Which to go for- HDB Loan or Bank Loan

PropertyGuru Editorial Team
Which to go for- HDB Loan or Bank Loan
A HDB Loan and a Bank Loan are two different animals in Singapore. They are both instrumental in helping you buy a home, but both carry very different criteria.
Here’s a quick glance at the summary of the differences, and then below an elaboration.

HDB Loan

Bank Loan

2.6% (fixed)
1.3% – 1.7% (fluctuates and will increase in 3 years)
Mortgage service ratio: Maximum 30%
Mortgage service ratio: Nil
10% downpayment (can be fully funded by CPF)
20% downpayment (maximum 15% funded by CPF)
Income cap: S$6,000/S$12,000 / S$18,000
Income cap: Nil
Loan tenure: 25 years / Up to 65 years old
Loan tenure: 30 years / Up to 65 years old
Soft measures in times of financial crises
Hard measures in times of financial crises

On top of the above, HDB Loans come with strict qualifying requirements:

  • Must be a Singaporean citizen
  • 21 years old and above
  • A single’s income of S$6,000 monthly, a gross monthly household income of S$12,000, or S$18,000 for extended families
  • Must not already own and have not owned or disposed of a property in the last 30 months prior to applying for the HDB Loan
  • Does not own more than one commercial/industrial property, market or hawker stall
  • If you own any of the businesses above, you must be operating it yourself, and must not have any other side income
Now for a closer look at the details.

Interest Rates

HDB Loans are the safer of the two loans as it comes with a fixed interest rate of 2.6% throughout the entire loan period; a rate that has not changed in the last 15 years; as compared to bank loans that have fluctuating interest rates.
Bank Loans for home purchases in Singapore offer both floating and fixed interest rates. The floating interest rates are dependent on Singapore Interbank Offered Rate (SIBOR) and Swap Offer Rate (SOR) which are the benchmark rates for property loans in Singapore.
Applicants who select the fixed interest rates option will only enjoy fixed rates for 2 to 3 years as the rates are fixed only for a temporary period. Thereafter, the rates can either go up or down after 2 or 3 years, and the cycle repeats every 2 or 3 years.

Mortgage Service Ratio

HDB Loans are the safer option for applicants with lower risk appetites, and it comes with stricter criteria. HDB Loans allows the borrower to use only 30% of their monthly income to service their loan.
Bank Loans, however, have no limit. You can apply for as high a loan as you wish, and the bank will have no objections. This makes bank loans ideal for applicants who know that they are going in have increasing income in the coming years.

Property Downpayment

HDB Loans require borrowers to pay only a 10% downpayment on their property, and allows for the borrower to fully fund their downpayment from their CPF. In lieu of a resale HDB flat, HDB Loans allows for the borrower to utilise a maximum of S$5,000 cash to be paid to the seller as deposit.
Bank Loans on the other hand requires borrowers to put a downpayment of 20% on their property, and only 15% of it is covered by CPF. The remaining 5% of the downpayment will have to be borne by the buyer in cash.

Income Cap

HDB Loans have a maximum S$6,000 for singles, S$12,000 income cap for families, and S$18,000 for extended families. This may be an issue for families who are just over the income bracket. For those in this situation, they will have no choice but to take a pay cut – or apply for a Bank Loan.
Bank Loans have no maximum income cap. Your earnings can be in the hundreds or hundreds of thousands, the banks will still accept you.

Loan Tenure

HDB Loans have shorter loan tenures, with a maximum of 25 years or until you reach the age 65, whichever comes first. You can however opt to complete your loan repayment early without penalty if you wish to do so.
Bank Loans on the other hand have stricter rules where you will actually be charged a penalty fee of 1.5% if you were to complete your loan repayment earlier. The banks however offer longer loan tenures of 35 years, or until you reach the age 65, whichever comes first.

Late Repayment

HDB Loans are more lenient when it comes to late repayments. The authorities will be more likely to give extensions and provide alternative repayments if you are facing financial difficulties. Borrowers will however be slapped with a 7.5% late payment fee on an annual basis in lieu of late payments.
Bank Loans will however bring the borrower to foreclosure much faster than HDB Loans. Borrowers can expect swift action upon late repayment, and each late repayment will be charged a minimum of S$50 per payment.

HDB Loan or Bank Loan for Property?

Ultimately, whether you choose a HDB Loan or Bank Loan for your property purchase depends entirely on your risk appetite and income. Low risk takers generally prefer opting for HDB Loans, whilst entrepreneurs with higher risk appetites prefer taking a Bank Loan for their property.
Weigh the pros and cons of each loan type before you make your selection, and make an informed choice based on which brings you the most benefits.
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