Owning a home is an investment you want to make after analyzing your financial implications.
With multiple funding options available, you could opt for an HDB loan or bank loan.
Let’s see how an HDB loan vs bank loan compares and what to consider before taking either.
HDB Loan Vs Bank Loan
An HDB loan is funding provided by the Housing and Development Board, while a bank loan is provided by local banks to facilitate the purchase of a property.
HDB loan vs bank loan – what are the differences?
| HDB Loans | Bank Loans |
|---|
| Get up to 80% of the flat’s LTV. | Get up to 75% of the LTV. |
| The HDB loan interest rate is fixed (currently at 2.6%). | You can get floating or fixed interest rates. |
| Loan tenures are up to 25 years. | Loan tenures are up to 30 years. |
| The HDB loan is for flats. | For HDB flats and private property |
| Eligibility is based on income. | Eligibility is subject to creditworthiness. |
| No prepayment penalties | Early loan repayment penalties (1.5-1.75%) applies. |
| Late repayment penalties of up to 7.5% p.a (negotiable). | High non-negotiable late payment fees |
Pros And Cons
Should you choose a bank loan or an HDB loan? Here are the advantages and disadvantages of each for better decision-making.
Pros Of HDB Loan
- You get higher housing loan amounts with up to 80% LTV funding.
- You can make a manageable downpayment using CPF savings.
- The interest rate for an HDB loan is fixed, making it easier to manage monthly payments.
- You can refinance using an HDB loan
- You can negotiate and ask for flexible repayments if you delay repaying the loan.
- There are no penalties for early repayments.
Disadvantages Of HDB Loans
- The interest rates are higher.
- You must meet the 15% downpayment requirement.
- You cannot use an HDB loan for private property.
- Income considerations may discredit you from getting HDB loans – your monthly income should be at most $21,000 for extended families or $14,000 for individual borrowers.
Pros Of Bank Loans
- Lower interest rates
- Longer loan tenures of up to 30 years.
Disadvantages Of Bank Loans
- The lower interest rates are only effective up to the first three years.
- Banks charge you for early repayments.
- You cannot discuss loan repayment schemes – banks are strict.
TDSR And MSR
The total debt servicing ratio (TDSR) and mortgage servicing ratio (MSR) come to play when comparing an HDB loan vs bank loan.
For TDSR, loan amounts are determined by monthly repayments, which cannot exceed 55% of your monthly income. You may not take an HDB or bank loan if you are servicing multiple loans.
The TDSR and MSR data are useful in determining interest rates, with bank loans being revised to 4% and 3% for HDB loans.
If you take HDB loans, the MSR stipulates that your monthly repayments cannot exceed 30% of your monthly income.
Key Considerations For A HDB Loan Vs Bank Loan
When contemplating housing loans, you have two main options – to get an HDB loan or a bank loan.
Consider the following factors when deciding.
The LTV Factor
Banks tend to be strict when assessing a property’s value and may only approve lower loan amounts, implying that you save more at the end of the loan tenure.
Initially, the Housing & Development Board could provide up to 90% funding, but this was reviewed to 80%.
While you get higher loan amounts when taking HDB loans, the implication is to pay more interest in the long run.
In addition, not everyone qualifies for the 80% HDB loan when considering a flat’s LTV. For example, your CPF balance is critical and should be at most $20,000.
Banks provide housing loans and can cover up to 75% of the purchase price.
Even though the 5% difference means a larger downpayment, you will save on the total amount payable in the long run.
The main downside could be if you don’t have enough money in your CPF or are short of funds.
The 80% LTV loan is suitable if your CPF balance is small ($20,000 maximum) – this is an exception for banks.
Downpayment Requirements
As mentioned, banks require you to make a larger downpayment as you borrow less than HDB loans.
The downpayment when getting an HDB loan is 20% and can be paid using cash, your CPF OA savings, or both.
Banks require you to pay 25% of the purchase price upfront, with 5% cash and the rest from your CPF or other housing loans.
The idea is to figure out how to cover upfront costs and how much funding you can get to facilitate property acquisition.
You will pay less downpayment with HDB loans but more if you take higher loan amounts to reduce the upfront costs.
On the other hand, an HDB bank loan downpayment is higher but cost-saving in the long run.
A HDB housing loan is ideal if you are having cashflow issues.
Interest Rates
The interest rate for HDB loans is fixed and has been set at 2.6% for over two decades.
This is determined by the 0.1% Central Provident Fund OA rate and 2.5% by the leading local banks.
HDB loans are ideal if you prefer predictable monthly payments for easier budget planning and loan management.
On the other hand, bank loan rates are volatile and are significantly informed by market trends.
You can get the maximum bank loan for HDB flats if you are not afraid of taking risks by leveraging competitive mortgage packages.
Banks have floating and fixed interest rates – the former is pegged on market conditions and is effective for a specific period, while fixed rates are more stable.
Fixed rates are ideal, but they are higher than variable rates. The lowest fixed interest is 3.45% (subject to change), whereas the lowest floating rate is 2.70%.
An HDB bank loan is ideal for favorable rates but could be disastrous if mortgage rates hike. Equally, bank loan rates could be suitable if rates crash, allowing you to save on the total costs.
Refinancing Options
There is no way to switch from a bank loan to an HDB housing loan, but the reverse is possible.
If you borrowed a bank loan for property acquisition, you could refinance by getting a new value from your current bank or using another.
Penalties
One comparative factor between a bank loan and an HDB loan is the possible penalties – banks seem stricter.
With HDB loans, there is room for discussion based on your financial situation, and do not impose penalties that could significantly affect your stability.
HDB is more lenient, but you should contend with a 7.5% p.a late repayment fee on the due amount (not the full loan).
In contrast, banks penalize you for making early payments (1.5-1.7%) and charge non-negotiable late repayment fees.
Defaulting on bank loans creates room for debt consolidation options to manage the situation. Banks can also repossess the apartment and put it up for auction the apartment if you can do nothing to repay the housing loan.
Eligibility Criteria For A HDB Loan And Bank Loan
If you were to compare an HDB loan vs bank loan and choose one, eligibility checks are inevitable.
You must mainly have good credit and income when taking a bank loan.
For a mortgage HDB, you need the following:
- You must be a Singaporean.
- Haven’t taken a HDB housing loan previously.
- The gross monthly income should not exceed $14,000 for families or $21,000 for extended families.
- You don’t own another property or haven’t disposed of one in the last 30 months.
HDB Loan Vs Bank Loan – Which Should You Take?
The best housing loan is subject to your financial management.
Think of it this way, do you mind saving a few dollars or paying more to minimize the hassle?
HDB loan seems ideal because of the fixed rate that makes it easier to plan your finances and commit to equal monthly payments.
A bank loan is perfect if you want to leverage flexible rates and have a good credit rating and income.
You may be on the verge of acquiring property but need more funds.
In that case, lenders like CreditMaster provide personal loans for various needs – apply for a loan or contact us for details.
