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Wednesday, April 01, 2015

Differences Between Bank and HDB Loan (Infographic)

First time home buyers in Singapore will always face several tough questions when deciding on a flat. One of them is the option to choose between a Bank and a HDB Loan. It is not an easy choice to make and choosing one over the other will eventually determine how much interest you would be paying over the lifetime of your loan.

Enjoy the Infographic

Bank Vs HDB Loan



Loan Details

In general, HDB has a strict loan tenure of 25 years, whilst banks allow a maximum of 30 years (albeit with some caveats).

Maximum Loan amount against the purchase price

Banks will not grant a full loan on the price of the HDB. As such, when taking a Bank loan, you will need more cash on hand.


Down Payment

Since the maximum loan amount is typically lesser when taking a Bank loan, this corresponds to a higher amount of down payment required. Conversely, when taking a HDB loan, you will not need to fork out any cash to pay for the down payment of the flat.

Interest Rate

Banks offer a fixed, variable or mixed interest rate plan. Usually, this means that the interest rate of the loan is fixed or pegged to the SIBOR (Singapore Interbank Offer Rate). HDB interest rates are pegged to 0.1% above the prevailing CPF Ordinary Account interest rates. 

At the writing of this article, the indicative rates provided by Banks are about 1.3% per annum, whilst HDB rates are at 2.6% per annum

Summary for Bank VS HDB 


Pros

- Interest rates are generally lower during the initial years (Within the lock-in period).

- Save tens of thousands of interest repayment over your loan tenure if you diligently refinance your loan once the lock in period is over.

- Fast approval process.


Cons


- Banks are not as benevolent as HDB when it comes to missing your scheduled payments. Your flats are collateral for your loan and the Bank has every right to repossess when you are unable to meet your debt obligations.

- Potentially volatile interest rate, the SIBOR has been steadily increasing in the last half a year (from the end of 2014). This is also in line with the expectation that US interest rates will continue to rise. Whilst HDB rates have consistently been tagged to the CPF rate (which has not risen above 2.5% since 1999).

- Banks will likely impose a penalty if you make a partial or full repayment of the loan before the completion of the lock-in period. This is to compensate them for the loss of earnings (i.e, your interest).

Find out more about the tips to Buying your first BTO here

** Note: All details are based on the assumption that the borrower is a first time home buyer.