HDB or Bank loan – Which should you take?

Buying an HDB flat and unsure if you should take an HDB or Bank loan? What factors should you take into consideration before coming to your final decision?

A HDB loan seems like the most direct and least troublesome means to get your home loan. But not everyone qualifies for one nor does it fit every buyer’s long-term financial plans. So what should you look out for?

1. Type of housing

The type of public housing unit you choose – resale, BTO or executive condominium (EC) and the size of the flat would determine how much cash you need upfront and how much your monthly mortgage will be.

2. How much cash you have on hand

As HDB loans are a beneficial provision from the government hence they do come with caveats such as citizenship status and income.

There are a few pros in taking an HDB loan:

a) Stability

The 2.6% interest rate has not changed in the last 15 years. Monthly mortgages are more regular and long-term planning is easier.

b) LTV ratio

HDB loans have a LTV ratio of 90%. Buyers only have to pay 10% upfront and they can use their CPF monies to do so. That leaves more them with more cash liquidity for home-related necessities such as renovation and appliances.

c) No penalties for early repayment

There are no penalties for paying for your entire loan early, unlike bank loans which usually have a lock-in period.

The pros of a bank loan:

The interest rates are lower than an HDB loan.

Currently, bank loans can start from as low as 1.3%. That means a considerable amount of savings. Bank loans have not fluctuated above the  2.15% rate for the past 10 years.

Whether you take an HDB or Bank loan, it ultimately depends on your financial abilities, comfort with uncertainties and long-term financial plans.

Take an HDB loan if you prefer stability, higher liquidity and have sufficient and constant CPF contributions.

If you are able to handle interest rate fluctuations, taking a bank loan would save you more in the long-term. That is, however, dependant on future interest rate changes.