Purchasing a home is one of the most significant investment many families will make in their lifetimes. Therefore, it is important to have a clear understanding of all the options available when choosing between home loans.
Aside from comparing rates from different banks, consumers must also navigate the differences between bank loans and HDB loans. This guide serves to lay out the differences between the two and allow homeowners to make more informed decisions.
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HDB Loans
The Housing & Development Board offers housing loans with a concessionary interest rate pegged at 0.1% above the CPF Ordinary Account (OA) interest rate. This rate is currently 2.6%, which is more competitive than most bank loans in today’s high rates environment.
Pros and Cons of HDB Mortgage Loans
There are a few key benefits of HDB home loans.
As mentioned above, the first and most obvious benefit is that HDB loan interest rates are currently more favourable than bank home loan interest rates. That being said, bank loan interest rates fluctuate with broader market interest rates while HDB loan rates are pegged to the CPF Ordinary Account interest rates. During the pre-covid era, bank home loans were charging interest rates as low as 1.55% p.a. Buyers can consider taking advantage of the preferable HDB loans now while bank rates are high and revisit their mortgage loans should bank loan rates significantly reduce.
Secondly, HDB loans allow homebuyers to put less money down due to the higher loan-to-value (LTV) limit of 80% (banks are only allowed to lend up to 75% of the home’s value). This mean if you are looking to purchase a HDB that cost S$500,000, you would only have to put down S$100,000 if you take up a HDB loan as compared to S$125,000 if you take up a bank loan.
Additionally, the downpayment for a home purchased with an HDB loan can comprise of CPF, Housing Grants or cash. On the other hand, those purchasing a home with a bank mortgage must pay at least 5% of the home’s value in cash as part of the down payment.
Finally, HDB loans allow for early repayment without fees, whereas many banks charge a penalty (usually about 1-2%) for early loan repayment.
However, there are also some downsides to HDB housing loans, the main one being, unlike bank loans, HDB loans cannot be used to purchase private residences. This can be greatly limiting for those who are looking to upgrade from a HDB to a condo or landed property.
HDB Loan Eligibility
In order to be eligible for a HDB mortgage, one home buyer must be a Singapore citizen. Additionally, these home loans are only issued to those purchasing HDB flats, meaning that they cannot be used to purchase condos or other private homes.
Moreover, buyers must have received no more than 2 previous HDB loans, not have held/disposed of any local or overseas private property within 30 months or have an average gross monthly household income of over S$14,000 for families (S$21,000 for extended families) or S$7,000 for singles. For applicants that have been employed for fewer than 3 months, the average income will be calculated based on the actual number of months worked.
HDB Housing Loan Average Gross Monthly Household Income Limits
| Family Type | Income Limit |
|---|---|
| Singles* | S$7,000 |
| Family | S$14,000 |
| Extended Family | S$21,000 |
In the event you are initially under a bank loan for a HDB purchase, you will not be allowed to refinance with a HDB loan.
HDB Loan Eligibility Summary
- HDB loans only applicable for the purchase of HDB flats
- At least one buyer must be a Singapore citizen
- Family’s monthly income must not exceed $14,000 ($21,000 for extended families and $7,000 for singles)
- Buyers must not own any private residence
- Must dispose of private residential property more than 30 months before the HDB loan application
- Buyers are only eligible for 2 HDB Home loans in lifetime (not eligible for a 3rd HDB loan)
Bank Loans
Bank mortgage loans offer borrowers more flexible loans compared to HDB home loans. Given the fewer eligibility requirements, these mortgages may be preferable to some homeowners.
Pros and Cons of Bank Loans
In general, bank housing loans tend to offer much more flexibility compared to HDB home loans.
First of all, there are fewer eligibility requirements. There are no income caps or citizenship requirements and borrowers can purchase HDB flats or private residences.
One downside to bank loans is that MAS regulations limit loans to 75% of the home’s sale price. For this reason, borrowers with bank home loans may have to make more significant down payments. Of course, homeowners that make larger down payments will pay less in interest costs compared to those that make smaller down payments (assuming the same sale price and interest rate) as they will be accruing interest on a smaller loan amount.
The most important difference between the two loan types is that home loans from banks rates are currently more expensive than HDB loans. That being said, bank rates tend to change more frequently than the HDB concessionary interest rate, and most banks allow borrowers to refinance at more competitive rates every few years. This could in the long run negate the benefit of a fixed HDB loan interest rate.
Best Bank Fixed Mortgage Rates for HDB Homes
| Bank | Monthly Instalment | 1st Yr Interest | Lock-in Period |
|---|---|---|---|
| OCBC | $ 2,371 | 2.600 | 2 years |
| OCBC | $ 2,503 | 2.650 | 2 years |
| OCBC | $ 2,268 | 2.700 | 2 years |
| SCB | $ 2,281 | 2.750 | 3 years |
| SCB | $ 2,294 | 2.750 | 2 years |
Best Bank Floating Mortgage Rates for HDB Homes
| Bank | Monthly Instalment | 1st Yr Interest | Lock-in Period |
|---|---|---|---|
| DBS | $ 2,631 | 0.600 | 2 years |
| DBS | $ 2,540 | 0.650 | 2 years |
| DBS | $ 2,585 | 0.750 | 2 years |
| HLF | $ 2,581 | 3.970 | 2 years |
| HSBC | $ 2,598 | 0.650 | 2 years |
Home Loan Calculator
To get a better understanding of how much a bank loan will cost, you can use the home loan tool below. This mortgage calculator uses live interest rates that are currently available in Singapore. This is important due to the fact that bank’s home loan rates tend to fluctuate often.
Find the Cheapest Home Loans in Singapore
Bank Loan vs HDB Loan
Ultimately, prospective home buyers must decide which home lending option better suits their needs. For those that plan to purchase an HDB flat, and are able to meet the Housing & Development Board requirements, HDB housing loans are a great fit. Borrowers who are looking for greater flexibility in their loan terms and would like to take advantage of falling rates in the future might opt for a bank loan instead.
Find All The Best Home Loans in SingaporeFind Out More
Read More:
- Fire, Home & Mortgage Loan Insurance: 3 Ways to Help Protect Your First Home in Singapore
- Home Loan Basics: Total Debt Servicing Ratio (TDSR)
- Explaining the Loan-to-Value (LTV) Ratio
- A Complete Guide to HDB Sale of Balance Flats in Singapore (2024)
- How to Handle Mortgage Stress and Reduce Debt
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