Should I use Bank Loan or HDB loan?

Once you have decided to secure a HDB flat, you would be considering to take up either a bank loan or a HDB loan. In this article’s context, let us assume that you are eligible for both loans.Basically, there are five points to note before you decide which type of loan to choose:

1.       Interest Rate
2.       Repayment Amounts
3.       Loan to Value
4.       Early Repayment
5.       Late Payment

1. Interest Rate
The HDB concessionary interest rate is pegged at 0.10% above the prevailing CPF Ordinary Account (OA) interest rate, and may be adjusted in January, April, July, and October, in line with CPF interest rate revisions. Thus, the interest rate for HDB is at 2.6%.

For bank rate, it depends the current SIBOR or SOR rates. Currently, it is at the range of 1.35% to 2% depending on the bank and the type of loan package they offer. The thing to note is that rate will fluctuate and as time goes by, it is essential to make sure that you do a repricing or refinancing every 3 years to keep the interest rate competitive.

Note: It is not necessary that HDB interest is always higher than the bank loan, there is still a possible chance that bank interest rate is higher than HDB rate due to changes in loan package offer by the bank.

2. Repayment Amounts
The monthly payment to the HDB is consistent as the interest is fixed. For bank, the amount will vary depending on the package that is taken up and any changes in package thereafter. This will allow you to plan your repayment to HDB since the amount will be consistent. For bank, the payment amount will vary every 1 to 3 years.

3. Down payment & Loan to Value
The loan-to-value for HDB is up to 90%. The rest of the 10% down payment and the loan amount can be paid fully by CPF. Only for resale HDB, a maximum of $5000 can be paid to the seller directly.

The loan-to-value for bank is up to 80%. The initial 5% of the property must be paid in cash and the rest of the 15% can be paid in cash or CPF. 

4. Early Repayment of Outstanding Loan
For HDB loan, you have the flexibility for early partial or full repayment of home loan and there is no penalty for doing this. All you need to do is to give HDB a 1 month notice.

For bank loan, if you intent to do an early partial repayment there will be prepayment penalty that the bank will charge upon you. If you took up a loan package with lock in period, during that period you will not be able to do any early repayment.

5. Late Payment or deferred payment
HDB is more lenient if you meet with an unforeseen circumstance which you end up not able to meet payment dateline or have to hold back your payment. The current late payment rate is 7.5% per annum.

For bank loan, they hardly exercise such leniency. You should always consult with the bank on how your payment can be best handled.

Conclusion
If you prefer stability in your repayment, do not mind the fixed interest rate that you will be paying and possibly seek for early repayment of your loan, your choice to go for would be HDB loan.

However, if you prefer to leverage in today’s low interest rate environment and could keep track of the amount, payment and refinancing, you can end up paying lesser in interest in total with Bank loan.