Should You Choose a HDB or a Bank Loan to Finance your Property Purchase?
Choosing a mortgage loan to suit your needs is sometimes as important as the property you are buying. It’s a huge financial commitment and you’ll probably be stuck with the loan for a few good years before you can apply for re-financing. If you aren’t too sure about the difference between a HDB loan and a bank loan, here’s help for you.
A HDB concessionary loan is meant to provide financing for the purchase of HDB flats including Build-to-Order (BTO) flats, Design, Build and Sell Scheme (DBSS) flats, Executive Condominiums (EC) and resale flats. While bank loans typically looks at your credit rating and ability to repay the loan, A HDB loan comes with a list of extra criteria including:
- At least one buyer is a Singaporean citizen
- Have not previously taken 2 or more housing loans from HDB
- Income ceiling of $12,000 for family,
- Must not own or have disposed of any private residential property in the 30 months before the date of application for the HDB Loan Eligibility(HLE) letter.
One of the most significant differences between bank loans and HDB loans is the loan quantum. For direct purchases, a HDB loan allows you to borrow 90% of the purcahse price while bank loans cover only up to a maximum of 80%.
The HDB Concessionary Loan covers up to 90 percent – of the purchase price for new flats, and the lower of either the resale price or market value for resale flats – while bank loans cover only 80 percent.
Another upside for HDB loans – there are no prepayment penalties should you want to pay off your loan earlier. Most bank loans will charge a prepayment penalty of about 1 to 2% of the loan amount prepaid.
Access To CPF Savings
For those who have less liquidity, taking out a HDB loan has a huge upside of better access to your CPF savings. You can use your CPF Savings and Housing grants to pay the 10% downpayment, while taking out a bank loan will require you to pay at least 5% in cash while the remaining 15% can be paid using your CPF savings and housing grant.
The HDB concessionary housing loan interest rate is pegged at 0.1% above the CPF Ordinary Account interest rate. It is revised in January, April, July and October, in line with the revision of CPF interest rates.
While a minimum CPF rate is good news for money going into your savings, it’s generally not a good news for borrowers during low interest rate periods. For instance, int he last few years, Sibor-pegged bank loans have generally hovered between 1.5 to 2.5%.
In a way, the HDB loan is more transparent than most home loans as bank loans include a spread on top of the SIBOR rates, and the spread can be changed at the bank’s discretion. Rates have been steadily rising in the last year, so it might be a good chance to compare between the two types of loans.
Now that you have a better idea of what HDB and bank loans can offer, it should be easier for you to choose the type of home loan that’s right for you. Remember to use our home loan comparison to help you choose the right home loan for you!