At present, the prevailing interest rate of a bank loan is lower than a Housing Development Board (HDB) home loan. Even so, getting the maximum HDB loan is still the better choice for Singaporeans. It may seem irrational, but there are several compelling reasons why it is so.
Singapore HDB Flats by the Numbers:
- HDB apartments increased by 26%, from 857 thousand in 2019 to 1.08 million in 2020.
- As of 2020, 81% of Singaporeans live in public housing under the HDB. Over the last decade, this figure has remained roughly the same.
- Of those who live in HDB apartments, 90% own their home.
HDB Loan vs. Bank Loan: How Do They Compare?
| HDB Housing Loan | Bank Loan | |
| Description | Home loan from the Housing Development Board | Home loan from commercial banks |
| Borrower Eligibility | Good credit score plus several more requirements including income ceiling and citizenship | Good credit score with no income ceiling |
| Property Eligibility | HDB flats only | HDB flats and private properties |
| Maximum Loan Size | None | Usually above S$100,000 |
| Loan-to-Value Limit | Up to 90% of property value | Up to 75% of property value |
| Downpayment | 10% of the purchase price that can be paid with CPF OA savings
Note: For a resale flat, the buyer will need to pay up to S$5,000 to the seller |
25% of the purchase price, at least 5% must be paid in cash while the rest can be paid with CPF OA savings |
| Interest Rates | Currently sits at 2.6% per annum, 0.1% above the CPF OA interest rate. | 1.2% to 2.8% per annum over the last several years |
| Maximum Loan Tenure | Up to 25 years | Up to 30 years |
| Early Repayment Penalty | None | 1.5% to 1.75% |
| Late Repayment Penalty | 7.5% per annum | Depends on the bank and is usually more expensive than HDB |
| Refinance Option | Can switch to bank loan | Can switch between banks but not to HDB loan |
Key Differences
It is easy to see that both HDB and bank loans have advantages and disadvantages. In other words, one is not necessarily better than the other. At any rate, the following are the most important differences between the two.
1. Loan-to-Value (LTV)
The HDB housing loan LTV can be up to 90%. It means that you only need to pay a 10% downpayment. Not only that, but you can also pay using your CPF Ordinary Account (OA) savings.
A bank loan, on the other hand, has a maximum LTV of 75%. Your downpayment, in this case, is significantly higher. Although you can use your CPF OA savings, you are still required to pay at least 5% in cash.
Assume, for example, that a 2- or 3-room flat has a market value of S$300,000.
- HDB Loan: DP S$30,000 (S$300,000 x 10%)
- Bank Loan: DP S$75,000 (S$300,000 x 25%)
Bank loans may have lower interest rates. But for many Singaporeans, putting up the downpayment may be the single sticky point, thus making HDB housing loans more preferable.
2. Interest Rates
HDB housing loan interest rates are always +0.1% of CPF OA interest rate and currently stand at 2.6% per annum.
On the other hand, banks peg their interest rates on fixed deposit home rates or the Singapore Interbank Offered Rate (SIBOR). Although there is a 3% cap per annum, no bank would charge the maximum interest rate. Generally, the interest rate of bank home loans ranges from 1.2% to 2.8% per annum depending on market conditions.
One argument for a bank home loan is that interest payments are significantly lower. And, that is not only because of lower rates but also due to lesser initial principal balance.
Over the long term, however, there is a possibility that bank loan interest rates may increase. Even if you were to choose a fixed interest rate over a floating rate, the guarantee lasts only 2 to 3 years. After the lock-in period expires, the bank can adjust the interest rate according to the prevailing economic condition.
HDB loan interest rate, on the contrary, has remained fixed at 2.6% per annum since 1999.
3. Refinancing Option and Other Fees
After availing of an HBD housing loan, you have the option of refinancing with a bank loan. Why would you want to do that? As noted in the previous section, bank loans have lower interest rates. By doing so, you can potentially save tens of thousands of Singaporean dollars over the long term.
Bank loans do come with more penalties and usually at higher costs. For example, if you choose to pay off a bank loan too early, you would be charged a 1.5% to 1.75% prepayment penalty. With an HDB loan, there is no such penalty.
Who Can Apply for an HDB Housing Loan?
Some of the most important eligibility requirements to apply for an HDB housing loan are as follows:
| Citizenship | At least one buyer is a Singaporean citizen | |
| Household Income Ceiling | Single | S$7,000 max |
| Family | S$14,000 max | |
| Extended Family | S$21,000 max | |
| Private Property Ownership | Must not own or have previously disposed of private property in the last 30 months | |
| Commercial Property Ownership | Maximum of one market/hawker stall or commercial/industrial property |
HDB Home Loan Eligibility Requirements
1. Citizenship
The Home Development Board was formed as a response to the housing crisis half a century ago. It, therefore, follows that one of the buyers of a flat should be a citizen of Singapore.
2. Income Ceiling
The average gross monthly income must not exceed:
- S$7,000 for singles buying a new 2-room flat or a 5-room or smaller resale flat in a non-mature HDB estate.
- $14,000 for families
- $21,000 for extended families
For non-salaried buyers such as those working freelance jobs, only 70% of what they earn is acceptable for the HDB loan eligibility application.
Many HDB flat buyers also worry about not making enough to be eligible for an HDB home loan. It can be a concern when the buyer depends on the following, which do not qualify as monthly household income.
- Alimony or maintenance fees
- Bonuses
- Claims/reimbursement/expenses
- Director’s fees
- Dividend income or interest from deposit accounts
- Income from ad hoc overtime work
- National Service allowance
- Occupier’s income
- Overseas cost of living allowance
- Pension
- Rental income
- Scholarship overseas allowance
For more information, visit the Income Guidelines page at the HDB website.
3. Property Ownership or Interest
The buyer must not own private residential property or disposed of one in the last 30 months to qualify for an HDB Loan Eligibility (HLE).
Residential property as defined by the HDB can be within or outside Singapore and also includes:
- The owned property acquired as a gift
- Inherited property under a will or through the Interstate Succession Act
- Property owned, acquired, or disposed of through nominees
For commercial properties, the buyer cannot own more than one market/hawker stall or commercial/industrial property. A buyer who owns one must operate a business and has no other income source. For a complete list of HLE requirements, visit the Eligibility Conditions for HDB Housing Loan page.
How Can You Get the Maximum Loan for Your HDB Flat?
HDB loans have a Loan-to-Value Limit of 90%. Hence, the maximum loan amount is 90% of the purchase price.
Getting the maximum loan amount, though, requires compliance with a few conditions. These factors, in essence, can lower how much loan you could take.
1. Remaining Lease
The maximum amount depends on the extent of the remaining lease covering the youngest buyer to 95 years old, provided the remaining lease is more than 20 years.
- The LTV limit of 90% can be available if the youngest buyer is 95 years old or older.
- Suppose the youngest buyer would be less than 95 years old. In that case, the LTV limit of 90% becomes pro-rated based on the extent of the remaining lease covering the youngest buyer until the age of 95.
In either case, the loan tenure is the shortest of:
- 25 years;
- 65 years minus the average age of the buyers; or
- Remaining lease at the time of application* minus 20 years
2. Mortgage Servicing Ratio (MSR)
MSR is the portion of monthly income allocated towards mortgage payments and capped at 30%. If the monthly installments you will be paying exceeds 30%, then it will affect the HDB loan amount.
3. Total Debt Servicing Ratio (TDSR)
The TDSR, in principle, is similar to the MSR. However, it includes all debt obligations, such as student loans, car loans, credit card balances, and the current home loan application.
Your TDSR cannot exceed 60%. If it did, you would not get the maximum loan amount equivalent to 90% of the flat cost.
How Do You Apply for an HDB Concessionary Loan?
These are the steps to take when applying for an HDB concessionary loan:
Step 1: Go to the HDB HLE Letter page and click on option 1: Submit an HLE application.
Step 2: Go to the MyDoc@HDB page to submit electronic copies of your documents.
Step 3: After submitting all the required documents, applicants can expect to receive a reply within 14 days. To track the HDB HLE application, go to the MyHDB portal and log in with SingPass.
Required Documents
Before applying, you should prepare the necessary documents and have them ready for uploading. Which documents you need would depend on your employment type and CPF contributions.
*Instead of payslips, a suitable replacement would be a letter from the employer stating the job designation, commencement date, salaries for the preceding 3 or 6 months before the month of application.
Employed with Monthly CPF Contributions:
- Payslips from the preceding three months before the month of application*
- CPF contribution history for the previous 15 months
Employed without Monthly CPF Contributions:
- Payslips from the preceding six months before the month of application*
- Credit Bureau report
- Bank statements or passbook detailing the last six months
Self-Employed:
- Latest Notice of Assessment from the IRAS or Certified Annual Statement of Accounts from an audit firm
- Credit Bureau report
- Bank statements or passbook detailing the last six months
Commission-Based and Part-Time:
- Payslips or commission statements from the preceding six months before the month of application*
- CPF contribution history for the previous 15 months
- Credit Bureau report
- Bank statements or passbook detailing the last six months
Odd Jobs:
- Latest Notice of Assessment from IRAS*
- CPF contribution history for the previous 15 months
- Credit Bureau report
- Bank statements or passbook detailing the last six months
Unemployed:
Full-time students 18 to 62 years old need to submit a valid Student Pass.
If unemployed for less than three months, these are the required documents.
- Proof of income for the preceding months from the last employer stating gross monthly income and final day of employment
- CPF contribution history for the previous 15 months
How to Check Your HDB Loan Eligibility (HLE) Status?
After completing the HDB HLE application, applicants will receive an HDB HLE number. To check the HDB loan eligibility status, go to the HDB HLE Enquiry page and log in with the NRIC and HLE number.
What Else Do You Need to Know About HDB Loans?
From the start, applying for the maximum loan tenure puts you in a better financial position. That is because you can pay the lowest monthly mortgage installments. After all, changing the repayment period of HDB loans does not incur penalties.
After saving more funds in cash or CPF Ordinary Account, making a partial principal repayment is not only possible but also penalty-free. There are two options:
- Continue paying the same monthly installments but shorten the HDB loan tenure
- Keep the HDB loan tenure unchanged but lower the monthly mortgage payments
Another option to consider is to switch to a bank loan. HDB loans have a fixed interest rate of 2.6%. Some banks, on the other hand, offer as low as 1.2%.
Get Your HDB Concessionary Loan Approved and Reap the Benefits
HDB loans not only offer more benefits than drawbacks. It may also be the only option for those with less cash or CPF OA savings. Whether it is a new HDB flat or resale flat, obtaining the maximum loan amount helps keep your options open and flexible in the future.
Key Takeaways:
- It is easier to pay the downpayment of an HDB flat because the maximum loan can be up to 90% of the property price, leaving only 10% payable by cash or CPF OA savings.
- Since 1999, the 2.6% interest rate of HDB loans has not changed. Banks may offer lower rates today, but there is no telling when it may increase to higher rates in the future.
- Getting approved for HDB loans is not as simple as bank loans. Nonetheless, fees and penalties for HDB loans are cheaper or non-existent.
Acquiring your own home is one of the biggest financial decisions you’ll make. And the first vital step to determine which financing will work to your advantage. Instant Loan is your partner in getting the right loan that’s tailored-fit to your exact needs. Send us a request today to receive up to three loan quotes from the country’s leading financial institutions.
