HDB LOAN VS BANK LOAN

HDB LOAN VS BANK LOAN | Are you planning to buy one HDB flat or BTO flat for yourself? With different types of housing loans available, most people who are planning to buy a HDB flat or a BTO flat do not know if they should opt for a HDB loan or a bank loan. Fret not, this article will list down the differences between a HDB loan and a bank loan. 

HDB Loan

HDB loans are loans that are catered to Singaporean. The HDB loan interest rate is 0.1% more than the CPF rate, which is 2.6% as of 2016. However, HDB loans have its terms and conditions that you will need to meet if you intend to apply: 

• HDB loan is applicable to HDB flats
• One of the buyer must be a citizen of Singapore
• Applicant’s monthly income must not be more than $12,000 or $18,000 for extended families
• Applicant must not have more than 2 HDB loans taken
• Applicant’s monthly income for singles should not be more than $6,000 if he/she is buying a 5 bedrooms or smaller resale flat; or a 2 bedroom new flat in a non mature area under the Single Singapore Citizen Scheme.
• Applicant must not own or disposed any private residential property in the past 30 months before date of application for a HDB loan. 

HDB loan has a relatively stable interest rate as compared to bank loan. In addition, the loan to value for HDB loan is up to 90%. Buyers using a HDB loan can also use their CPF fund to pay for the downpayment. There is also no penalties if buyer plans to pay off the home loan earlier. Most importantly, HDB loan is more leniant when it comes to late repayment. There will be a late payment fee of 7.5% per year if there is any late repayment. 

Bank Loan

If you opt for a bank loan, you will then need to choose whether to get a fixed interest rate or a floating interest rate. Fixed interest rate are usually higher than floating interest rate, but they allow a certainty of fixing the same interest rate for a few years. As for floating interest rates, they can be really low but that is greatly dependant on the fluctuation of Singapore Interbank Offered Rate (SIBOR). 

However, the loan to value for bank loan is only up to 80% as compared to HDB loan where it is up to 90%. In addition, buyer will have to include at least 5% of the property price in terms of cash for the downpayment. In any event where the buyer plans to do early repayment within the commitment period, there will be a 1.5% penalty. Lastly, bank loan is less lenient as compared to HDB loan. A $50 late payment fee will be charged for each repayment that is done late.  If you are opting for a bank loan, do your research on the bank loans offered by different banks to see which bank loan suits your preference more. 

To make it easier to understand, the main differences between a bank loan and HDB loan are as follow:  

• HDB loans are able to fund as much as 90% of the valuation whereas for bank loans, it is able to fund up to only 80% of the valuation. 
• HDB loan has a fixed interest of 0.1% above the current SPF rate, which is approximately 2.6%, for the whole loan tenure, whereas for bank loan, the interest is not fixed. However, are cheaper, at approximately 1.7%. 
• HDB loans typically have a tenure of maximum 25 years whereas bank loans are able to allow the extension of the loan tenure beyond 25 years. However, this will result in a larger sum for the down payment.  
• HDB loan is more helpful when it comes to downpayment as you are able to use your CPF to cover your downayment. 
• HDB loan is more forgiving and lenient as compared to bank loan, as there is no penalties for early repayment.

In other words, bank loans are known to have greater down payment but lower interest rate and better flexibility. As for HDB loan, it allows a lesser down payment but with greater interest rate and lesser flexibility. So if you are planning to apply for a BTO unit, think and choose wisely and accordingly.  

In conclusion, a HDB loan might be a better choice for you if you can pay off your loan early. It is also a good option for those who have just started their careers as the downpayment for the house will be lower and the chances of you missing your repayments will be higher too. However, if you are familiar with the housing market and is good in refinancing, a bank loan is definitely a better option then.