Young couple comparing their home loan amount on their computer

Should you refinance your HDB loan with a bank loan?

If you are a first-time HDB owner, chances are that you took up an HDB Concessionary Loan. After all, with the lower cash down payment requirement and convenient application process, it’s the default for most Singaporean HDB buyers.

But perhaps your financial circumstances have evolved as time passed. With banks currently offering a lower interest rate, does it make financial sense to make the jump and refinance your HDB loan? What do you stand to lose or gain?

Let’s take a look at the main differences between a loan from HDB, versus a loan from DBS/POSB.

  HDB Concessionary Loan DBS Home Loan
Interest CPFOA1 (2.5% p.a.)
+ 0.1% p.a.
FHR82 (0.675% p.a.) 
+ 1.45% p.a.
Loan to Valuation (LTV) Borrow up to 90% of property price Borrow up to 75% of property price
Repayment period 25 years, or number of years up to 65 years of age, whichever is shorter 75% LTV: 25 years, or number of years up to 65 years of age, whichever is shorter
55% LTV: 25–30 years
Down payment Build-to-Order flat: Can be paid fully using CPF.
Resale flat: Minimum amount of S$5,000 cash paid as deposit to seller
75%: At least 5% in cash
55%: At least 10% in cash
Early repayment No penalty No penalty
CPF usage Flat buyers can only keep a maximum of S$20,000 in their CPF Ordinary Account upon key collection. Flexibility to allocate the amount of CPF to be used towards the purchase of HDB flat

Lower interest rates = Higher monthly savings

With DBS/POSB Home Loan’s lower interest rates, that’s more money in the bank for you to save, grow or use. For example, with an interest rate 0.95% p.a. lower than CPF’s, here’s how much you’ll be able to save for each monthly instalment:

With a lower monthly instalment, you can earn more on your CPF Ordinary Account savings

More money in CPF = More money earned

When you take up a bank loan, you have the flexibility of dictating how much money you actually want to mobilise from your CPF savings into your HDB fund. Meanwhile, the balance in your CPF Ordinary Account (OA) earns you a decent 2.5% interest, (the first $20,000 earns an even higher 3.5% interest rate).

Enjoy benefits, not penalties

Taking up a DBS/POSB Home Loan also entitles you to free legal and valuation subsidies, lowering your cost of switching even further. More importantly, there are no penalties for early repayment of your mortgage, which means that as your earning power increases, you’ll be able to own your flat sooner, while paying less interest.

So while it may be convenient to let your HDB loan run its course, a quick calculation of the long-term savings will reveal some very practical cost savings obtained through refinancing. Worried that you won’t be able to get another HDB if you switch to a bank? While you won’t be able to switch back to a HDB loan for this same property, you’ll still be able to apply for a HDB loan should you purchase another HDB flat.

Our advice? Do the math.

*For purpose of comparison, this chart uses the term of DBS/POSB Home Loan to represent Bank Loans.
1CPFOA: Central Provident Fund Ordinary Account.
2Fixed Deposit Home Rate 8 (FHR8) refers to the prevailing 8 months Singapore dollar fixed deposit interest rate of DBS Bank for amounts within S$1,000 to S$9,999 or such other sum as we may specify. The FHR8 is transparent and less volatile compared to market benchmark rate such as the SIBOR.

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