice to help you make the decision that is right for your individual needs. Since they are often paid the same commission rates by the banks they refer you to, they offer their services to you for free. Consider our friends over at RedBrick and Cashew.
If you prefer a DIY approach, Cashew offers a user-friendly platform to compare packages across banks based on your loan inputs. Additionally, Cashew’s advisors also assist you in applying for the preferred loan package, all from the comfort of your home.
Alternatively, RedBrick offers a more personalised experience, with its professional mortgage brokers sharing insights into the nuances of each loan package during a free, non-obligatory consultation. Check out our home loan guide for more information.
Ultimately, the best choice is to work with a mortgage broker who has years of industry experience. As we’ve mentioned consistently in this article, mortgage rates are cyclical, and only the most experienced brokers are aware of the nuances and can provide advice on choosing a fixed or floating rate that not only benefits you in the short term but also in the long term.
