HDB Loan vs Bank Loan: Which is better?

Choosing between an HDB loan or bank loan is never an easy decision. Your financial standing and personal preference will almost invariably play a big part in helping you decide on the best home loan that suits your pocket and lifestyle.

Once you’ve made the big decision to apply for an HDB BTO, the next step would be to choose a home loan to pay for the house. Here, your ultimate beginner's guide on everything you need to know about both HDB loans and bank loans:

Home Loans Singapore

In Singapore, you generally should choose from one of these two home loans:

• HDB loan (otherwise known as CPF loan)
• Bank home loan (DBS and POSB, UOB, OCBC etc.)

At times, you will hear of your auntie or uncle giving you unsolicited advice to take your home loan from other financial institutions and licensed moneylenders. If it's outside out the abovementioned "standard" few major banks, be wary. These "non-standard" options usually are more relaxed with their lending, and are for people who are already in heavy debt. They may also charge higher interest rates.

HDB Loan

A HDB loan is basically you asking HDB to first help you pay for your HDB flat. You sign the lease agreement, become the HDB flat's official owner, and then collect your keys. Then, you repay HDB monthly via cash or CPF (plus monthly interest).

HDB Loan Interest Rate is 2.6%

HDB loan's interest rate is very stable and fixed at 2.6 per cent. It is basically 0.1 per cent plus CPF Ordinary Account (OA)'s current interest rate which is 2.5 per cent.

And 2.6 per cent in home loan interest rate is pretty cheap in today's climate. Banks such as UOB, OCBC, and DBS are charging 3.85 per cent in interest and upwards.

Can I take HDB loan to pay for my condominium?

No, you cannot use HDB loan to pay for condos or landed properties. You can only take a HDB loan to finance your HDB flat. Come on, this home loan and its money comes from the Housing and Development Board (HDB) itself. Of course HDB will only want to help pay for their own HDB-dwellers.

How much HDB loan can I get?

If you are buying a new or resale HDB BTO, you can borrow up to 75 per cent of your property's price (from 19 August 2024 onwards). So, if you took a HDB loan, your payment plan will look something like that:

• Borrow from HDB loan: 75 per cent (pay monthly over 10 to 25 years, plus interest)
• Down payment by myself: 25 per cent (pay before collecting keys)

For example, if you decided to buy a $600,000 4-room BTO, this is how your payment will look like with a HDB loan:

At first glance, a $2,041 monthly payment sounds pretty manageable (especially if both of you are earning $3,000 per month). However, do you have $150,000 in cash and CPF to pay for the down payment before you collect your keys?

Before you ballot for that super expensive HDB, you must plan for your down payment.

Finally, when you take a HDB loan, the flat's lease (99 years for BTO; 94 years to 30+ years left for resale etc.) must cover the youngest buyer to the age of 95 at the point of the flat application. Otherwise, your Loan-to-Value limit will be reduced - meaning you can borrow lesser money from HDB. This is not a concern if you're buying BTO. However, if you're buying a pretty old resale HDB, you must consider this.

Is it good to pay off HDB loan early?

The good thing about HDB loan is early repayment. You are allowed to pay off your HDB loan in lump sums early - without any penalty or extra charges. It's good to pay off your HDB loan if you have extra cash, just so you can save on the interest.

Using a $600,000 HDB BTO as example again, you will be paying $162,453 in interest over 25 years. You can buy a 2-room flat with that money!

HDB Loan Income Ceiling

Finally, you cannot take a HDB loan if you and your spouse's combined monthly income is more than $14,000. You can still buy a HDB, but you will need to take bank loan.

Bank Home Loan

If you need to take a bank loan instead for your HDB BTO or first condo, the local banks are the usual go-to banks. They are namely DBS POSB, UOB, and OCBC. Of course, reputable banks such as CIMB, Maybank, HSBC offer competitive mortgage interest rates too.

So, what's the difference between HDB vs bank loan? Main differences include interest rate, and the loan-to-value limit (the amount of money you can borrow).

• Interest rate: 3.5 per cent to 4.12 per cent
• Loan-to-Value limit (LTV): 75 per cent of your property's price
• Downpayment: 25 per cent (5 per cent must be paid using cash) 
• Early repayment will incur penalty 
• Minimum loan amount required

Bank Home Loan Interest Rates (January 2025)

Here is a very quick glance at the available bank home loan interest rates for HDBs. Use home loan calculators from HDB, CPF, or DBS to help you estimate your monthly instalment payments.

There are different types of bank home loans available. You can choose from a:

• Fixed interest rate: Same interest rate for a specific period of time, typically between 1 to 5 years. There’s usually a penalty incurred for early repayment of the loan during this period. 
• Floating interest rate: Interest rate pegged to 3M SORA, 1 to 3 years lock-in period, higher loan amount of $100,000 to $350,000 minimum.
• Combination of Fixed and Floating interest rate: Mix of both, usually ends up more expensive

HDB Loan vs Bank Loan: Pros and Cons

So, now that you understand both, here are some final considerations that could determine whether you would want to take up an HDB loan or a bank loan:

1. Same Down Payment

Younger couples who have just started work and do not have $20,000 or $50,000 casually sitting in their POSB savings account might want to pay attention to this.

If you take up an HDB loan, the down payment that you’ll have to fork out used to be slightly lesser at 20 per cent when you sign the lease of agreement (or even 10 per cent if you are eligible for the staggered down payment), compared to the 25 per cent down payment if you were to take up a bank loan. However, since August 2024, HDB raised HDB Loan’s down payment to 25 per cent.

The biggest difference, however, is this: HDB loan allows you to fully pay your down payment with CPF funds from your Ordinary Account (OA). That means you won’t need to take out too much cash from your own pocket.

In comparison, bank loans require you to pay at least 5 per cent of the down payment in cash, which might add up to about $20,000 or $30,000 quite easily. This allows you to have more cash on hand for other costs like renovations.

2. HDB loan's interest rate is lower

In the past few Covid-stricken years, bank home loan interest rates were shockingly low. That spurred a barrage of homeowners to bail on their 2.6 per cent HDB loan in pursuit of the 1 per cent bank home loans.

However, the tides then turned and we lived in a high interest rate climate currently. Bank home loans rose to 3.85 per cent and upwards to 4.12 per cent in 2022, which makes HDB loan the safer and stable home loan option. As of January 2025, bank mortgage interest rates are starting to dip once again.

3. HDB loans are more stable

As tempting as it is to opt for bank loans because of the volatile interest rates, those that need stability in their monthly payments may find HDB loans more appealing.

HDB loans are set at a fixed rate of 2.6 per cent, allowing for better budget planning on a monthly basis. Since HDB loan's interest rate (2.6 per cent) is pegged to our CPF Ordinary Account (OA)'s interest rate + 0.1 per cent, the only time HDB loan's interest rate will change is when our CPF OA interest rate increases too. And if you're paying your HDB loan via CPF, no loss and no change. Same, same.

On the other hand, the interest rates of bank loans are always fluctuating.

4. Early repayment penalty for bank loans

You may think that paying off your loan early will be a win-win for all since you’ll pay less accumulated interest and the bank gets the money, right?

Wrong. The bank is actually losing out on revenue from the generated interest for the whole tenure period. This is why there is an early repayment penalty of about 1.5 per cent for bank loans (if you want to early repay during the lock-in period).

On the other hand, HDB loans do not have any lock-in period, which means that you can always choose to repay your loans early.

Whether you have a sudden influx of cash from winning the lottery or want to reduce the total payable interest for the mortgage period, you’re free to repay your HDB loans early without incurring any penalty.

5. Bank loans are less forgiving

If you’re forgetful and often find yourself making late payments, don’t expect the banks to waive your penalty when you make an appeal. They are generally less forgiving when it comes to penalties and fees.

As for HDB loans, they are easier to negotiate with. If you make a late payment, you can make an appeal, which will normally result in a fee waiver or reduction. But of course, if you’re a repeat offender, they probably won’t let you off too many times. Their late payments are usually 7.5 per cent of the amount that is late, and not the full loan. 

6. Once you take a bank loan, you can never use HDB loan again

If you’re taking up an HDB loan, the good thing about it is that you have the flexibility of refinancing to a bank loan if you ever change your mind because it does not have a lock-in period.

But if you’re taking a bank loan, there is no way you can jump ship back to HDB loan ever. again. in. your life. HDB is basically like the ex-girlfriend who blocked you on Facebook and Instagram. If you took a bank loan, you will forever have to stay with your bank, or refinance with other banks.

Should I get an HDB loan or a bank loan?

If you're getting a home soon in 2025, you have a choice between HDB loan (2.6% interest rate) and bank mortgage home loans (currently 2.55% in January 2025).

Definitely, HDB loan’s interest rates are stable at 2.6 per cent - whether recession, inflation, or deflation.

However, if you love the thrill of checking in on SORA's movements, and are extremely disciplined with your monthly instalment payments, refinancing, and repricing, go for bank loans since you can save on interest in the years ahead.

If you and your partner are a younger couple who’ve just stepped out into the workforce, chances are you won’t have that much spare cash lying around. HDB loan will be more beneficial as you can fully pay your down payment with your CPF! It also has a fixed rate to allow consistent payments, making financial planning a lot easier if you’re working towards a wedding or a car in the near future.

Having come to a decision on which home loan to pick is great – that's the real first key to the keys to your new house! But wait, that isn't the end of the story; as you put the finishing touches with the decor and furnishings, don't forget one last essential: home insurance.

This article first appeared on SingSaver, edited for accuracy and clarity.