The Battle of the Loans – HDB vs Bank
Purchasing your very first home as a couple is an exciting milestone but is a huge commitment, and you’ll need to be well prepared in all aspects, from the application process right down to the financial journey.
With the recent BTO launch, where over 6,000 flats were released in the Tengah, Woodlands, and Kallang/Whampoa estates, you’ll want to be well-equipped should you be lucky enough to successfully book your unit.
Once you’ve successfully managed to secure your golden ticket, the next step will be sorting your finances. At SRX, we’re here to help you with all your property enquiries. So, here are some questions for you to consider:
What grants can you apply for?
Should you be applying for a flat as a first-timer, there are a number of CPF Housing Grants you may be eligible to apply for, namely the Additional CPF Housing Grant (AHG) and the Special CPF Housing Grant (SHG). These grants can be used to offset the purchase price of the flat and to reduce the mortgage loan for the flat purchase.
For AHG, the income ceiling is set at $5,000 and is only valid for 2-room Flexi or larger flat applications. The AHG a household will be able to secure ranges from $5,000 (Avg. monthly household income of $4,501 to $5,000) to $40,000 (Avg. monthly household income of up to $1,500).
For SHG, the income ceiling stands at not more than $8,500 and is only applicable for flat applications for 2-room Flexi, 3-room, or 4-room flats in non-mature estates. The SHG a household can potentially receive ranges from $5,000 (Avg. monthly household income of $8,001 to $8,500) up to $40,000 (Avg. monthly household income of $5,000 and lower).
What loan should you apply for? What are the processes to secure your loan?
Now that you’ve got your grants sorted, you’ll likely still require a loan to finance your new flat purchase. On the loan front, one can either choose between a HDB or bank loan. So, what’s the pros and cons between the two you might ask?
The grant amount you’re entitled to is dependent on the gross monthly household income and is calculated based on the household’s gross monthly household income for the past 12 months prior to one’s flat application.
With a HDB housing loan, you’ll get to enjoy a concessionary interest rate, which currently stands at 2.6% per annum. This interest rate is pegged at 0.1% above the CPF Ordinary Account (OA) interest rate, which may be adjusted quarterly. While there is a stability in the interest rate offered by HDB as CPF OA’s interest rates are rarely adjusted, the 2.6% rate is typically higher than the rates banks are able to offer.
Furthermore, there are a number of eligibility criteria in place with regard to a HDB loan application, such as:
- At least 1 applicant must be a Singapore citizen
- Average gross monthly household income must not exceed $12,000 for families
- Have not taken two or more HDB housing loans prior
- Must not own or have disposed of any private residential property in the past 30 months before the HDB loan application
The upside to a HDB loan application is that applicants can take up a loan of up to 90% of the flat’s purchase price. Furthermore, you can also use your CPF Ordinary Account savings to pay for the downpayment of your HDB flat (10% of the purchase price) and can also choose to end your loan at anytime. However do note that in doing so, you may wipe out all your CPF OA savings (apart from the $20k locked in sum).
The main consideration factor for one to choose a bank loan is that banks are typically able to offer lower interest rates compared to that of HDB housing loans, where the rates are pegged to benchmarks such as the Singapore Interbank Offered Rates (SIBOR) or Swap Offer Rate (SOR).
Unlike the multiple eligibility boxes one needs to tick for HDB housing loans, you’ll be able to easily secure a bank housing loan should you take up a loan of more than $100k and have a good credit
score. It’s also easier for banks to approve higher loan quantums as HDB adopts a different set of criteria to secure their maximum loan amount.
However with bank loans, the interest rates are never guaranteed as they’re pegged to the SIBOR or SOR, which constantly fluctuate. Furthermore, once you’ve chosen to proceed with a bank housing loan, you won’t be able to switch to a HDB loan.
Also, you’ll only be able to take up a loan of up to 75% of your flat’s purchase price. As for the downpayment, you’ll need to pay the 5-10% downpayment (depending on the loan tenure) in cash first before being able to use your CPF OA savings.