Bank loan vs. HDB loan: Debunking the myths
Life is too short to be filled with worries. You already had your fair share of concerns when choosing the right home for your family. Rather than worrying about home loan payments, you should be thinking about creating shared memories and sharing moments of joy with your loved ones.
Getting the facts right is half the battle won – the other half involves taking the right steps. So, to help you save the hassle, let's debunk the myths about HDB home loans, and enjoy life to the fullest.
Myth 1: All First-Time Homeowners MUST Take a HDB Loan
There is no hard and fast rule that requires first-time homeowners to take a HDB loan. You have the option of choosing between an HDB loan or a bank loan.
HDB loans come with a lower down payment requirement, which makes it easier on your pocket now.
But if your financial situation allows, bank loans can be a smarter choice as some banks are still offering lower interest rates.
Myth 2: Banks Loans are Always More Expensive than HDB Loans
At 2.6% interest rate p.a., the HDB concessionary home loan seems hard to beat. But in reality, HDB loans are not always the better deal.
For the past decade, interest rates for floating-rate bank loans have been low, falling below 2.6% per year. Little wonder that homeowners flocked to floating-rate loans as the “better decision”.
Now, it seems that fixed-rate bank loans are making a challenge for the “better decision” accolade. For instance, POSB’s latest fixed-rate loan package comes with an interest rate of only 2.2% per year for the first 5 years. Fixed-rate bank loans with lower interest rates than HDB’s concessionary loan? That’s almost unheard of.
While the saving of 0.4% looks small, don’t underestimate it, especially for a large ticket item like your family home. So while HDB loan might appear to be the de facto option, weigh your options to find the loan that gives you the best decision.
Check out all you need to know about taking a home loan with POSB here.
Myth 3: It Is Always Better to Pay with My CPF savings
The other major factor to consider when taking a home loan is ‘how’ to make your monthly home loan repayments.
Many will choose to use their CPF savings in their CPF Ordinary Account (OA) as the main mode of payment for their home loan. But what’s wrong with repaying your home loan using CPF savings? It is enticing, especially when you do not “see” money flowing out of your bank account every month. Out of sight, out of mind, right? Not quite.
Using your CPF savings for home loan repayments can have a ripple effect on your retirement nest egg. Your CPF savings could have worked harder by earning the 2.5%-3.5% interest rate from the OA. For a home loan which can stretch up to 25 years, the compounding effect on your CPF savings from the OA interest rate is huge.
Myth 4: Apart from The Interest Rate, All Loans Are the Same
When it comes to finances, it is often about getting more for less. If you can make your dollar go the extra mile, why not? Every dollar you save can go a long way in helping you pay for your dream renovation.
Here are some other things to think about:
- Does the home loan offer free legal and valuation subsidies? This helps if you’re thinking about refinancing your home loan, or switching from an HDB loan to a bank loan.
- Can you get a savings account boost? Many banks offer perks if you do more things with them. For instance, you can earn higher interest rate on your Multiplier Account if you credit your salary in, and take a home loan with POSB.
- How empathetic is your lender? No one plans to lose their job, but these things can sneak up unexpectedly. It is important to borrow from a lender who understands that bad things happen to good people. For instance, POSB’s enhanced 5-year fixed-rate HDB home loan comes with complimentary insurance against retrenchment for up to 6 months – a first in Singapore.