Buying your first HDB flat in Singapore is one of life’s biggest milestones. For many Singaporeans, it represents stability, independence, and the foundation for family life. But while choosing the right flat is exciting, the next big question is often less glamorous: how do you finance it?

Most first-time buyers quickly discover there are two main paths — an HDB loan or a bank loan. On the surface, both help you pay for your flat, but the details can be confusing. Each comes with its own advantages, risks, and trade-offs, and making the wrong choice can cost you tens of thousands of dollars in the long run.

This guide breaks everything down in plain English. By the end, you’ll understand how both types of loans work, the key differences, and which one might suit your situation better.

What Exactly Is an HDB Loan?

An HDB Concessionary Loan is offered directly by the Housing & Development Board to eligible buyers of HDB flats. It’s essentially a government-backed scheme designed to make home ownership more affordable and accessible.

Here are the basics:

• Interest rate: Pegged at 0.1% above the CPF Ordinary Account (OA) interest rate, currently 2.6% per year. This rate has been stable for years, giving borrowers peace of mind.
• Downpayment: Just 10% of the purchase price, payable entirely using CPF savings if you wish.
• Maximum loan amount: Up to 80% of the purchase price or flat’s valuation (whichever is lower).
• Repayment: Can be deducted directly from CPF OA savings, with any shortfall paid in cash.

The appeal of an HDB loan lies in its predictability and lower upfront cash requirements. However, not everyone qualifies. Eligibility is restricted to at least one Singapore citizen household, with income ceilings and restrictions on property ownership.

What About a Bank Loan?

Bank loans are offered by commercial banks in Singapore. Unlike HDB loans, these come with more variation — banks compete with one another by offering different packages, interest rates, and repayment terms.

The key points:

• Interest rate: Floating or fixed packages. Rates typically start lower than HDB’s 2.6%, but they fluctuate with market conditions. For example, rates may begin around 1.6%–2.2% but can climb when global interest rates rise.
• Downpayment: At least 25% of the flat’s price, with at least 5% in cash (the rest can come from CPF savings).
• Maximum loan amount: Up to 75% of the flat’s value or purchase price, whichever is lower.
• Repayment: Like HDB loans, you can service the instalments with CPF OA savings, but the mandatory cash component upfront is higher.

Bank loans tend to be cheaper at the start, but they carry more uncertainty. A rise in interest rates can mean your monthly repayment balloons overnight.

HDB Loan vs Bank Loan: Side-by-Side Comparison

To make things clearer, let’s break it down:

Factor	HDB Loan	Bank Loan
Interest Rate	Fixed at 2.6% (stable, predictable)	Starts lower (around 1.6–2.2%) but can fluctuate
Downpayment	10% (can use CPF entirely)	25% (minimum 5% cash, rest CPF)
Loan-to-Value Limit	80%	75%
Early Repayment Penalty	None	Usually 1.5% of outstanding loan during lock-in period
Lock-in Period	None	2–5 years depending on package
Refinancing Options	Cannot refinance into a bank loan later	Can refinance with another bank after lock-in
Eligibility	Income ceiling, at least one SC, no private property ownership	No income ceiling, available to citizens, PRs, and foreigners

Pros and Cons of HDB Loans

Advantages:

• Lower cash burden upfront (no mandatory cash downpayment).
• Stable, predictable interest rate.
• Flexibility to repay early without penalty.
• Easier to service via CPF savings.

Disadvantages:

• Interest rate (2.6%) is often higher than bank loan rates, at least in the short term.
• Cannot refinance to a bank loan later. Once you choose HDB, you’re locked in.
• Strict eligibility rules.

Pros and Cons of Bank Loans

Advantages:

• Lower starting interest rates can save you money initially.
• Wide range of packages to suit different needs (fixed, floating, hybrid).
• Ability to refinance later to take advantage of better rates.
• No income ceiling, so higher earners or PRs can access them.

Disadvantages:

• Higher cash downpayment required upfront (at least 5%).
• Interest rate risk: repayments can increase sharply if rates rise.
• Early repayment penalties during lock-in periods.
• More complex — you need to monitor and possibly refinance over time.

Scenarios: Which Loan Fits Who?

Sometimes, the best way to decide is by looking at real-life examples.

Scenario 1: Young Couple with Limited Savings

Alex and Mei are both 28, buying their first 4-room HDB flat. They’ve saved some CPF but don’t have much cash.

• Best fit: HDB loan. The low downpayment requirement (entirely covered by CPF) means they can secure their home without stressing about cash flow.

Scenario 2: Mid-Career Professionals with Strong Income

Daniel and Priya are in their late 30s, both earning well above average. They can comfortably cover the cash downpayment and want to save on interest.

• Best fit: Bank loan. With their financial buffer, they can absorb some risk from rising rates and take advantage of lower starting rates.

Scenario 3: Family Planning to Upgrade Later

Farah and Jin are buying a 3-room flat now but hope to upgrade to a condominium in 8–10 years.

• Best fit: Bank loan. Since they’re likely to sell before the loan matures, they benefit from lower initial rates and can refinance if needed.

Scenario 4: Risk-Averse Buyers

Mr and Mrs Tan are nearing retirement and want stability above all.

• Best fit: HDB loan. They value predictability and don’t want to worry about fluctuating repayments.

Key Considerations Before Deciding

Here are some practical steps you can take before choosing:

1. Assess your financial situation honestly.
   Do you have enough cash to meet a bank loan’s downpayment? Or is keeping cash on hand more important?
2. Consider your risk appetite.
   If you can’t stomach uncertainty, an HDB loan’s stability may be better. If you’re financially comfortable, you might save more with a bank loan.
3. Think long-term.
   Are you buying a “forever home” or planning to upgrade? If you’ll sell within a decade, a bank loan may be more cost-effective.
4. Account for interest rate cycles.
   Bank loans look attractive when rates are low, but global economic shifts can change things fast. Run some numbers on what repayments would look like if rates rose by 1–2%.
5. Seek professional advice.
   Mortgage brokers in Singapore can help you compare bank packages free of charge. Even if you’re leaning towards an HDB loan, it’s worth understanding your options.

Final Thoughts

Deciding between an HDB loan and a bank loan isn’t about which is objectively “better” — it’s about which is better for you. For some, the stability and accessibility of an HDB loan make it the obvious choice. For others, the flexibility and potential savings of a bank loan are worth the extra risk.

At the end of the day, your home loan will likely be the biggest financial commitment of your life. Take your time to run the numbers, think about your future plans, and weigh your comfort with risk. With careful consideration, you’ll be able to choose the path that helps you secure your home — without losing sleep over your mortgage.