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How do HDB Loans compare to Bank Loans?

by melissamarietan

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Selecting a loan to buy a house can be a daunting task. People always weigh the two options they have, loans from banks or HDB loans.  But there are certain basic differences between HDB Loan and a Bank Loan. 


The biggest difference is that only Singaporeans can avail HDB  loans. The interest rate levied is 0.1% above the current CPF rate. The current rate is 2.5% so it comes to 2.6%. 


The eligibility criteria for these loans include:

(1) It is applicable for HDB flats only, 

(2) One of the buyers needs to be a Singaporean, 

(3) Monthly income of the buyer must not exceed $10,000, 

(4) Buyer must not own any private residence in Singapore or overseas, 

(5) Buyer must not have taken more than two previous HDB loans, 

(6) Buyers have not disposed of private residential property within 30 months before the loan application 

(7) must not own 2 or more owner-operated market/hawker stalls or commercial/industrial properties in or out of Singapore 

(8) not own 1 market/hawker stall or commercial/industrial property where the buyers do not operate the business themselves


Some of the reasons why HDB loan is preferred as compared to a bank loan

Better flexibility as compared to bank loans –

This is the greatest attraction of an HDB Loan. It is more forgiving than bank loans. A bank loan will tend to penalize you in case there’s any delay in the regular repayment process. But HDB loans will be a little more compassionate and try its best to defer your repayments. Moreover, these loans cap your monthly repayments at 40% of your income. With a bank loan you have no such restrictions. They expect you to pay back the amount you owe without any consideration of your circumstances.


No prepayment penalties –

As a consumer you’d feel that the sooner you pay off your loan the better it is for you and the bank. But that’s not how the bank thinks of it. Apparently the bank plans to gain benefits from you in the form of the interest you pay for the entire term of your loan. On the other hand HDB loans are more relaxed. You can definitely pay of your loan if you ever get a huge sum. This is the fastest way of paying of your loan and you pay less interest as well. You can even plan for this while availing the loan. So, if you are about to get a huge sum in a few years, you can direct it to pay the HDB loan you have.


Easy down payments –

When you avail a bank loan, nearly 5% of the initial 20% down payment you make needs to be in cash. This means that you need close to $15,000, for even moderately sized property. But with an HDB loan you can use your CPF money to cover the down payment, if you have the money. In case you are short of cash for that amount, access to your CPF can give you the liberty to look at wider options.


HDB Loan is a good option for people who don’t  like taking risks or  know that they can have the option of paying off the loan early. It’s also useful for a young people  who are just starting their lives as they have to fork out a smaller down payment on the house, and have more chances with missed repayments. 


But people who understand the housing market well, have the patience and the diligence to look at the housing loans being given by banks and understand how to refinance, the bank loan can come out cheaper.

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