Buying a home is one of the biggest and most important investments most people make in their lifetime. 

There are two primary loan options for Singaporeans: an HDB Loan and Bank Loan. And you might be wondering which of the available options is right for you.

This guide will provide an overview of HDB Loans vs. Bank Loans, their features, pros and cons, TDSR and MSR, key considerations, and eligibility criteria for each to help you decide which option is best for your financial situation.

HDB Loan Vs Bank Loan: Key Differences

There are some significant differences between HDB loans and bank loans that must be considered. 

1. Source 

In Singapore, an HDB home loan is sourced from the Housing & Development Board (HDB), while bank loans are offered by banks such as DBS and UOB.

2. Interest Rates

The interest rate for HDB loans is typically lower than that of bank loans, as the government subsidises the interest rate for HDB loans. 

For example, the HDB loan interest rate for HDB flat buyers is currently 2.6% p.a. (normally pegged at +0.1% of the CPF ordinary account interest rate), which is lower than the current bank loan interest rate of 2.7% p.a. for floating rates or 3.45% p.a. for fixed rates pegged on the prevailing market situation.

3. Repayment Periods

HDB loans typically offer a maximum loan tenure of 25 years, while bank loans generally offer a maximum loan tenure of 30 years. 

This means that HDB loan applicants have a shorter window of opportunity to make payments before any penalties are incurred than those opting for bank loans.

For HDB loans, the late repayment penalty is usually 7.5% p.a. (negotiable), whereas the late repayment penalty for bank loans is entirely dependent on the bank that offered you the loan.

There is also a slight difference in the payment options for both loans. HDB loans have to be repaid through a CPF Ordinary Account, while bank loans can be paid through a bank account. 

4. Property Eligibility

HDB loans are only available for certain property types, such as HDB flats, executive condominiums, and shophouses. 

Bank loans, on the other hand, can be used to purchase any type of real estate (both HDB flats and private property).

On top of that, HDB loans have many requirements, such as an income ceiling and citizenship requirements, whereas a good credit score will suffice to apply for a bank loan.

5. Maximum Loan Limit

HDB loans have no maximum loan limit, and individuals can borrow up to 80% of the property value they are purchasing. In comparison, bank loans offer a minimum limit of at least $100,000 or up to 75% of the property value.

There is also a downpayment difference between these two loan options. For HDB, it has to be 20% of the purchase price, which is fully paid with CPF Ordinary Account savings. 

In the case of bank loans, the downpayment is 25% of the purchase price, where at least 5% must be in cash and 20% from CPF ordinary account savings.

Overall, HDB loans and bank loans both offer their own advantages and disadvantages. Depending on your situation and needs, it’s important to analyze the eligibility criteria of each loan type before making a decision.

Eligibility Criteria For A HDB Loan And Bank Loan

The key differences (between an HDB and a bank loan) we listed above indicate that the eligibility criteria are also distinct. 

Let’s look at what it takes to be eligible for an HDB loan.

• Singaporean citizenship is a must, or for couples/partners, at least one buyer for the HDB should be a Singapore citizen
• You should not have taken two or more housing loans from HDB previously
• Average gross monthly household income is less than $14,000
• The average gross monthly household income is less than $7,000 for singles buying five-room or smaller resale flat
• Must not own or have disposed of any private residential property in the past 30 months before the date of application for an HDB Loan Eligibility letter

On the flip side, a good credit score is usually enough to secure a bank loan. 

However, each bank has its own method of assessment, so you should consult your financial advisor or the bank itself for the eligibility checklist so that you know if you qualify for one or not.

In the next section, let’s look at another critical factor that will limit your borrowing, whether from HBD or banks.

Total Debt Servicing Ratio (TDSR) And Mortgage Servicing Ratio (MSR) Regulations For HBD Flats

It is important to know that aside from respective eligibility criteria for an HBD and bank loan, the government of Singapore has set up restrictions on borrowing based on your Total Debt Servicing Ratio (abbreviated as TDSR) and Mortgage Servicing Ratio (abbreviated as MSR). 

This is ideal because it is a restriction that aims to deter people from borrowing more than they can afford to pay back. 

TDSR means you’re restricted to taking no housing loan or less if you’re already servicing one or multiple loans. 

Also, this means that how much you can borrow from an HDB or bank is limited by your monthly repayments, which cannot exceed 55% of your monthly income. The current TDSR for HDB loans is 3%, while for bank loans, it is from 3.5% to 4%.

On the other hand, the HDB property restriction states that your monthly repayments for a mortgage cannot exceed 30% of a borrower’s and/or joint borrower’s monthly income. Let’s say you earn a monthly income of $100,000: your monthly repayments for a mortgage should not exceed $30,000.

It’s important, therefore, that you should put into account all eligibility criteria for both HDB and bank loans before approaching them for an HDB flat loan and, on top of that, assess your TDSR and MSR so that you’re on the safe side.

Key Considerations For A HDB Loan Vs Bank Loan

There you go! Now that we’ve gone through everything that you need to know about a HDB loan and Bank loan, let’s summarize the key considerations that you need to make before going with either option.

• Bank loans have a tighter loan-to-value (LTV), but borrowing less also means more savings in the long run.

•  Bank loans require a higher downpayment, which can be difficult for cash flow.

• HDB housing loan interest rates are more stable.

• You can refinance from an HDB loan to a bank loan, but not the other way around.

• There are higher penalties when it comes to bank loans.

Which Loan Option Is Better For You?

In conclusion, HDB loans and bank loans both have their own merits and drawbacks. It is best for you to weigh the pros and cons of each type of loan before making your decision. 

HDB loans may be more accessible to those with limited incomes, but bank loans may offer more competitive rates and greater flexibility. 

With Horison Credit, you can research the loan options available and make a well-informed decision that best suits your individual needs and financial situation.

Contact Horison Credit today to discuss the loan options available to you and get the best deal possible.