What to consider when choosing between Bank Loan and HDB Loan


With so many types of loans out there, the first thing that you have to decide is whether to go for a bank loan or a HDB loan. Here are some factors to consider.

  1. Interest rate

As much as we rave about the importance of other factors when choosing a mortgage loan, the truth is that interest rates still matter, a lot. Interest rates for HDB loans are straight forward, it follows the CPF Ordinary Account Interest Rate. Just add another 0.1% to it and that’s the interest rate of the current HDB loan. This rate is largely stable and unlikely to change. With the addition of 0.1%, the current HDB loan interest rate works out to be 2.6%.

On the other hand, interest rate for bank loans vary. They can be fixed rates or variable rates and within the variable rates, they can be pegged to SIBOR (Singapore Interbank Offered Rate) or SOR (Swapped Offer Rate).

The decision to choose between the two largely lies in your financial situation and is assessed on a case-by-case basis, something we are more than willing to help you with.

  1. Amount of spare cash

Do you have cash ready to be used? Or are your assets tied up somewhere? A HDB Loan covers up to 90% of the loan which means you only have to fork out 10% of the price of the flat upfront. On the other hand, with the revised rules on LTV, bank loans only cover up to 75% of the loan amount. This is a rather significant difference. As a result, consider how liquid your assets are and whether you have the flexibility and ability to produce such a huge amount of cash.

  1. Penalties

Penalties come in two forms: early repayment and late repayment. Yes, you can get penalised for repaying your loan in advance, but this only applies for bank loans. There is no early repayment penalty for HDB loans. This is why the tenure of your loan is very important. For late repayment penalty, HDB charges the fee at an interest rate of 7.5% per annum. Once again, the rate varies for bank loans. The rate is usually 5% per annum above their prime lending rate, subject to a minimum amount of $50.

It’s definitely not easy to decide. There are advantages and disadvantages to both types of loan. Ultimately, it comes down to what you need and what suits you. Engage a mortgage broker to do the heavy lifting for you at no cost and you will have nothing to fret over.