In the early 1960s, in order to meet the rising public demands for housing, the Singapore Ministry of National Development created the Housing and Development board to develop public housing to fit the needs of their citizens. Over the years, the HDB board has assisted millions of Singaporeans in obtaining affordable homes to live in.
Anyone who has any plans to purchase an HDB flat without enough money in their bank to shoulder the cost will have to take out a home loan. Singapore citizens can take either a bank loan or an HDB Concessionary Loan, also known as HBD loan. An HBD loan is provided by the government to flat buyers, while a bank loan is obtained from a bank or similar financial institutions.
There are many reasons why HBD loans are better than a bank loan for HDB housing. Some of those include lower downpayment, better rates, flat repayment fees, and more.
What is an HDB loan?
As stated earlier, an HBD loan is a loan provided by the Singaporean government for HDB homebuyers. There are some restrictions that you should meet before you become eligible to get an HDB loan, which will be discussed more below.
Who is eligible?
There are some requirements that must be met before you can get an HBD loan. First, at least one of the applicants must be a Singaporean citizen. Next, your monthly income should be not more than $12,000 ($18,000 for extended families), if your monthly income exceeds that amount, you will have to take a bank loan instead. Under the Single Singapore Citizen (SSC) Scheme, a flat buyer’s monthly income should not be above $6,000 if you are buying a flat with 5 rooms or less, or 2 rooms for flats located in a non-mature estate.
Another requirement is that the flat buyer should not have any private residence, either in Singapore or abroad. Buyers who have taken more than two HDB loans in the past are automatically not eligible for taking another one. Lastly, any flat buyers who have sold or disposed of a private residential real estate within 30 months of their HDB loan application are not eligible.
If you are having trouble assessing your eligibility, we suggest that you take an HDB HLE application. Be sure to prepare your latest payslip and bank statements for the last 12 months along with your Credit Bureau report, since they are among the required documents in order to minimise your time waiting for the officer to attend to your needs.
Take note that the above requirements for the HLE application only applies to people without a CPF contribution. If you happen to have a CPF contribution, you will only be required to submit your latest payslip for the last three months, and your CPF history for the last 15 months.
The borrowing rate or interest rate of an HDB loan in Singapore is currently at 2.6%. At first, it may appear like HDB loans have higher interest rates. However, their interest rates are fixed at the percentage rate at the time you obtained the HDB loan, while other types of loans have fluctuating interest rates.
Other aspects to consider
HDB loans have no early repayment fees. In addition, they have lenient late payment fees, amounting to only 7.5% every year.
What is a bank loan?
A bank loan is a loan obtained from a bank which can be used for a variety of purposes, such as for buying a HDB flat. Bank loans are taken from private banking institutions,
Who are eligible for bank loans?
Banking institutions have their own eligibility criteria that must be met before they approve your loan application. Be sure that you have an excellent credit score, flawless credit history, and good debt to income ratio. A bank will conduct its own background assessment to determine if you are eligible or not, and the factors for their assessment include the three mentioned above.
The borrowing or interest rate for bank loans is fluctuating, so there is no fixed value that we can provide you. The current interest rates for bank loans are going from 1.3% to 1.7%, with an increase expected in the next 3 years or so. Some people prefer using bank loans instead since the interest is lower compared to HDB loan’s fixed 2.6% interest rate. However, take note that the interest of bank loans is subject to increase within the next 3 years, and their interest rate is fluctuating, which means that it can go higher or lower than the interest rate that you initially have.
Other aspects to consider
Bank loans charge a 1.5% penalty in case you want to pay your loans early. They are also less lenient on their late payment fees, charging $50 for every late repayment.
7 Reasons why HBD loans are better than bank loans
In this section, we will discuss some of the points that make HBD loans better than bank loans. Without further ado, let’s start:
Reason 1: HDB loans have better rates
Some people might argue that the lower interest rates of bank loans are better than the flat rate of HDB loans, which tends to be higher. However, you should take the rate increases of bank loans into consideration, especially if your home loan has a long duration. The uncertainty of bank loans when it comes to rates can cause you to pay more in interest rates during the duration of the loan even if you obtained a lower interest rate in the beginning.
Luckily, the government has released an HDB Loan Calculator in order to assist would-be buyers to see how much they can get and how much they would need to repay monthly.
Reason 2: You can use your CPF to pay your down payment
One of the biggest advantages of taking out an HDB loan is that they allow you to pay 100% of the down payment from your CPF savings. This can come in handy if you are short in cash. Meanwhile, banks require at least a 5% cash down payment for their home loans.
Reason 3: Banks are stricter with repayment term periods
Banks are way more strict with their repayment terms. If you missed just a day on your payment schedule, prepare to get slapped by their late repayment fees. Meanwhile, HDB loans are more lenient on their late repayment penalties, as stated earlier in this article.
Reason 4: Early repayment fees
As stated earlier in this article, banks impose an early repayment fees. The early repayment fees of banks are usually at 1.5%. In comparison. One of the biggest advantages of an HDB loan is that they are flexible when it comes to early repayments. They do not impose any kind of repayment fees. You can pay the entirety of the HDB loan early and suffer no penalties. Even though there is a high chance that you will not even take advantage of early repayment, it is still nice to have.
Reason 5: Better for your cash flow/planning
As stated earlier in this article, HDB loans have a fixed interest rate of 2.6% that does not change most of the time since they are based on the CPF rate. This makes them better for planning your cash flow since there is no fluctuating interest rate like in bank loans. HDB loans are consistent, so they are better if you have a very tight budget. Having a consistent interest rate every month will allow you to plan your cash flow in a more strict manner since there is no room for unexpected fees or increases in interest rate.
Bank loan rates, on the other hand, are based on existing rates of SIBOR and SOR, which are cheaper than the 2.6% interest rate of an HDB loan. The downside for bank loans is that they only guarantee the same interest rate for the first 3 or 5 years, depending on your loan package. After your first 3 – 5 years of fixed interest rate, your interest rate will fluctuate depending on the market. This makes it hard to do a strict budget surrounding your bank loan payments. This is not an issue if you have enough money to pay your repayment, but for people who want to manage their cash flow, a fluctuating interest rate will be a real hindrance.
Additionally, there are many home loan packages offered by banks. This can make it hard to choose one, especially if you are not familiar with the different bank offers. As such, it will be better for your cash flow planning if you go with the much simpler HDB loan.
Reason 6: You can still switch to a bank loan if you initially availed of an HDB loan
HDB loans are not just flexible in terms of early repayments. They also offer flexibility for people who wants to transfer to a bank loan after availing an HDB loan. You might be wondering why would anyone want to transfer to a bank loan? It’s simple. Perhaps, a bank offered an exclusive promo to somebody, or a bank loan is more convenient for someone personally. With an HDB loan, you will be able to refinance and effectively transfer to a bank loan instead. Switching to a bank loan from an HDB loan will not incur any penalty since there is no lock-in period for HDB loans. As such, you can make the transition anytime you like.
On the other hand, it is not possible to switch if you obtained a bank loan and wants to switch to an HDB loan. Ensure that the decision is final when you are going with a bank loan since there is no way to switch to an HDB loan once the loan is signed.
Reason 7: HDB loans tend to be more forgiving when compared with bank loans
This is another good reason why you should consider taking an HDB loan instead. You cannot expect a bank to have compassion towards people who default or fails to pay their loans. If you happen to be one of the unfortunate people who failed to pay a bank loan, be prepared to have your home foreclosed by the bank.
An HDB loan, on the contrary, is going to do all they can to delay your payments in case you are struggling to pay. Obviously, this does not necessary mean that you can get away with not paying your home loan. Defaulting on your HDB loan will still have consequences, however, they are less severe when compared to the consequences of not paying a bank loan. Additionally, an HDB loan will give you more chances to settle your missed repayments.
HDB loan or bank loan: which one should you choose?
Just like all concerns regarding your personal financial situation, the ideal home loan that you can get in Singapore is actually reliant on your way of life.
If you are not keen on taking risks, an HDB loan is better than you. It will also be better if there is a chance that you will be able to repay the entirety of the loan before it matures. An HDB loan would also be perfect if you are just getting started on your tracks. HDB loans features lower down payments, which is perfect when you are just beginning your career. You will also be provided with more opportunities to pay in case you miss a payment or two. Even though the 2.6% interest is higher compared to bank loan interests, it is more stable and would allow you to strictly plan your finances and cash flow for years to come.
On the other hand, if you are familiar with the housing sector and you are aware of the advantages of refinancing your loan, a loan from the bank could possibly be less expensive. Having said that, you have to knowledgeable of their terms and conditions of a bank loan, since they are less lenient in case of failure to pay.
In case you need another loan source other than HDB loans and bank loans, you can try getting a loan from a licensed money lender. Fortune Credit is a licensed money lender in Singapore that you can trust. Click here to visit their website to find out more about their loan offers and promos. Additionally, you can give them a call at 6777 1887.