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Should you take a HDB loan or a bank loan with rising interest rates? [September 2022]

15 Sep 2022

Just bought a HDB flat and worried about rising interest rates? We show you why a HDB loan might be a better option than a bank loan.

HDB loan or bank loan

The US consumer price index (CPI) remained high last month. 

Inflation is not coming down.

The market is expecting the Federal Reserve to hike interest rates by at least 0.75% (or 75 basis points).

This move will affect us as interest rates in Singapore follow interest rates in the US closely. 

In other words, Singapore’s interest rate will increase again (but not our salaries ☹). 

This means that you will have to pay higher interest rates on your loans. 

Most of us will be required to take up a loan to finance our home purchase, and as responsible adults (*coughs* I mean I try to…), we should do some research on whether we should be taking an HDB loan or Bank loan. 

For the first-timers who have yet to pick a loan, I will use a little bit of economics to show you why you should be picking one over another.

What is the difference between a HDB loan vs a bank loan?

For the uninitiated, here’s a quick summary of the differences between an HDB loan and a bank loan.

As of 14 September 2022HDB loanBank loan
Interest rate2.6% 
(0.1% above CPF OA interest rate)
SORA + 1-1.5% (fixed)
SORA + 0.6-0.9% (floating)
Max amount of loan you can borrow (LTV)85%75%
Down payment

Remaining 15% -

15% cash or CPF

Remaining 25% -
5% must be in cash

20% cash or CPF

Early repaymentNo penalty1.5% penalty
Late payment penalty7.5% fees per annum$50 late fees per repayment

I also conducted my market research and checked with Beansprout's Telegram members.

It seems like most would prefer a HDB loan. However, some would still consider a bank loan if the interest rate on the bank loan is lower. 

This was definitely the case during the COVID-period when when interest rates were very low. Banks were able to offer an interest rate significantly lower than 2.6%. 

Today, many people still assume that HDB loans will never be cheaper than bank loans.

What I'd like to show you is why a HDB loan might be a better option if you're a price-conscious home-buyer like me! 

Using economics to show why a HDB loan is better than a bank loan with rising interest rates

For an economics geek like me, I truly believe that economics can help to explain a lot of what is going on in the world around us. 

If you have been doing grocery shopping or buying your cai png, you would have realised that prices have increased. 

This, my friends, is because of inflation

To curb inflation, central banks need to increase interest rates to bring demand down. 

Unfortunately, the inflation rate has not been coming down as fast as they wanted, and the only option left is for them to increase interest rates again and again. 

This explains the headline news in recent days.

Let me explain why this is important to us. 

Bank’s interest rates are pegged to something called SORA, or Singapore Overnight Rate Average. 

The higher the SORA, the higher the bank loan’s interest rate. 

If you draw the link, it would be:

Higher inflation rate → Higher US interest rate → Higher SORA → Higher bank loan interest rate

Not convinced yet? Let me show you what the numbers say. 

Source: POSB


In less than 3 months, the SORA increased from 0.77% to 1.60% in September 2022. Assuming banks continue to apply a premium of 1% to 1.5% on top of SORA, the bank loan’s interest rate would be at least 2.6%. 

With the consistently high inflation figures, you can expect SORA to increase again and the bank loan’s interest rate will be more than 2.6%. 

As of 15 September 2022, the market is pricing in a 4% interest rate possibility by early 2023

This means that the bank loan’s interest rate would far exceed 2.6%. 

Should you take a floating rate mortgage with a bank?

If you believe that the interest rate will go up to 4% by early 2023, chances are your bank loan’s interest rate will be wayyyyyy above 2.6%.

In this volatile climate, I would avoid taking a floating rate as I do not know how much interest rate swill rise and how long the interest rate will continue to be high.

I want to sleep better at night. 

HDB loan is the clear winner compared to a bank loan

Let me try to summarise the pros and cons of HDB loans again. 


  • Cheaper than bank loans (especially so in the coming months)
  • You can borrow more from HDB and fork out less cash for a down payment
  • You can repay back the loan without penalty
  • You can switch from an HDB loan to a bank loan at any time, but you cannot switch from a bank loan to an HDB loan.
  • HDB offers Financial Assistance Measures if you have difficulties paying your monthly instalments (very kind)

Cons: HDB loan may be more expensive IF CPF OA interest rate goes up

Based on my view of the global economic environment, I think that interest rates (and hence bank loan’s interest rates) will continue to be high. 

As a kiam-siap Singaporean, I would prefer to err on the cautious side and choose a HDB loan which provides me with greater flexibility. 

In any case, I can switch to a bank loan at any point in time if the Bank’s interest rate really does become cheaper. 

Note that I am assuming our CPF OA interest rate remains unchanged at 2.5%. This will be an interesting discussion but you can find me in our Telegram group if you want to chat more on this.

Oh no, what will happen to me if I am using a bank loan now?

You can always refinance with another bank that offers a lower interest rate.

The mechanism for banks can be more complicated with fixed rate and floating rate packages. 

A community member told me that banks do not do refinancing for loans below 100k (please correct me if I am wrong). 

Do not fret, because there is always something you can do. 

For the purpose of this article, I will not be going into details on refinancing because it will be quite a long piece. 

Final verdict of HDB loan vs bank loan 

This article is meant for people who are undecided on the type of loan they should be taking. 

Again, I think that an HDB loan is a clear winner (not sponsored btw).

I must caveat and say that you might be able to find a cheaper deal somewhat or somehow. 

But an HDB loan should still be generally cheaper unless the Banks change their pricing policy.

Do you agree with what I say? Find me at Beansprout’s telegram group for a healthy discussion. 😊