HDB Loan vs Bank Loan?

Updated: Jun 17, 2021

Which Loan Do You Choose Now That COVID-19 Has Affected the Housing Loan Market in Singapore?



Buying a house in Singapore is a big financial commitment. However, many first-time homeowners are often confused which type of mortgage loans they ought to get.


Do you choose the HDB loan or the bank loan? What are the advantages of choosing one over the other and vice versa?


Let’s take a look at the comparison below.


Advantages Of Applying For A HDB Loan Over A Bank Loan

Less upfront cash is needed

You are allowed to pay your down payment fully using CPF if you have enough savings, compared to bank loans which require you to pay at least 5% in cash. This is less taxing for individuals with limited cashflow as you don’t have to set money aside for your mortgage every month, especially during these uncertain times.

You can borrow more, up to 90% of your property’s market value

The Loan to Value limit (LTV) for HDB is 90%. This means that you can borrow up to 90% of your property’s market value i.e. its valuation. This is much greater than a bank loan’s LTV, which only allows up to 75% of your property’s market value, for a loan tenure of 30 years or less and 55% LTV limit for loan tenure of more than 30 years, or if the loan extends past the age of 65.

For example, if you finance a 4-room HDB flat valued at $600,000 using a HDB loan, the maximum LTV obtainable will be $540,000. You’ll have to finance the remaining $60,000 independently.

If you take up a bank loan, the maximum LTV obtainable will only be $450,000. You’ll have to finance the remaining $200,000 independently, which is an increase of a whopping $140,000 from the previous amount.

As you can see, borrowing more frees up the amount you have to cough up independently.


HDB is more lenient in terms of early and late repayments

A HDB loan does not have a lock-in period and allows the early repayment of your mortgage loan in Singapore with zero penalty. Late repayment also only incurs a 7.5% late payment fee per annum.

Disadvantages Of Applying For A HDB Loan Over A Bank Loan

A lot of restrictions

Many buyers are excluded from applying for the HDB loans due to their strict restrictions. Buyers must fulfil the following conditions before they can apply for a HDB loan:

  • At least one buyer must be a Singapore citizen

  • For singles, the buyer’s monthly income must not exceed $6,000; for families, the buyers’ monthly income must not exceed $12,000; for extended families, the buyers’ income must not exceed $18,000

  • Buyer(s) must not own any private residence (in Singapore or overseas)

  • Buyer(s) must not have taken more than two previous HDB loans

  • Buyer(s) have not disposed of private residential property within 30 months before the loan application

  • Loan can only be used for HDB flats

Higher interest rates

The interest rate for a HDB loan is relatively high at 2.6%, compared to banks which charge between 1.1%+ to 1.58%. Bank interest rates now are currently even lower due to the COVID-19 situation.

Advantages Of Applying For A Bank Loan Over A HDB Loan

Lower variable interest rates, compared to a HDB loan

Bank rates are based on current SIBOR and SORA rates, which are often cheaper but more variable than the HDB loan interest rate. However, during this COVID-19 situation, the federal banks have been keeping the interest rates low to boost consumption and drive economic growth.


It may be wise to make full use of the situation now to lock in the low interest rate for the next one to three years.


Less restrictions

There are far lesser restrictions when borrowing your mortgage loans from financial institutions. You will only need a credit check, compared to fulfilling the many conditions set by HDB when applying for a HDB loan.

Disadvantages Of Applying For A Bank Loan Over A HDB Loan

Higher cash upfront is needed

The bank requires you to pay an initial down payment of 25% of the loan, of which 5% must be paid in cash. The remaining 20% can be paid in CPF or cash. Also, you can only borrow up to 75% of your property’s value.


All in all, this means you have to pay a higher cash upfront, giving up potential higher returns of investing that could have been used with your liquid cash. Nonetheless, some people may view their property as an “investment” and worth paying in cash for.

The Verdict: HDB Loan Or Bank Loan In This Current COVID-19 Situation?


Applying for a HDB loan or bank loan is ultimately up to your personal preference, financial situation, and risk appetite. We can only offer as much information as possible for you to make an informed decision.


At the present situation where interest rates are kept low, a bank loan is still cheaper, provided you’re willing to pay a higher cash upfront, lock-in your interest rates, and accept the penalties for late repayments.


However, if you’re unwilling to do so, perhaps the good, old HDB loan suits you better.

Looking for the right mortgage loan in Singapore?


Selecting the right mortgage loan doesn’t have to be hard. At Mortgage Consultancy, we compare and offer you the best rates and packages of home loans across 16 banks in Singapore. Contact us today at +65 8556 5271 to get the most suitable bank loan according to your needs. Free consultation and application services provided.

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