HDB Loan vs Bank Loan: Which Should You Choose?
For first-time home buyers in Singapore, the choice between an HDB loan and a bank loan is one of the most important financial decisions you'll make. Both options have distinct advantages, and the right choice depends on your financial situation, risk tolerance, and long-term goals. At Homejourney, we believe in empowering you with transparent, verified information so you can make confident decisions about your home purchase.
The fundamental difference comes down to three factors: down payment requirements, interest rates, and flexibility. HDB loans offer stability with a fixed 2.6% interest rate and lower down payment requirements, while bank loans provide the potential for lower rates but come with more complexity and market risk. Understanding these differences is crucial before committing to a 25-30 year mortgage.
Down Payment: The Immediate Cost Difference
One of the most significant advantages of an HDB loan for first-time buyers is the lower down payment requirement. This directly impacts your ability to save for your first home and preserve cash for other expenses like renovations and furnishings.
HDB Loan Down Payment:[1] You need to pay at least 20% of the purchase price, which can be paid entirely using your CPF Ordinary Account (OA), cash, or a combination of both. This flexibility is a game-changer for first-time buyers who want to maximize their CPF usage and minimize out-of-pocket cash.
Bank Loan Down Payment:[1] Bank loans require 25% down, with a critical restriction: at least 5% must be paid in cash. The remaining 20% can come from CPF OA or cash. For a typical four-room HDB flat priced at S$400,000, this means you'd need to pay S$20,000 in cash upfront for a bank loan, compared to potentially zero cash for an HDB loan if you have sufficient CPF savings.
This down payment difference is particularly important when you're saving for your first home. By choosing an HDB loan, you can preserve more liquid cash for renovation costs, furniture, and emergency reserves. Many first-time buyers underestimate how much they'll spend on renovations—typically S$15,000 to S$40,000 for a basic to moderate upgrade.
To understand your borrowing capacity and down payment requirements, use Homejourney's mortgage eligibility calculator at Bank Rates , which instantly shows how much you can borrow from both HDB and banks based on your income and CPF balance.
Interest Rates: The Long-Term Cost Factor
While HDB loans win on down payment requirements, the interest rate picture is more complex. This is where your long-term savings are determined.
HDB Loan Interest Rate:[1] Fixed at 2.6% per annum, pegged at 0.1% above the CPF Ordinary Account interest rate. This rate has remained stable for over a decade, providing complete predictability in your monthly repayments.
Bank Loan Interest Rates:[4] As of May 2025, bank mortgage interest rates have decreased and are now generally lower than the HDB rate of 2.6% per annum. Bank rates typically range from 1.2% to 3.0% per annum, depending on the bank, your credit profile, and market conditions. However, most banks offer fixed rates for only 1-3 years before reverting to floating rates pegged to SORA (Singapore Overnight Rate Average).
The chart below shows recent interest rate trends in Singapore to help you understand how rates have moved:
Here's the critical insight: while bank loans may offer lower rates initially, the long-term picture depends on how interest rates move. If you secure a 2.2% fixed rate for three years, your monthly payments will be lower than an HDB loan. But once that fixed period ends and you revert to a floating SORA-based rate, your payments could increase significantly if market rates rise.
Example Comparison: For a S$320,000 loan over 25 years:
- HDB Loan at 2.6%: Monthly payment of approximately S$1,474 (consistent throughout the loan period)
- Bank Loan at 2.2% (fixed for 3 years): Monthly payment of approximately S$1,422 for the first 3 years, then potentially higher when it reverts to floating
The stability of HDB loans appeals to conservative first-time buyers who value predictability over potential short-term savings. Bank loans suit experienced borrowers comfortable with rate fluctuations and those planning to refinance strategically.
Loan-to-Value (LTV) Limits: How Much Can You Borrow?
HDB Loan LTV:[1] You can borrow up to 80% of the purchase price, meaning you need to cover 20% through down payment and CPF.
Bank Loan LTV:[1] Limited to 75% of the purchase price or bank valuation (whichever is lower), requiring a 25% down payment.
The higher HDB LTV limit is advantageous if you have limited savings. If you're purchasing an HDB flat for S$400,000 with an HDB loan, you could borrow S$320,000 (80%). With a bank loan, you'd only borrow S$300,000 (75%), requiring a larger down payment.
Flexibility and Lock-In Periods
HDB Loans:[1] Offer exceptional flexibility with no lock-in period and no penalty for early repayment. You can refinance to a bank loan at any time without restrictions, making HDB loans an excellent stepping stone. Many homeowners start with an HDB loan and refinance to a bank loan later if rates become significantly more attractive.
Bank Loans:[2] Typically include a 2-3 year lock-in period with early repayment penalties of around 1.5% of the loan amount. This restriction protects the bank's interest but limits your flexibility if you want to refinance or pay off the loan early.
This flexibility advantage of HDB loans is particularly valuable for first-time buyers. If your financial situation improves or bank rates drop significantly, you have the freedom to refinance without penalties. This is why many Homejourney users start with HDB loans and monitor bank rates through our real-time comparison tool at Bank Rates .
Eligibility Requirements: Who Qualifies?
HDB Loan Eligibility:[2] More accessible but stricter in some ways. You must be a Singapore citizen, meet income ceiling requirements (currently S$14,000 for a family), and satisfy HDB's ownership restrictions. Credit score is less critical—HDB focuses more on citizenship and income stability.
Bank Loan Eligibility:[2] Less strict on citizenship (accepts Singapore citizens, PRs, and foreigners aged 21-65) but requires a strong credit assessment. Banks evaluate your credit history, gross monthly income, income stability, and Total Debt Servicing Ratio (TDSR). They want to see that your total monthly debt obligations don't exceed 60% of your gross income.
If you have concerns about your eligibility or want to understand your borrowing capacity, Homejourney's mortgage brokers can guide you through the process. Connect with them via our loan application portal at Bank Rates , where you can also instantly compare your eligibility across all major banks including DBS, OCBC, UOB, HSBC, and Standard Chartered.
Property Eligibility: HDB Flats vs Private Property
HDB Loans:[1] Only available for HDB flats. You cannot use an HDB loan to purchase private condominiums, landed properties, or other private residential properties.
Bank Loans:[1] Available for both HDB flats and private properties, giving you more flexibility if you decide to upgrade to a private property later.
For first-time buyers focused on HDB flats (where over 80% of Singapore's population lives), this isn't a limitation. However, if you're considering a private property purchase or potential upgrade, a bank loan provides more versatility.
Making Your Decision: A Practical Framework
Choose an HDB Loan if:
- You want the lowest possible down payment and maximum CPF usage
- You value payment stability and predictable monthly costs
- You want maximum flexibility with no lock-in period
- You're a first-time buyer who may want to refinance later
- You want to preserve cash for renovations and emergencies
- You're purchasing an HDB flat and don't plan to upgrade to private property
Choose a Bank Loan if:
- You can secure a significantly lower rate (1.5-2.0% vs 2.6%)
- You're purchasing a private property or planning to upgrade
- You have strong income and excellent credit score
- You're comfortable with potential rate increases after the fixed period
- You plan to refinance within 3-5 years
- You want the flexibility to pay off the loan early without penalties (after lock-in period)
At Homejourney, we recommend comparing your actual options before deciding. Our bank rates comparison tool shows you real-time rates from DBS, OCBC, UOB, HSBC, Standard Chartered, Maybank, CIMB, and other major lenders. You can calculate your eligibility for both HDB and bank loans in seconds, then submit one application to receive competing offers from all banks. This transparency ensures you make the best choice for your situation.
Refinancing: Your Strategic Advantage
Many first-time buyers don't realize they don't have to choose permanently. One smart strategy is to start with an HDB loan and refinance to a bank loan later if rates become attractive.
Since HDB loans have no lock-in period and no early repayment penalties, you can refinance whenever you want. For example, if you take an HDB loan at 2.6% but bank rates drop to 1.8% in two years, you can refinance to a bank loan and save significantly on interest costs. Over a 25-year mortgage, even a 0.8% rate reduction saves tens of thousands of dollars.
This flexibility is a key reason why Homejourney recommends HDB loans for most first-time buyers. You get the benefits of lower down payments and payment stability, with the option to refinance strategically later. Monitor bank rates regularly through Homejourney's real-time tracking to identify optimal refinancing opportunities.
CPF Usage: Maximizing Your Retirement Savings
Both HDB and bank loans allow CPF usage, but the mechanics differ slightly.
HDB Loans:[1] Allow you to pay the entire 20% down payment using CPF OA, meaning zero cash required upfront if you have sufficient CPF balance.
Bank Loans:[1] Require at least 5% cash upfront, with the remaining 20% available from CPF OA. This mandatory cash requirement is significant for first-time buyers managing tight budgets.
Remember that CPF usage for property purchase reduces your retirement savings, so balance this carefully. At Homejourney, we recommend consulting with a financial advisor about your long-term CPF strategy, especially if you're planning multiple property purchases or upgrades.
Frequently Asked Questions
Can I refinance from an HDB loan to a bank loan?
Yes, absolutely. HDB loans have no lock-in period or early repayment penalties, so you can refinance to a bank loan at any time. Many homeowners do this when bank rates drop significantly below the HDB rate of 2.6%. Use Homejourney's bank rates comparison at Bank Rates to monitor when refinancing becomes worthwhile.
What happens to my bank loan rate after the fixed period ends?
After the fixed period (typically 1-3 years), your bank loan rate reverts to a floating rate pegged to SORA (Singapore Overnight Rate Average). Your monthly payments will then fluctuate based on market conditions. This is why it's important to budget for potential rate increases and understand the maximum rate your bank could charge.
Can I use CPF to pay my entire HDB loan down payment?
Yes, if you have sufficient CPF OA balance, you can pay the entire 20% HDB down payment using CPF, meaning zero cash required. This is a significant advantage for first-time buyers with limited savings. Check your CPF balance at cpf.gov.sg to see how much you have available.
Which loan type is better for first-time buyers?
For most first-time buyers, HDB loans are the better choice due to lower down payment requirements, payment stability, and refinancing flexibility. However, if you can secure a significantly lower bank rate and have strong income, a bank loan may offer better long-term savings. Use Homejourney's eligibility calculator to compare your specific options.
What's the TDSR and how does it affect my bank loan eligibility?
TDSR (Total Debt Servicing Ratio) limits your total monthly debt obligations to 60% of your gross income. Banks use this to determine how much you can borrow. For example, if you earn S$5,000 monthly, your total debt obligations (mortgage, car loan, credit cards, etc.) cannot exceed S$3,000. This is why improving your credit profile and reducing existing debt increases your borrowing capacity.
