09 Apr 2021 

SOURCE: CPF Board

While gearing up for your first home purchase, start by looking at your financing options — will you choose an HDB loan or bank loan? Here are the key differences between the two, so you can pick one that best fits your needs!

1. Downpayment

An HDB loan requires you to make a downpayment of at least 10% of the purchase price, which you can pay in full using your CPF Ordinary Account (OA) savings, with cash or a combination of both cash and OA savings. You will have to use the available savings in your OA for the purchase of the flat, before a housing loan from HDB is granted for the remaining amount. Ho​​wever, you have the flexibility to leave up to $20,000 in your OA for your future needs. Not only will these savings continue to enjoy the attractive interest rates in your OA, they also serve as an emergency buffer to cover monthly instalments in times of need!

If you opt for a bank loan, you will have to pay 20% of the purchase price as downpayment when you sign the Agreement for Lease. 5% is payable in cash, while the remaining 15% can be paid with cash or CPF savings. As the maximum amount that you can borrow from a financial institution is 75% of the property value or purchase price (whichever is lower), you will also have to pay the balance 5% of the purchase price using cash or CPF when you collect the keys to your flat. You will also have the flexibility to set aside any amount of CPF you wish, and pay your housing loan with cash instead. 

2. Interest rates

The interest rates of bank loans may fluctuate according to market conditions, while the interest rate of an HDB loan is currently pegged at 0.1% above the prevailing OA interest rate, i.e. 2.6% p.a. If you want to pay less interest so you can have more savings for retirement, a bank loan generally has a lower interest rate than an HDB loan. However, remember to keep an eye on refinancing options to get the best possible interest rates!

3. Lock-in period

For HDB loans, there is no lock-in period, so there will be no penalty if you wish to pay off your loans early. This also means that you have the option to refinance your loan with a bank anytime, if you wish to tap on any lower interest rates. However, once you refinance your HDB loan with a bank, you will no longer be able to switch back to a loan with HDB.

Most banks on the other hand, will have a lock-in period, typically two or three years. If you would like to repay your loan faster or refinance your loan with another bank within the lock-in period, you will incur a penalty that is usually 1.5% of the loan amount. Similarly, you will not be able to finance your home with an HDB loan once you choose to take up a bank loan for your mortgage. 

Other things to note

The type of loan you choose, along with other factors such as the type of property and its remaining lease , will determine the amount of CPF savings you can use for your housing purchase. 

Find out how much CPF savings you can use for your home purchase with CPF Housing Usage Calculator.

When planning your finances to buy a home, it’s important to remember that your CPF savings are meant for your retirement as well. You can consider paying for your home partially with cash, so that your OA savings can continue to grow at attractive interest rates of up to 3.5% pa.* to support your retirement plans!

Remember that you will not only have to keep in mind your current financial situation, but your future needs as well!

*Includes extra interest. Members who are below 55 years old are paid an extra interest of 1% per annum on the first $60,000 of their combined balances. Members who are 55 years old and above are paid an extra interest of 2% per annum on the first $30,000 and 1% per annum on the next $30,000 of their combined balances. Terms and conditions apply.​

Information accurate as at 09/04/2021.