Should You Get A Bank Loan For Your HDB Flat?


Every Singaporean who intends to buy a home knows this: The Housing & Development Board (HDB) requires that you have a payment plan before purchasing a home.

When deciding if you should get a bank loan for a HDB flat, it’s crucial to weigh all your available options and pick the one that best suits your circumstances.

Here is what you need to know about a bank loan for HDB, as well as the pros and cons of a HDB loan vs bank loan.

What To Know About A HDB Loan

The HDB offers a concessionary lending programme to Singaporeans.

Currently, the interest rate for HDB loans is 2.6%. To get a HDB loan, you must follow these rules:

  • It applies to HDB flats
  • One of the buyers must be a Singaporean
  • The purchasers’ monthly income must not exceed $14,000. For extended families, this figure should be less $21,000
  • The loan applicant shouldn’t have an interest in local or overseas private property
  • A buyer cannot have more than two outstanding HDB loans at the time of purchase
  • The buyers must not have sold any other properties within the previous 30 months preceding their loan application

The Single Singapore Citizen (SSC) Scheme imposes a monthly income limit of $7,000 for singles purchasing a resale flat. The property can have five rooms or less, or be a new two-room flat in a non-mature estate.

To qualify for a HDB loan, you must first apply for a HDB Loan Eligibility letter (HLE).

The current interest rate for the Central Provident Fund’s Ordinary Account (OA) is 2.6%.

That’s an increase of 0.1% from the previous interest rate.

Should You Get A Bank Loan Or HDB Loan?

The guidelines for obtaining a bank loan are typically more relaxed than those for obtaining an HDB loan.

The main difference between a bank loan and a HDB loan is that banks mostly need to look at your credit history.

A bank loan may or may not be preferable to a 2.6% HDB loan. It depends on how much bank loan rates fluctuate over time.

  • There is no fluctuation in the interest rate for an HDB loan, which is greater than the average.
  • Loans from financial institutions have lower interest rates but can only be used for a maximum of two or three years.
  • HDB offers 85% higher borrowing capacity than traditional banks.
  • If you have enough, you can use your CPF savings as a HDB bank loan downpayment. Paying at least 5% of a bank loan in cash is customary.
  • There are no prepayment penalties for HDB loans. However, they can be as high as 1.5% for bank loans.

Key Differences Between A HDB Loan And Bank Loan

How do you easily differentiate between an HDB and a bank loan? Here are some distinct ways that they differ.


To qualify for a HDB loan, a borrower must put down at least 10% as downpayment. This can come from your cash on hand, your HDB CPF payment from the Ordinary Account (OA), or a mix of the two.

For flat applications received from 16 Dec 2021 to 29 Sep 2022, a 5% payment using your CPF OA savings or cash is required. For flat applications received on or after 30 Sep 2022, 10% payment using your CPF OA savings or cash is necessary.

However, you can choose to keep up to $20,000 in your OA for unexpected expenses from your HDB bank loan downpayment.

Besides the obvious benefit of the savings accruing interest in your OA, they can also be used as a cushion to pay your regular expenses in the event of unexpected expenditure.

If you choose a bank loan, you will be required to make a 20% downpayment when signing the agreement for a lease. A cash payment of 5% is required, with the remaining 15% to be paid in cash.

Interest Rates

HDB loans have a set interest rate of 2.6% per year, or 0.1% more than the current OA interest rate, while bank loan interest rates fluctuate with market conditions.

In most cases, the interest rate on a bank loan will be cheaper than the rate of a HDB loan.

This helps you to reduce your interest payments and boost your retirement savings.

However, remember to monitor your refinancing opportunities regularly so that you can secure the most affordable interest rates.

Lock-In Period

There is no prepayment penalty on HDB loans because there is no lock-in period. This also implies that you are free to negotiate new terms for your loan with your bank at any moment.

However, the typical lock-in period for a bank is between two and three years.

If you want to prepay your loan or refinance it with another bank during the lock-in term, you’ll have to pay a fee of 1.5% of the loan amount.

Pros And Cons Of A HDB Loan And Bank Loan

What are the advantages of taking a bank loan? We have listed some of them here.

Pros Of Getting A Bank Loan

Lower Interest Rates

The high interest rate is one of the main drawbacks of a HDB loan. Buying a flat with an interest rate of 2.6% could result in higher monthly payments than anticipated.

Most banks are able to offer better rates.

If you take out a loan from the bank at a rate of 1.5%, your monthly payment will be $1,600. It’ll cost you $480,000 to pay off your apartment over 25 years.

This means you can save over $64,500 in interest throughout a 25-year loan by opting for a bank rather than an HDB loan.

But remember that most bank loans have a variable interest rate, so your interest payments might change as the loan progresses.

Easier Eligibility Requirements

Securing a maximum bank loan for HDB may come with various obstacles. Therefore, due to the relatively more lenient eligibility criteria, non-citizens may do better with a bank loan.

Pros Of Getting A HDB Loan

No Early Repayment Penalty For HDB Loan

One advantage of a HDB loan is the flexibility of repayment terms. There are no prepayment penalties for a HDB loan.

But some financial institutions have strict policies and penalties for prepaying a loan. For instance, a mortgage loan from a bank might have a penalty value of 1.5% and a locking period of one to two years.

You Can Choose To Switch To A Bank Loan

Those who are thinking of getting a HDB loan can do a bank refinance instead. The best part is that borrowers can easily transfer to a bank loan without penalty.

That’s because HDB loans don’t have a lock-in term.

However, those who choose a bank loan will be unable to switch to a HDB mortgage during their mortgage terms because of the bank’s lock-in period.

A HDB loan allows you to make prepayments and switch to a bank loan if you want.

A HDB Loan Has A Lower Initial Downpayment

Another reason HDB loans are often preferred over bank loans is because of their smaller required initial investment. The minimum downpayment for a HDB loan is 15%.

On the other hand, the minimum downpayment for a bank loan is 25%. HDB bank loans also include the Staggered Downpayment Scheme.

A split downpayment is possible in this case. The first payment of 5% is due at the time of lease signing. You’ll get the second payment of 5% upon receipt of the keys.

In the case of a bank loan, this would be paid in two installments: 10% at completion of the initial downpayment and 15% upon receipt of the keys.

Eligibility Criteria For A Bank Loan And HDB Loan

How would you know if you qualify for both the HDB loan and a bank loan? Here’s what you should have:

HDB Loan Eligibility Criteria

To qualify, you need to fulfil the following criteria:

  • One homebuyer must originally be from Singapore
  • You must not have previously qualified for two or more HDB mortgages
  • The gross monthly income for a typical family must be under $14,000
  • People with a single income of less than $7,000 per month can afford to buy a resale apartment with five rooms or less, or a new apartment with two rooms in a new development
  • A prospective borrower cannot have bought or sold a private residence during the previous 30 months before applying for an HDB Loan Eligibility (HLE) letter
  • You can apply for an HDB loan and an option to buy after obtaining the HLE

Note that you can apply for a bank loan even if you don’t match the criteria.

To Be Eligible For A Bank Loan

A decent credit score is usually all that’s required to secure a loan from a bank. With that, you can receive a maximum bank loan.

Why Do The TDSR And MSR Matter?

Is it really necessary to check on your Mortgage Servicing Ratio and Total Debt Servicing Ratio? The simple answer is yes. Here’s why.

Mortgage Servicing Ratio (MSR)

This applies to HDB properties only, including executive condominiums. This rule states that your mortgage payment cannot exceed 30% of your gross monthly income.

You must adhere to the MSR if you purchase a HDB property, which includes executive condos.

Total Debt Servicing Ratio (TDSR)

Any home buyer must comply with the TDSR, which refers to the percentage of your income that goes toward paying your debts, regardless of the financing method used.

The TDSR decreased from 60% to 55% due to the new property cooling regulations.

This means no more than 55% of your take-home money should go toward your monthly obligations. In other words, there is a cap on how much money you can borrow.

Which Type Of Loan Is The Best?

If you prefer to avoid uncertainty or believe you can make early loan payments, a HDB loan may be the best option for you.

Despite the higher interest rate in HDB loans, your cashflow won’t be negatively impacted nearly as much.

That said, a bank loan might be cheaper in the long run. Don’t forget banks are far more stringent than HDB when it comes to loan eligibility criteria.

Or you can approach licensed money lender Katong Credit for a loan.

Contact our experienced loan officers, who will be more than happy to assist you. Or apply for a loan with us now.

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