EI Eileena Newbie Bank Loan or HDB Loan

[aravindkumarm]

@heyanna any idea if bank loan interest rate will go down in coming days?

[HeyAnna]

Ah! The endless conondrum of whether a bank or HDB loan is better. While there are different camps for both, and our team feels it really boils down to the home buyer's goals, current financials, and more, here are the key things that could help you make your decision.

1. Interest rate

Bank loans have lower interest rates (based on current SIBOR and SOR rates, and typically range between 1.6% to 2.05%) while HDB loans are currently fixed at a 2.6% interest rate. However, bank loans should be constantly refinanced and relooked as fixed loan packages are good for 3 to 5 years at best. Beyond that, floating rates are pegged to current market conditions.

Check out the current packages here from POSB HDB Loan.

2. Loan amount

You can borrow more from HDB (90%) compared to a bank (75%)!
HDB loans also allow you to pay your downpayment fully using CPF if you have enough savings. For bank loans, you need to pay at least 5% in cash.

3. Cashflow

While you have a higher cash down payment when going with a bank loan - 25% down payment (up to 20% from CPF, at least 5% from cash - you can keep more funds in your CPF to earn up to 3.5% interest from your Ordinary Account (OA). What’s more, your CPF-OA pays you a higher interest of 3.5% p.a.

In addition, you can get further savings for other items. For instance, bank loans for HDB flats offer legal and valuation fee subsidies from time to time. This is something that HDB doesn’t provide.

4. Depending on your bank, you might be able to obtain higher deposit rates

Banks usually have services/accounts that reward you for doing more with them. Take DBS Multiplier for instance, by crediting your salary via POSB/DBS and taking up a HDB home loan with the bank, you can earn higher interest of up to 3.8% p.a. on your deposits (more savings!)

Definitely not an easy decision, so do research widely and also use the planning tools on DBS Property Marketplace to help you out!