The Complete Guide: Bank Loan vs HDB Loan
Getting your HDB for the first time can be quite an experience. From applying for your unit to getting your house keys, there seem to be an endless amount of information to read up on. To top it off, a HDB flat is one of the big ticket purchase for many and everyone is trying to make more informed decision to save some bucks.
Making informed decision is rather brain draining. To save you from all the hassle, we summarise the differences between a Bank Loan and a HDB Loan into 5 minutes walk in the park.
TL;DR: Comparison Table Between HDB vs Bank Loan
|Interest Rate||Currently 2.6%|
( 0.1% above the CPF Ordinary Account interest rate.)
|Currently 1.3% - 2.4%
(Depends on the bank and benchmark, interest rates fluctuates)
|Downpayment||CPF/Cash|| at least 5% in cash
The rest using CPF OA savings
|Maximum Loan||New flats: 90% of the purchase price. |
Resale flats: 90% of the resale price or market valuation, whichever is lower.
|80% of the purchase price.|
|Late Payment Penalty||Currently 7.5% per annum||Depends on individual banks. Usually less lenient than HDB.|
To Be Eligible For HDB Loan
- At least 1 buyer is a Singapore citizen
- Have not taken 2 or more housing loans from HDB previously
- Average gross monthly household income is less than $12,000
- Average gross monthly household income is less than $6,000 for singles buying 5-room or smaller resale flat, or 2-room new flat in non-mature estate
- Must not own or have disposed of any private residential property in the past 30 months before the date of application for a HDB Loan Eligibility letter.
To Be Eligible For Bank Loan
- Usually, a good credit score works.
Demonstration Of Various Loans
To better illustrate the differences, we decide to test out the calculators that are found on the HDB and various banks website.
For illustration purpose, we assume:
- New purchase of HDB BTO at the cost of $300K
- Age 28 for both couple, and a monthly average salary of $2,500
- Repayment period of 25 years
Able to loan up to 90% of the cost, at $270,000.
CPF Ordinary Account’s interest rate is fixed at 2.5% for the past 16 years.
The interest rate of HDB loan is 0.1% above the CPF Ordinary Account’s interest rate. As of now, the interest rate of HDB loan is at 2.6%. (Updated as of 12 March 2018)
With the help of HDB Loan Calculator, it worked out to be a repayment of $1,225 per month for a 25 years loan.
This works out to be $367,500 in total.
DBS Home Loan
Able to loan up to 80% of the cost, at $240,000.
DBS Home Loan’s interest rate is set as (Fixed Deposit Home Rate (FHR9) + 1.55% p.a), and for the first 3 years, it is fixed at 1.68% p.a.
Fixed Deposit Home Rate (FHR9) refers to the prevailing 9 months Singapore dollar fixed deposit interest rate of DBS Bank for amounts within $1,000 to $9,999.
With this, the DBS Home Loan Repayment Calculator work out a monthly repayment of $981 per month.
This works out to be a total of $294,300 for the loan amount.
Do note that, we are assuming FHR9 is constant throughout the loan repayment period. In actual fact, it is very unlikely and the rate is expected to be higher in years down the road.
OCBC Home Loan
OCBC Home Loan has 4 different packages to your liking. They are mainly pegged to different rates. Ultimately, it is up to the individual to determine the one they are comfortable with.
For illustration purposes, we decided to try out the SIBOR-dependent rates. Based on OCBC’s Home Loan Calculator (SIBOR), we are looking at $988 per month with a rate of 1.75% as of August 2017.
Assuming constant rate, this works out to be $296,400. Then again, constant SIBOR rate is highly unlikely.
Community Views On HDB vs Bank Loans
Seedly is really blessed and fortunate in a way that we have a really strong Facebook Community, where members are not selfish with their knowledge.
We did a Poll on the types of loans our members use for their HDB. Below are some of the useful feedbacks. Thanks guys! 😉
- Rais Bin Mahmud: HDB loan for convenience and not having to worry in future, due to the uncertainty and possibility of fluctuations in bank loans.
- Amy Wang: Legal fees for HDB Loans are lower too. On top of that, you can choose to end your loan anytime if you wish to (for bank loans it depends on individual banks).
- Christopher How: An interesting point to note will be that, future fluctuations are negated because you can refinance to another bank that offers a lower rate. In my case, I switched from OCBC to POSB for a better rate. The only worry comes when your loan is less than 100k. Banks don’t do anymore refinancing for loans below 100k.
- Jay Tee: In my opinion, HDB loan is always better. If you’re going for BTO, it’s 5% to secure the flat. This is followed by another 5% payment when it comes to collecting the keys.
On the other hand, for Banks, it is usually 10% payment followed by another 10% when collecting keys. If you reinvest the 10% down payment that you save from taking HDB loan, you can cover the additional interest rate of HDB loans (especially if you plan to sell your BTO flat within 10 years or so?)
Also, go for the longest HDB loan – this allows one to have more cash on hand to invest puts you in a better position even if you’re unsure whether you will sell your flat in 10 years. You can always renegotiate for a shorter loan term in future if you do decide to pay off your HDB.
- Timothy Tan: I would take a HDB loan (since down payment of 10% can be paid with CPF)and after 6 months of payment I will refinance with other banks for lower interest rates.
To learn more hacks and knowledge from our community members join us! Don’t say we Bo Jio!
Read also: Financial Planning Guide For Young Adults
To further enhance your decision making, we have decided to show you some of the historical rates to help you make more inform decisions.
SIBOR History Chart
SIBOR (Singapore Interbank Offered Rates) is the daily interest rate at which Singapore’s banks offer to lend unsecured funds of a reasonable size to other banks.
The calculation is done when 12 to a maximum of 20 contributor banks submit their rates to the Association of Banks in Singapore (ABS) just prior to 11:00 a.m. Singapore time on each Business Day.
source: Trading Economics
Two main factors affecting the SIBOR will be the US Fed Rate and liquidity in Singapore banking sector.
Check out the latest SIBOR rate here