Bank Loan vs. HDB Loan: Which is Better?

Choosing financing for your home is like a game of “Rathers”. You know, where everyone tackles hard questions like “Would you rather be whipped naked down Orchard Road, or rely on the MRT for transport?” But unlike a game of Rathers, home loan discussions are seldom accompanied by laughter and beer (unless you’re awesome). No, picking a home loan is a serious issue. To save you the brain drain, this article contrasts the ole’ HDB loan with a fancy bank loan:

 

HDB Flats

I got the best loan I could qualify for. Now pitch the tent under that tree.

 

What’s This HDB Loan Thing?

HDB concessionary loans are a provision for Singaporeans. The interest rate for a HDB loan is 0.1% above the current CPF rate. As of now (2012), that’s 2.6%.

While banks just check your credit, HDB loans have certain restrictions:

  • It applies to HDB flats (Duh)
  • At least one buyer must be a Singapore citizen
  • Buyers’ monthly income must not exceed $10,000 (or $15,000 for extended families)
  • Buyers must not own any private residence (in Singapore or overseas)
  • Buyers must not have taken more than two previous HDB loans
  • Buyers have not disposed of private residential property within 30 months before the loan application

These are just the most pertinent restrictions. There are others, for people who own and operate commercial properties.

 

Huge stack of books

That's the intro. The FAQ is taking up the third and fourth floor.

 

How Does It Compare to a Bank Loan?

Depending on the current SIBOR / SOR rates, a bank loan can be better or worse than a HDB loan. Likewise, there are security issues that may appeal to some buyers. In general, a HDB loan is:

  1. More forgiving than a bank loan
  2. Higher on the interest rate
  3. Less intrusive to your cash flow
  4. More Helpful for the down payment
  5. No early repayment penalties

 

X-ray of broken leg

Compound interest vs. compound fracture: At least the fracture doesn't have a 30 year tenure

 

1. More Forgiving Than a Bank Loan

This is the biggest appeal of a HDB loan. Bankers have as much compassion as your average rock; fail on your loan repayment, and the frequency of your showers will start to depend on the weather. HDB, on the other hand, will do its best to defer your repayments.

Also, HDB caps your monthly repayments at 40% of your income. A bank loan has no such restriction: The amount you owe is the amount they expect, regardless of your circumstances.

 

Train tracks

Paid late? Took a bank loan? Maybe you should check the train tracks fro him.

 

2. Higher on the interest rate

As mentioned, the HDB loan rate is 2.6%, and seldom changes. Bank rates are more variable; they’re based on current SIBOR and SOR rates, which are usually cheaper. Bank interest rates typically range between 1.14% – 1.3% (as of May 2012).

The downside is that the bank’s rates are variable. You’re guaranteed the same interest rate for three to five years at best (fixed loan package). Beyond that, you’re at the mercy of the market. Also, banks have a huge range of different loan packages; If you don’t understand how to pick the best one, a HDB loan is a simpler choice.

Otherwise, visit home loan sites like SmartLoans.sg, which will display the interest rates of all local banks. From there, it might be a case of just picking the cheapest.

 

Empty pockets

We're providing for your poverty situation. Our loan may also be causing it, but we're providing for it.

 

3. Less Intrusive to Your Cash Flow

If you need consistency in repayments, HDB loans win hands down. The HDB loan is based on the CPF, which changes as often as Edison Chen makes the news for good behaviour. The best a bank can do is to give you a fixed rate package, which lasts just three to five years.

So if you have a tight budget, pick the HDB loan. You’ll know exactly how much to set aside each month. As an added plus, HDB loans come with fewer clauses. You don’t need to worry about pre-payment penalties (see point 5), and deferred (late) payments are easier to negotiate.

 

Whispaw graph

"I won't be joining you. It's April, I can only afford to eat on alternate months."

 

4. More Helpful For the Down Payment

If you get a bank loan, at least 5% of the initial 20% down payment has to be in cash. You’d best prepare for an amount like $15,000, for even moderately sized property.

Before giving your patronage to the neighbourhood loan shark, consider a HDB loan. You can use your CPF money (if you have enough) to cover the entire down payment. If you’re just cash strapped for that initial 20%, access to your CPF could give you a wider range of property options.

 

Fancy classic car

Uh oh. Dear, when you said to go ahead with the down payment, did you mean on our HOUSE?

 

5. No Early Repayment Penalties

If you attempt to pay off a bank loan early, there’s a hefty penalty. The bank was counting on making money off you via the interest rate, and the minions of Satan the bank never gives up what they’re owed.

HDB is more relaxed. If you get a sudden windfall, you can rush your repayment. Remember, the faster you clear your debt, the less interest you end up paying. You might even plan for this; if you’re expecting a large cash infusion in 10 years, for example, you can get a HDB loan and plan to settle it quick.

With banks, attempting to pay early lands you a 1.5% prepayment penalty.

 

Upside down car and mob

Here's your loan money back, with penalty. And here's the car loan back too, with the car.

 

Conclusion

A HDB loan is better if you’re risk averse, or if there’s a chance you can pay off the loan early. It’s also useful if your career is just getting started: The down payment on your house is lower, and you have more chances with missed repayments.

But if you understand the housing market well, and you know how to refinance, the bank loan is ultimately cheaper.

Image Credits:
Unhindered by Talent, frankenstoen, stuartpilbrow, Francesco Schwarz, endiaferon

Did you use a HDB loan or a bank loan? Comment and tell us your reasons!Digg Digg

Get more Personal Finance tips and tricks on www.MoneySmart.sg

Click to Compare Singapore Home Loans, Car Insurance and Credit Cards on our other sites.



More From MoneySmart

--

Get stories like this on the Yahoo app and discover more every day.
Download it now.
Loading...
  • Hammond says Brexit deal should not harm economy - Telegraph
    Hammond says Brexit deal should not harm economy - Telegraph Reuters - 15 minutes ago

    LONDON (Reuters) - British controls on immigration following the country's referendum decision to leave the European Union must not be damaging for the economy, Finance Minister Philip Hammond was quoted ... … More »

  • Trump vs Miss Universe: White House race hits new low
    Trump vs Miss Universe: White House race hits new low AFP News - 35 minutes ago

    Donald Trump urged voters on Friday to check out the supposed "sex tape" of a former Miss Universe backing his rival Hillary Clinton, provoking the Democrat to label him "unhinged" in a surreal new turn to the White House race. In a pre-dawn … More »

  • IMF leader cites 'historic milestone' for China Associated Press - 36 minutes ago

    Christine Lagarde, the managing director of the International Monetary Fund, is calling the inclusion of China's renminbi as the fifth currency in an elite group of the world's reserve currencies an "important ... … More »

  • Data storage provider Nutanix soars in market debut
    Data storage provider Nutanix soars in market debut Reuters - 37 minutes ago

    After getting strong encouragement from investors, the company kept nudging up the asking price for shares from the $11 to $13 range set early last week, co-founder and Chief Executive Officer Dheeraj Pandey said in an interview on Friday. … More »

  • Municipal-bond week in review: Yields sag then finish strong Associated Press - 40 minutes ago

    Yields on municipal and Treasury bonds sagged this week on concerns about the health of Germany's largest bank, before retracing their steps on Friday. The 10-year yield on the AP Municipal Bond index ... … More »

  • Investigators question engineer in deadly train crash
    Investigators question engineer in deadly train crash Associated Press - 49 minutes ago

    Federal investigators trying to figure out the cause of the deadly rail crash at the Hoboken station questioned the engineer Friday and hoped to lift clues from the train's black box recorders, though ... … More »

  • The Latest: NTSB says probe into train crash is progressing
    The Latest: NTSB says probe into train crash is progressing Associated Press - 3 minutes 48 seconds ago

    The Latest on a commuter train that crashed into a station in New Jersey, killing one person and injuring more than 100 others (all times local): 5:30 p.m. Federal investigators say the probe into a train ... … More »

  • Nutanix exceeds expectations in upsized IPO Reuters - 1 hour 12 minutes ago

    San Jose, California-based Nutanix's share price exceeds the $13.40 value last placed on its shares in a 2014 funding round, an upgrade encouraging for the many unprofitable technology companies that, like Nutanix, have been weary of testing public … More »

  • US stocks rally on Deutsche Bank deal AFP - 1 hour 16 minutes ago

    US stocks rose strongly Friday as financial shares surged on news that Deutsche Bank was near a settlement with US regulators over its sale of toxic mortgage bonds before the financial crisis. US-traded ... … More »

  • How the Dow Jones industrial average fared on Friday Associated Press - 1 hour 18 minutes ago

    U.S. stocks climbed Friday as banks made a rapid recovery following a steep fall a day ago. Investors hoped Deutsche Bank and the financial system in general were in better shape than they had feared. ... … More »

  • Global stocks jump, euro edges up as Deutsche Bank rebounds
    Global stocks jump, euro edges up as Deutsche Bank rebounds Reuters - 1 hour 32 minutes ago

    By Richard Leong NEW YORK (Reuters) - Stock prices across major markets rose on Friday, while the euro stabilized as Deutsche Bank's shares recovered from record lows on a report it is close to a deal ... … More »

  • Dutch summon Russian ambassador over MH17 comments
    Dutch summon Russian ambassador over MH17 comments AFP News - 1 hour 33 minutes ago

    Dutch Foreign Minister Bert Koenders has summoned Russia's ambassador over "unacceptable" comments by Moscow criticising a report into the downing of flight MH17, officials said on Friday. "Responding to the presentation of the initial findings... … More »

  • Oil up second straight month on OPEC-fuelled rally
    Oil up second straight month on OPEC-fuelled rally Reuters - 1 hour 34 minutes ago

    Oil prices settled mixed on Friday while posting their second straight monthly gain on OPEC's planned output cuts, even as scepticism about the cartel's pledge grew after data suggested another record high in its production. Brent crude settled up … More »

  • Stocks jump, euro edges up as Deutsche Bank rebounds
    Stocks jump, euro edges up as Deutsche Bank rebounds Reuters - 1 hour 35 minutes ago

    By Richard Leong NEW YORK (Reuters) - Stock prices across major markets rose on Friday, while the euro stabilized as Deutsche Bank's shares recovered from record lows on a report it is close to a deal ... … More »

  • Oil rises in New York, buoyed by OPEC cheer
    Oil rises in New York, buoyed by OPEC cheer AFP News - 1 hour 47 minutes ago

    Oil prices finished higher in New York on Friday, two days after producing countries reached the consensus needed for a production cut. On the New York Mercantile Exchange, a barrel of West Texas Intermediate for November delivery gained 41 cents … More »

  • US stocks rally as Deutsche Bank surges AFP - 1 hour 51 minutes ago

    US stocks rose strongly Friday on news that Deutsche Bank was close to a settlement with US regulators over its sale of toxic mortgage bonds before the financial crisis. US shares of Deutsche surged 14.1 ... … More »

  • Markets Right Now: Bank stocks lead a rebound on Wall Street Associated Press - 1 hour 54 minutes ago

    The latest on developments in global financial markets (all times local): 4:00 p.m. Stocks are closing higher on Wall Street, led by big gains in bank stocks. Financial stocks were bouncing back Friday ... … More »

  • Grain higher, livestock lower Associated Press - 2 hours 4 minutes ago

    Grain futures were lower Friday on the Chicago Board of Trade. Wheat for Dec. rose 3 cents at $4.02 a bushel; Dec. corn advanced 7.50 cents to 3.3675 a bushel; Dec. oats was up 2.25 cents at $1.7825 a ... … More »

  • Chinese yuan set to join IMF's elite currency basket
    Chinese yuan set to join IMF's elite currency basket AFP News - 2 hours 21 minutes ago

    China's yuan is poised to enter the International Monetary Fund's elite SDR basket of currencies, elevating Beijing's banknotes into a family long exclusive to global reserve assets. A symbolic coup for policymakers in Beijing, the move represents … More »

  • Canada's Fiera buys Charlemagne Capital, eyes more deals Reuters - 2 hours 29 minutes ago

    Canadian asset manager Fiera Capital (FSZ.TO) announced it has bought London-based Charlemagne Capital (CHAR.L) for 40.7 million pounds ($52.8 million) and said it is in talks with several other targets. The Montreal-based firm wants to have C$200 … More »

  • IMF sets new SDR currency amounts to reflect Chinese yuan entry
    IMF sets new SDR currency amounts to reflect Chinese yuan entry Reuters - 2 hours 38 minutes ago

    The International Monetary Fund said on Friday it set new relative amounts of the currencies in its Special Drawing Rights currency basket, reflecting the entry of China's yuan for the first time on Saturday. The IMF said each SDR, the Fund's unit … More »

  • Colorado gives marijuana candy a new look to avoid confusion
    Colorado gives marijuana candy a new look to avoid confusion Associated Press - 3 hours ago

    Wondering if that brownie contains pot? Colorado has you covered. A requirement that edible marijuana products come with a diamond-shaped stamp and the letters T-H-C — not just on the packaging but on ... … More »

  • Lagarde Urges China to Deepen Reforms as Yuan Joins Elite Group Bloomberg - 3 hours ago

    “The renminbi’s inclusion reflects the progress made in reforming China’s monetary, foreign exchange, and financial systems, and acknowledges the advances made in liberalizing and improving the infrastructure of its financial markets,” Lagarde said … More »

  • Q&A: Will Deutsche Bank become the next Lehman?
    Q&A: Will Deutsche Bank become the next Lehman? Associated Press - 4 hours ago

    Germany's biggest bank is looking shaky and some investors fear it could collapse and endanger the wider financial system. Some even wonder whether it might become the next Lehman Brothers, the U.S. bank ... … More »

  • Here’s how dramatic BlackBerry’s fall has actually been
    Here’s how dramatic BlackBerry’s fall has actually been Business Insider - 4 hours ago

    BlackBerry is done making phones. The Canadian telecoms … Continued The post Here’s how dramatic BlackBerry’s fall has actually been appeared first on Business Insider. … More »

 
Recent Quotes
Symbol Price Change % Chg 
Your most recently viewed tickers will automatically show up here if you type a ticker in the "Enter symbol/company" at the bottom of this module.
You need to enable your browser cookies to view your most recent quotes.
 
Sign-in to view quotes in your portfolios.

MARKET MOVERS

  • Most Actives
    Most Actives
    NamePriceChange% Chg
    0.152-0.008-5.00%
    N21.SI
    0.12+0.01+12.15%
    40F.SI
    0.115+0.003+2.68%
    40E.SI
    0.113+0.007+6.60%
    43E.SI
    3.97-0.05-1.24%
    Z74.SI
  • % Gainers
    % Gainers
    NamePriceChange% Chg
    0.186+0.025+15.53%
    AWS.SI
    0.12+0.01+12.15%
    40F.SI
    0.164+0.016+10.81%
    40N.SI
    1.35+0.11+8.43%
    U19.SI
    0.475+0.035+7.95%
    NC2.SI
  • % Losers
    % Losers
    NamePriceChange% Chg
    0.36-0.24-40.00%
    AWG.SI
    0.20-0.06-23.08%
    AWI.SI
    0.27-0.03-11.48%
    BQO.SI
    0.30-0.03-9.09%
    5VP.SI
    0.265-0.025-8.62%
    BKA.SI

Market Data

  • Currencies
    Currencies
    NamePriceChange% Chg
    1.3618-0.0022-0.16%
    USDSGD=X
    1.5296-0.0004-0.03%
    EURSGD=X
    1.7640-0.0041-0.23%
    GBPSGD=X
    74.1220+0.051+0.07%
    SGDJPY=X
    5.6879+0.0039+0.07%
    SGDHKD=X
    3.0355+0.0126+0.42%
    SGDMYR=X
    9,608.6318+65.9189+0.69%
    SGDIDR=X
    4.8930+0.006+0.12%
    SGDCNY=X
    1.0424+0.0015+0.14%
    AUDSGD=X
  • Commodities
    Commodities
    NamePriceChange% Chg
    1,318.80-7.20-0.54%
    GCZ16.CMX
    19.25+0.06+0.30%
    SIZ16.CMX
    94.00-1.01-1.06%
    ^XAU
    2.21+0.02+1.07%
    HGZ16.CMX
    43.85+0.41+0.94%
    CLV16.NYM
  • Bonds
    Bonds
    TreasuryYield (%)Yield Change
    1.16+0.04
    ^FVX
    1.61+0.05
    ^TNX
    2.34+0.06
    ^TYX