HDB loan vs Bank loan for HDB BTO

Your questions about bank loans for HDB flats, answered

Buying a HDB flat can mean a lot, both emotionally and financially. That’s because it marks a key milestone for every Singaporean adult. The loan that you take is a decision that can make or break your finances.

And that’s why you should always explore all your options to make an informed choice – not just because your uncle, auntie, or friend said so. When it comes to your home loan, this means getting up to speed about bank loans for HDB flats.

1. You can choose to borrow from a bank or HDB

When buying an HDB flat, you have a choice between a HDB concessionary loan, or a bank loan for HDB flats. If you borrow from HDB, the rate is fixed at 2.6% p.a. (until they change the CPF-Ordinary Account rate). If you borrow from a bank, you can choose between fixed and floating rate packages:

  Fixed rate loan packages Floating rate loan packages
About the interest rate... Flat for a pre-determined period of time, usually between 1-3 years Pegged to a benchmark rate, e.g. the SIBOR, or Fixed Deposit Home Loan Rate
What happens when benchmark interest rates change? Nothing! The rate does not change during the stipulated time frame, so you do not constantly need to track it and your monthly repayment is fixed Whenever the benchmark rate moves, the interest rate on the floating rate loan package changes correspondingly, and your monthly repayment will change.

2. You can enjoy a lower rate from a bank (compared to HDB)

The conventional wisdom among homeowners is that “bank loans for HDB flats charges higher interest than HDB concessionary loans”. But that’s a thing of the past. These days, banks are offering lower interest rates than HDB.

Take POSB’s loan for example.

Compared to HDB Concessionary Housing Loan’s 2.6% p.a. interest rate, the ‘Super Savers Package’ in POSB bank’s ‘Super Savers Package’ only charges 1.5% p.a. for the first 5 years. That 1.1% interest savings easily adds up to S$156 per month, and S$9,404 over 5 years (for a loan of S$300,000 that lasts 20 years). That is some serious savings.

With the ‘Super Cash Reward Package’, you pay 2.60% p.a. for the first year and 1.8% p.a. for the 2nd to 5th years. Assuming a loan of S$300,000, the 0.8% interest savings works out to S$110 a month, and S$5,280 for those four years. Furthermore it comes with an upfront cash reward (S$5,000 in this example) that increases with your refinancing loan amount. That is a decent amount of savings in these cash-tight times. That is a good amount of savings in these cash-tight times.

Savings you can get from lower home loan interest rates

3. You can use your CPF to repay a bank loan for your HDB flat

This is a myth that you should definitely know about. You might be tempted to think that CPF can only be used to repay a HDB Concessionary Loan. However, that’s not true. There’s no such restriction! You CAN also use your CPF money to repay a bank loan for HDB flat.

4. You have a higher cash down payment, but it’s a blessing in disguise

If you are taking a bank loan for your new HDB flat, you will need to make a 25% down payment (up to 20% from CPF, at least 5% from cash). In comparison, the HDB concessionary loan only requires a 10% down payment, all of which can be paid using CPF.

However, the higher cash down payment can be a blessing in disguise. That’s because you get to keep more funds in your CPF to earn up to 3.5% interest from your Ordinary Account (OA). And remember how a small interest savings of 1.1% adds up to S$9,404 after 5 years? Same idea. What’s more, your CPF-OA pays you a higher interest of 3.5% p.a.

In addition, you can get further savings for other items. For instance, bank loans for HDB flats offer legal and valuation fee subsidies from time to time. This is something that HDB doesn’t provide.

Note: The down payment mentioned above only applies if you are buying a “new” property (either a BTO or resale flat). If you are simply refinancing, you don’t have to be concerned about the cash down payment requirements. You can also keep your CPF funds to earn higher interest, and as a buffer for future monthly instalments, especially if you have a loss of income.

5. You can earn higher deposit rates with a bank loan

Nowadays, banks are offering programmes with higher deposit interest rates to help consumers think about saving, protecting, and investing better. One such programme is the Multiplier Account. By crediting your salary through POSB and using more banking services such as the POSB HDB home loan, you can earn higher interest of up to 3.8% p.a. on your deposits.

For example, say you have S$50,000 savings in your Multiplier Account, and are already crediting your S$4,000 salary with a POSB/DBS account. In addition, you spend S$500 on your credit card every month. By taking a bank loan with POSB, you get to earn an additional S$664 each year on your savings account balance.

How you can earn extra interest from Multiplier account and home loan.

6. You can get help from your bank. Because neighbours first, bankers second.

For many of us, home is a safe haven. It may even be part of our retirement savings plan. So, headlines about slower economic growth are scary. It means we might lose our jobs, and this income loss can lead us to struggle to repay our home loans.

The POSB team has heard these concerns, and introduced complimentary Home Payment Care coverage for 6 months for those who take up POSB HDB home loan packages. If you lose your job and income involuntarily, the programme will help with your monthly instalments for up to 3 months. And if anything untoward happens to you (accidental death or accidental permanent disability), you can also get a lump sum pay out of up to S$30,000 to cover your home loan.

(A graphical illustration of Home Payment Care.)

Deposit Insurance Scheme
Singapore dollar deposits of non-bank depositors and monies and deposits denominated in Singapore dollars under the Supplementary Retirement Scheme are insured by the Singapore Deposit Insurance Corporation, for up to S$75,000 in aggregate per depositor per Scheme member by law. Monies and deposits denominated in Singapore dollars under the CPF Investment Scheme and CPF Retirement Sum Scheme are aggregated and separately insured up to S$75,000 for each depositor per Scheme member. Foreign currency deposits, dual currency investments, structured deposits and other investment products are not insured.

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