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HDB loan vs bank loan: Which is better for you in 2023?

07 Jan 2023

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

Hi Beansprout,

With interest rates going up, should I take up a HDB loan or a bank loan for my HDB purchase? 



Hi there,

First and foremost, congrats on buying your HDB flat! 

For first-timers buying a HDB flat, it must be a scary experience making such a big financial decision and choosing between a HDB loan and a bank loan.

After all, we are looking at a loan of a few hundred thousand dollars, and we want to make sure we do not end up paying more for our housing loan.

Hence, we will use a little bit of math to show you how we will decide between a HDB loan vs a bank loan. 

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

If you're new to mortgages, here’s a quick summary of the differences between an HDB loan and a bank loan.

As of 6 January 2023HDB loanBank loan
Interest rate2.6% 
(0.1% above CPF OA interest rate)
4.25 - 4.50% (fixed)
SORA + 1.00% (floating)
Max amount of loan you can borrow (LTV)80%75%
Down payment

Remaining 20% -

20% 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$80 late fees per repayment

Why a HDB loan might be better than a bank loan 

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! 

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 loans on floating 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. 

In less than 6 months, the SORA increased from 0.77% to 3.03% in January 2023. Assuming banks continue to apply a premium of 1% to 1.5% on top of SORA, the bank loan’s interest rate would be higher than 2.6%. 


Source: POSB
Source: POSB

HDB loan is the clear winner compared to a bank loan

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


  • HDB loans are cheaper than bank loans 
  • You can borrow more for a HDB loan and fork out less cash for a down payment
  • You can repay back the HDB 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 installments (very kind)

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

Based on the Fed's projections of interest rates, interest rates on bank loans will likely remain high. 

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

Note that we are assuming that the CPF OA interest rate remains unchanged at 2.5%. We shared earlier on why the CPF OA rate has stayed at this level despite rising interest rates. 

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 bank loans can be more complicated with fixed rate and floating rate packages. 

You can refer to Beansprout's article on choosing between a fixed and floating rate package.

Final verdict on HDB loan vs bank loan 

We think that an HDB loan is a clear winner compared to a bank loan.

With a HDB loan, you will make lower mortgage payments based on current level of interest rates.

In addition, it offers you the flexibility of switching to a bank loan should there be changes in interest rates. 

Have a question to ask?

Send us your question on our Ask-Me-Anything (AMA), and we'll be sharing our insights shortly. Don't worry, we'll be keeping your details anonymous. 

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