HDB Loan vs Bank Loan: Which Is Better for HDB Flats?

Key Takeaways

• HDB loans offer higher but more stable interest rates than bank loans and can be suitable for those with a lower risk appetite, whereas bank loans offer lower upfront fixed or floating interest rates that may rise later on.
• The full 25% down payment for an HDB loan can be paid entirely using CPF OA savings, while at least 5% must be paid in cash for bank loans.
• Bank loans typically come with lock-in periods of up to five years, during which you may not refinance or opt for early/partial repayment without incurring a penalty. There is no lock-in period for HDB loans—you can settle your HDB loan ahead of time if you have the means to.

Your two main options for financing an HDB flat are to take out an HDB loan or bank loan. This decision can have a long-term financial impact and influence the affordability of your flat as the loan you select will affect your monthly repayments, flexibility and total interest paid.

HDB loans are, as the name suggests, offered by the HDB, and come with the advantage of stable fixed interest rates and no early repayment penalties. You can also use your CPF OA savings for the entire 25% down payment, if you wish.

Bank loans currently have lower interest rates than HDB loans, but this can fluctuate depending on the loan package you select. Of the 25% down payment, you must pay at least 5% in cash, while the remaining 20% can be paid using your CPF OA savings.

Each type of loan comes with its own set of advantages and disadvantages. This guide will help you make an informed decision on whether to take out a bank or HDB loan.

HDB Loan vs Bank Loan: Key Differences at a Glance

What Is a HDB Loan?

The HDB Loan, or HDB concessionary loan, is a loan offered by the Housing & Development Board (HDB) to buyers of new or resale HDB flats.

• The HDB loan’s interest rate is pegged at 0.1% above the CPF OA interest rate. Until June 2026, the HDB interest rate is 2.6% p.a.
• The maximum Loan-to-Value (LTV) limit for HDB loans is 75%. For new flats like BTO flats, Sale of Balance (SBF) flats and Open Booking of flats, the LTV is calculated based on the purchase price. For resale flats, the LTV is calculated based on the resale flat’s price or value, whichever is lower.
• The entire 25% down payment for HDB flats can be paid fully using CPF OA savings, cash or a mixture of the two.
• To qualify for an HDB loan, at least one applicant must be a Singapore citizen, and the applicants must form a household that is eligible for an HDB flat purchase. The members of this family nucleus must not have previously taken two or more housing loans from the HDB.

HDB loans are considered stable and predictable, as the CPF interest rate has not changed since 1999—that’s 27 years, mind you! The HDB also tends to be more flexible than banks when it comes to late repayments and offers financial assistance, such as loan rescheduling for those facing hardship. The HDB loan is thus suitable for buyers with a lower risk appetite.

What Is a Bank Loan?

The term “bank loan” refers to secured loans offered by financial institutions in Singapore for the purchase of property, including HDB flats.

• There are two main types of bank loans: fixed-rate and floating-rate loans.
• The lock-in period is typically two to five years.
• The LTV limit for bank loans is 75%.
• The downpayment amount is 25%. At least 5% must be paid in cash. The remaining 20% can be paid using CPF OA savings, cash or a mixture of the two.
• There are bank loans available to Singapore citizens, PRs and foreigners purchasing HDB flats, ECs or private property.

How Bank Loan Interest Rates Work: Fixed vs Floating Rates

Fixed-rate home loans lock in interest rates for a specific period, usually ranging from two to five years, after which the interest rate converts to a floating rate. They provide short-term stability regardless of market fluctuations during the lock-in period.

Floating rate home loans offer interest rates pegged to a fluctuating rate, such as the 1-month (1M), 3-month (3M), or 6-month (6M) Singapore Overnight Rate Average (SORA)—plus the bank’s spread, or the bank’s board rates. They also come with a lock-in period.

For the uninitiated, SORA reflects the volume-weighted average rate of borrowing on the unsecured overnight interbank SGD cash market in Singapore. If your interest rate is pegged to the 1M, 3M or 6M SORA, that means it will change every one, three or six months, respectively. This, in turn, affects how often your repayment amounts will fluctuate.

During the lock-in period for fixed- or floating-rate home loans, borrowers are obliged to stick with the loan package as is—they cannot refinance the loan or repay it early without incurring a penalty.

Key Considerations: HDB Loan vs Bank Loan

Down Payment Requirements

HDB loans enable borrowers to pay the entire 25% down payment using CPF OA savings, while bank loans require at least 5% to be paid in cash. HDB loans are thus the better choice for buyers with limited cash, while bank loans might be challenging for buyers with tight cash flow.

Those taking out an HDB housing loan have the option of retaining up to S$20,000 in their OA, and using only the remainder for their housing payment. Those taking out a bank loan can choose to retain any amount of savings in their OA.

Not sure what’s the best course of action? Consider this: retaining CPF savings offers greater retirement security, and the funds can also be invested via the CPF Investment Scheme (CPFIS).

Interest Rates

The HDB concessionary loan offers a stable interest rate, currently 2.6% p.a. CPF OA interest rates fluctuate very rarely and have been unchanged for decades.

Banks offer floating and fixed interest rates, which are historically lower than HDB loan interest rates but can fluctuate with market movements, thereby affecting monthly mortgage repayments.

Here are estimated home loan interest rate ranges for completed HDB flats at the time of writing:

For exact bank loan interest rates, you will need to look at specific loan packages.

Loan Tenure Limits

The maximum tenure for HDB loans is 25 years, while the maximum tenure for bank loans in Singapore can go up to 30 years for HDB flats, depending on the loan package.

Those seeking a longer loan in order to lower their monthly repayments may thus prefer opting for a bank loan.

Refinancing and Flexibility

HDB loans have no lock-in period, enabling borrowers to switch to a bank loan at any time or repay the loan early without incurring any penalties. However, once borrowers switch to a bank loan, they cannot switch back to an HDB loan at a later date.

Bank loans come with lock-in periods, typically between two and five years. Refinancing or making early repayments during this period will incur a penalty, typically 1.5% of the remaining loan amount. Borrowers can refinance to another bank loan, but can’t switch from a bank loan to an HDB loan.

Early Repayments

HDB imposes no early repayment penalty on borrowers who choose to make partial or full repayments to reduce interest payments or shorten their loan tenure. That said, the CPF OA savings that can be used to repay a loan are subject to CPF housing limits.

It must be noted that buyers are required to make a CPF refund consisting of principal and accrued interest, should they eventually sell an HDB flat they used CPF savings to pay for.

On the flip side, banks may impose a penalty fee for early repayments made during the lock-in period. Early repayments usually become penalty-free after the lock-in period. For instance, a DBS home loan may impose an early repayment fee of 1.50% fee of the amount repaid during the lock-in period.

Income Cap

To be eligible for an HDB loan, you need to have a gross monthly income of not more than S$14,000 for families, S$21,000 for extended families or S$7,000 for singles buying under the SCSS Scheme.

There is no income cap for bank loans.

Other Factors to Consider Before Applying for Your Home Loan

Here are some other factors that can influence your home loan decision:

• Financial flexibility: HDB tends to be more lenient towards borrowers facing financial hardship and may provide financial assistance measures such as a modified repayment schedule or loan restructuring. Banks, on the other hand, may take stricter action, such as foreclosure.
• Upfront costs of resale flats: Budget up to S$1,000 for the Option to Purchase (OTP), up to S$5,000 to exercise the OTP and S$120 (inclusive of GST) in processing fees for the HDB flat valuation. There’s also a lawyer’s fee of about S$1,500 minimally for those taking out bank loans. For those using an HDB loan, you can expect generally lower conveyancing fees.
• Regulatory limits: Your Total Debt Servicing Ratio (TDSR) and Mortgage Servicing Ratio (MSR) can affect your financing options by further limiting the amount you can legally borrow based on your income and existing debt obligations.
• HDB Flat Eligibility (HFE) letter: You must successfully apply for an HFE letter before securing financing for your flat, whether through the HDB or a bank.
• Refinancing costs: Refinancing can help you save money on interest payments, but could also incur legal fees, valuation fees, early repayment fees, penalties and more.
• Switching between HDB and bank loans: If you currently have an HDB loan, you can switch to a bank loan at any time. However, if you have a bank loan, switching to an HDB loan is not an option.

Verdict: HDB Loan vs Bank Loan — Which Should You Choose?

HDB loans are typically seen as the costlier option due to the higher, albeit stable, interest rates. However, they are not at all risky due to the stability of the HDB interest rate and HDB’s more lenient approach towards buyers facing financial hardship. In addition, HDB loans do not have lock-in periods or penalise early repayment, making them a more flexible option.

Bank loans, on the other hand, can turn out to be the cheaper option when chosen wisely. However, to reap the benefits of potentially lower interest rates, you must be able to tolerate fluctuations and consider constantly refinancing in future should your rates cease to be favourable.

Always understand and compare interest rates, assess your financial health and goals before deciding on the best type of home loan for you. Consider speaking with family and friends to learn about their experience, but keep your unique needs at the forefront.

If you need a personal loan, compare loan packages from DBS, CIMB and Trust Bank to find the right one for you.