HDB loan vs Bank loan - Why I will still continue with my HDB loan

Jes , 2 Comments

There has been many articles on this discussion and I have been researching on it time after time. Each time I wanted to be convinced to change but I was not. So I spent some time organising my thought process and would like to share them with you here.

Why I went with HDB loan in the first place?

1. Lesser cash upfront
For the purchase of HDB flat, 20% of the amount is needed as the down payment. If you have sufficient CPF funds and with HDB loan, you can pay this 20% fully with your CPF-OA account. For bank loan, you must at least pay 5% of the down payment in cash. For cash strapped couples like us, especially when you have to pay for wedding banquet and renovation, HDB loan is a no brainer. After all, you could always change to bank loan at any time but once you take up bank loan, there is no turning back until the next property. 

2. Long duration for house loan
I intend to stretch out my loan to the maximum 30 years. I have no intention of early repayment, mainly because I think I have more use for my cash. I understand that people like to repay them earlier so as to incur less interests but my personal choice is to invest in STI ETF, which yields higher returns. Bear in mind that you may also incur some penalty if you repay some bank loans too early while HDB loan has no such issues.

3. "Fixed" rate for the next 30 years
Yes, I know from 2007 onwards, bank interest rates have been much lower than HDB loan. Current rates are around 1.8% bank loan vs 2.6% HDB loan interest rates. However, I know for sure it won't be this case for the next 30 years. HDB interest is more "fixed" as they have not changed their rates since 2000. For people who intend to repay their loans within 10 years, it would be a good choice but not for me. It may also be good for people who intend to sell the HDB flat within the decade.

I used the average of 3months SIBOR + 1.25% to get the bank interest rates though different banks may offer different rates. 

Why I will still continue with HDB loan?

It is because HDB is more forgiving and lenient.

Now that I am trying my own start up at SnackFirst, money is not consistent anymore. There will be times people will be retrenched or have difficult financial situations and banks are not going to be so accommodating to you. There are late repayment penalties too but HDB has financial assistance schemes if your CPF has indeed zero cash. 

All in all, it just does not seem worth it to save this $100+ per month. In the long run, what if bank loan interest rate becomes more than HDB loan? I will definitely regret changing but unable to change back anymore. Looking at the historical data, it seems HDB loan usually gives lower rate than bank loans. The amount is too big to make an impulse change and I will just treat the $100+ as insurance money against future financial issues. 

I still have another 27 years to wait and see. 


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  1. Hi Jes,

    Way to go! It's good to look at your own situation, understand your priorities and then come up with your own conclusion on what to do.

    No right and wrong. Someone who paid down their home loan quickly will be thinking why you and me are discussing about HDB or bank loans when the "best" thing is to be debt-free.

    Anyway, just to tempt you further, bank home loan rates can be as low as like 1.3% right now.

    1. Hi Thomas,

      Good to see you commenting since I was inspired by your bank loan post. That's why I went to think again if my decision was correct.

      You are right, everyone's situation is different. Even if I am doing wrong, it's my money haha! Oh, you are so bad. But well, I have gone through the even lower interest rates for the past few years, I think I can handle 1.3%. *vomits blood* =P


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