HDB loan or bank loan?
An HDB loan has a fixed 2.6% rate and lets you pay the whole downpayment from CPF. A bank loan may be cheaper at times, but needs 5% in cash and its rate can go up.
If you qualify for both, a few differences decide it, and one of them is permanent. The main differences side by side:
| HDB loan | Bank loan | |
|---|---|---|
| Interest rate | 2.6%, fixed by formula, never changes | Market rate, fixed or floating - moves over time |
| Cash downpayment | None - the full 25% can be CPF | At least 5% of price in cash |
| Maximum loan | 75% of price or valuation | 75% of price or valuation |
| Income ceiling | $14,000 a month (families) | None |
| Who qualifies | At least one Citizen, no private property, up to 2 HDB loans in a lifetime | Anyone eligible to buy the flat |
| Maximum tenure | Up to 25 years | Up to 30 years |
| Early repayment | No penalty | Often a penalty during the lock-in period |
| Switching later | Can refinance to a bank loan | Cannot switch back to an HDB loan |
Interest rate
The HDB concessionary rate is 2.6%, set at 0.1% above the CPF Ordinary Account rate, and it has stayed there for years. Bank packages can be cheaper when rates are low. The advantage of the HDB rate is that it is predictable: it does not reset, there is no lock-in period, and there is no promotional rate that ends.
With a bank loan, what you pay depends on interest rates. When packages are cheap you can pay noticeably less, but the rate can rise when the fixed period ends, and to keep it low you will probably need to refinance every few years. A bank loan may cost less overall, but that depends on rates and on you keeping on top of it.
Cash needed for the downpayment
For many buyers this is the deciding factor. With an HDB loan the whole 25% downpayment can come from CPF, so a household with enough in its Ordinary Account may need no cash for the downpayment. A bank loan needs at least 5% of the price in cash, about $30,000 on a $600,000 flat. If most of your savings are in CPF, the HDB loan is easier. How this fits with the other upfront costs is covered in what a resale flat really costs to buy.
Who qualifies for an HDB loan
Almost anyone eligible to buy the flat can take a bank loan. For an HDB loan, the household needs at least one Singapore Citizen and a monthly income within the $14,000 ceiling for families (higher for extended families, lower for singles), and you must not own, or have recently sold, a private property. You can have at most two HDB concessionary loans in your lifetime. Most first-time households meet these conditions, but if your income is above the ceiling, a bank loan is the only option.
You can switch from HDB to a bank, but not back
If you start with an HDB loan, you can later refinance to a bank if bank rates look better. If you start with a bank loan, you cannot switch to an HDB loan later. So if you are unsure, the HDB loan keeps both options open.
Points to consider
- Check eligibility first. If your income is over the ceiling, no one in the household is a Citizen, or you own private property, you will need a bank loan.
- Look at your cash as well as your CPF. If you have plenty in CPF but not much cash, being able to pay the whole 25% from CPF is a real advantage. A bank loan needs 5% of the price in cash.
- Decide how much rate risk you are comfortable with. The HDB rate stays at 2.6%. A bank rate can be lower now and higher later, which is fine if you refinance when needed and expensive if you do not.
- Remember the switch only goes one way. You can move from HDB to a bank later, but not from a bank to HDB.
- Check the instalment at a higher rate. Make sure the monthly payment would still be manageable if rates were a couple of points higher. Our affordability calculator assesses bank loans at a 4% minimum rate for this reason.
The affordability calculator applies both sets of rules, including the 75% loan cap and the 5% cash minimum, and shows the price each loan would support.