The Advantages Bank Loans Have Over HDB Loans

New buyers of Housing and Development Board (HDB) apartments in Singapore have the luxury of choosing between two broad methods of financing their new home. They can either use a bank loan or a government-backed HDB loan. Each of these has its merit.

With this in mind, I have decided to summarise some of the key advantages of each. This is the second part of my article, which will focus on how bank loans can be advantageous. The first part looked at the pros of taking an HDB loan.

Bank loans

There are quite a few bank loan options available in the market. Each of them has their selling points. Some have a lower interest rate but with a shorter lock-in period while others include a longer lock-in period but with a higher interest rate.

New homebuyers who are considering bank loans should shop around for the best plan that suits their individual needs.

Why choose bank loans over HDB loans?

a) Currently lower interest rates

Although there many plans in the market that offer different interest rates, it is safe to say that each of them still charges a considerable amount lower than the HDB loan’s current rate of 2.6% per annum.

At the time of writing, most banks in Singapore charge an interest rate of 1.6% per annum, almost a full percentage point lower than the HDB loan. For a loan amount of $400,000, this equates to savings of around $200 a month.

b) Everyone is eligible

Unlike HDB loans, which are restricted to only Singapore citizens and have a household wage cap, bank loans have no such criterion. As long as your credit rating meets the requirements, you will be able to take a bank loan for your home

c) Availability of different bank loans to suit your individual needs

There are multiple banks in Singapore that provide loans to homeowners. Each of these home loan schemes has different benefits, such as different interest rates, varying lock-in period and early repayment charges. This gives the new homeowner the flexibility to choose the plan that suits them best.

The Foolish bottom line

At the end of the day, whichever method you choose to finance your home is a personal decision. It depends on your risk appetite, current financial situation and long-term financial goals. I hope these two articles have helped to ease your decision-making process.

Meanwhile, for more (free!) investing insights, sign up here for your FREE subscription to The Motley Fool's investing newsletter, Take Stock Singapore. It will teach you how you can grow your wealth in the years ahead.

Like us on Facebook to keep up-to-date with our latest news and articles. The Motley Fool's purpose is to help the world invest, better.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.