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Friday, October 7, 2022


Pros and cons of HDB and bank loan?


Hi! My bf and I are looking at purchasing a resale flat and we are deciding on the type of loan to finance the flat.

We have read up about the pros and cons of each but wanted to hear first hand experiences of current homeowners.

Pls share why u chose one type of loan over the other and any other tips to take note of when buying a resale flat for a young couple? Thank you!!!

Netizens’ comments

  • Personally prefer HDB loan as there won’t be a early repayment penalty, which should be present for bank loans
  • Take a HDB loan first. Once your CPF OA is fatter can take bank loan so minimal fear or defaulting on payment. Save on interest with bank loan.
  • The only benefit of a HDB loan is its lower downpayment requirement as compared to a bank loan. So if you do not have enough cash/cpf (especially for the 5% cash) for Bank loan, I see that as the only rational reason for choosing hdb loan. Let’s go point by point:
    Interest rate: Bank loan is lower, hands down. For people concerned about rising interest rates, you can always fix your bank loan interest rate at 1.5% for 5 years, or the longest fixed rate available, then refinance/reprice after lock in period ends. And the re-finance price will almost certainly be lower than hdb loan rate.
    Early repayment: There are different sides on whether one should stretch their home loan as long as possible, ultimately that depends on your risk appetite (I lean towards stretching as long as possible). In any case, you can also repay your bank loan early after the lock in period for a small fee, which is lower than the additional interest you pay for hdb loan.
    Late repayment: If you are financially prudent and have been building up a safety fund, this shouldn’t concern you. Anyways the 30% MSR should have prevented you from overstretching yourself. Then again, if you are financially prudent/saavy, hdb loan should not appeal to you.
  • Before deciding on which one, first, the affordability on upfront payment. Bank int rates are much lower than HDB’s. But u need to fork up much much more upfront cash, subject to the banks loan margin vis-a-vis valuation of unit n further subject to your TDSR (60%?). HDB requires much smaller upfront cash but has a higher TDSR (40%?). Google HDB for correct figures quoted here as I m simply flashing from memories. Regardless, the upfront cash difference is quite tidy sum n this is main reason y many opt for HDB loan. If this is a problem, then no choice, go for HDB loan. However, if u can afford the higher upfront from bank loans, then consider below….
    HDB interest rates are pegged to CPF rates. Whatever the CPF rates to depositors, HDB rates will be 0.1% higher. I do not see bank loans interest rates surpassing HDB’s. It just cannot happen this way. Assuming bank loan rates goes up to 3%. That means their deposit rates to customers must also rise in tandem to attract more funds. CPF will tend to offer higher int rates to incentivise not withdrawing n also to deposit more into CPF funds. When such int rates rise, HDB loans int will rise in tandem at 0.1% higher. I believe this is a deliberate policy by CPF & HDB, though not cast in stone. In short, CPF deposit n HDB loan rates will always be higher than banks. As for early partial redemption with bank loans, there should be no charge or fee, unless it’s refinancing with another bank. Even refinancing with same bank attracts a small fee as it’s recurring business. Some banks may even waive it. Even if there’s small fees, it’s worth the savings from difference in bank loan from HDB’s. For more pro advice, google n contact those refinancing officers who can give u more clarity n work through your finances n affordability with u.

We took bank loan simply because of lower interest. Everything else simply sounds categorical and unquantifiable (eg: HDB is more lenient if you miss payments) and doesn’t really matter as long as you can hit the financing requirements – 5% cash, 25% downpayments

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