If I have to pick between getting a HDB loan versus a bank loan to pay for my flat, which is a better loan to take? - Seedly
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Anonymous

Asked on 25 Nov 2020

If I have to pick between getting a HDB loan versus a bank loan to pay for my flat, which is a better loan to take?

Like which are the lesser of two evils - HDB or bank loan?

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    Currently, bank loan interest rates are low (about 1.3 per cent is possible), and is likely to stay low in the near future as the Covid-19 recover takes place. If my goal were to sell my flat in five years, I'd take advantage of the bank's lower rates.

    If you're staying for the long term though, well there's no guarantee the bank loans will still be so cheap 10 or 15 years down the road.

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    Should I pick the HDB loan or a bank loan? This is a common question that many first-time homeowners have.

    Bank loans currently have a lower interest rate. However, there are also many other factors to consider

    Firstly, when you choose a bank loan, the down payment required for taking up a bank loan is up to 25% of the flat price. Of this 25%, at least 5% has to be paid in cash with the remaining 20% being paid using your CPF OA or cash. This means you may have less cash and CPF for investing and is an opportunity cost if you are a savvy investor who can consistently outperform the market.

    Also, the bank loan’s interest rate will see fluctuations as it is affected by movements in the market. Bank loans have lower interest rates, but they are only valid for up to 2 to 3 years at best. This also means that the interest rate you pay in the future is likely going to be different from today.

    Finally, it is also important to note that after switching your home loan to a bank, you'll find you won't be able to switch back to HDB loan for the same property.

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