Bank Loan vs HDB Loan - Which is better?

Credit: CPF Board

Your first home is one of the biggest investments that you will ever make in your life. So understandably, you want to make sure that you’re making smart decisions and to fully understand how housing loans work in Singapore.

Here are the key differences between the two, so you can pick one that best fits your needs!

The interest rates of bank loans may fluctuate according to market conditions, while the interest rate of an HDB loan is currently pegged at 0.1% above the prevailing OA interest rate, i.e. 2.6% p.a. If you want to pay less interest so you can have more savings for retirement, a bank loan generally has a lower interest rate than an HDB loan.

Do bear in mind that most banks will have a lock-in period. If you would like to repay your loan faster or refinance your loan with another bank within the lock-in period, you will incur a penalty.

An HDB loan requires you to make a downpayment of at least 10% of the purchase price, which you can pay in full using your CPF Ordinary Account (OA) savings, with cash or a combination of both cash and OA savings. You will have to use the available savings in your OA for the purchase of the flat, before a housing loan from HDB is granted for the remaining amount. However, you have the flexibility to keep up to $20,000 in your OA. Not only will these savings continue to enjoy the attractive interest rates in your OA, they also serve as an emergency buffer to cover monthly instalments in times of need!

For HDB loans, there is no lock-in period, hence no penalty if you wish to pay off your loans early. This allows you to refinance your loan with a bank anytime, if you wish to tap on any lower interest rates. However, bear in mind that once you refinance your HDB loan with a bank, you will no longer be able to switch back to a loan with HDB.

To give you a better understanding, let's look at an example of the monthly instalment using Bank Loan vs. HDB Loan:

When planning your finances to buy a home, it’s important to remember that your CPF savings are meant for your retirement as well. You can consider paying for your home partially with cash, so that your OA savings can continue to grow at attractive interest rates to support your retirement plans!