Financing HDB Resale Flat: HDB Loan or Bank Loan?
If you are purchasing an HDB flat, you can choose to finance your flat with a housing loan from HDB or a bank that is regulated by the Monetary Authority of Singapore (MAS). If you first finance your flat with HDB, you can refinance your housing loan to a bank in the future. Meanwhile, if you go with the latter, you are not allowed to refinance your housing loan with the former.
While HDB concessionary rate has remained at 2.6% for decades, recent housing mortgage rate hovers between 1.3-1.6%. Loan-to-Value ratio for HDB loan is 90%, while bank’s LTV is 75% for first housing loan. LTV is a percentage amount borrowed over the lower amount of either the transaction price or value of the property. HDB requires no cash down payment, while banks require 5% cash down payment. HDB is widely known to be more lenient in terms of late payment while banks have the right to foreclose your property if you default on 3 consecutive months of installment.
If you prefer to borrow more and do not prefer to fork out any amount of cash, you shall opt for HDB loan. You may still refinance your housing loan to a bank in the future when you can afford to reduce your outstanding loan amount and would like to enjoy savings on interest. However, if you would like to enjoy saving on interest from the beginning, and you can afford to borrow less and fork out the 5% cash for down payment, you should opt for bank loan.
Source: Central Provident Fund (CPF)
Blog written by: Sumitro Ong (Key Executive Officer of Lands Way Real Estate)