When financing an HDB flat, you have two options: an HDB Concessionary Loan or a bank loan. Each has distinct advantages depending on your financial situation, risk appetite, and long-term plans.
Side-by-Side Comparison
| HDB Loan | Bank Loan | |
|---|---|---|
| Interest Rate | 2.6% p.a. (stable) | Market rate (SORA-based, variable) |
| Maximum LTV | 80% | 75% |
| Min. Cash Down Payment | None (fully CPF) | 5% cash required |
| Lock-in Period | None | Typically 2–3 years |
| Prepayment Penalty | None | Yes, during lock-in |
| Switch to other type | Can switch to bank loan | Cannot switch back to HDB loan |
The HDB Loan: Stability and Flexibility
The HDB loan charges 2.6% per annum — pegged at 0.1% above the CPF Ordinary Account rate. Key benefits:
- Higher LTV — Borrow up to 80% of flat value, reducing upfront cash outlay.
- No cash down payment — The full 20% down payment can come from CPF OA savings.
- No lock-in or penalty — Prepay at any time without penalty.
- One-way flexibility — You can refinance to a bank loan later, but not back.
The Bank Loan: Lower Rates, More Risk
Bank loans are SORA-pegged and can offer lower rates than 2.6%, especially in a falling rate environment. But:
- You need at least 5% cash for the down payment (on top of CPF).
- Lock-in periods mean prepayment incurs a penalty (typically 1.5%).
- Rates can rise with SORA movements, increasing your monthly repayment.
Which Should You Choose?
- Choose HDB loan if you have limited cash savings, prefer payment certainty, or want prepayment flexibility.
- Choose bank loan if current market rates are meaningfully below 2.6% and you have the cash for the higher down payment.
A common strategy: start with an HDB loan for stability, then refinance to a bank loan when market conditions are favourable. Since the switch is one-way, think carefully before committing to a bank loan from the start.
Compare current mortgage rates on our rates page and model your repayments with the mortgage calculator.