Housing Loan in Singapore: How Much Must You Pay Upfront for HDB vs Private Property?

Getting a housing loan in Singapore is part of financing your property purchase. Whether you are looking to purchase an HDB flat or private property, you will likely have to take out a housing loan in Singapore to pay for it.

With effect from 20 August 2024, the LTV limit for HDB loans has been adjusted to 75%. This makes the Loan-to-Value (LTV) limit for HDB loans in line with that of bank loans.

If you’re budgeting for your home, you may be wondering what your home loan options are and how much your upfront costs are. So we’ll cover the types of loans available for the different property types, the HDB downpayment and private property downpayment amounts.

What Types of Loans Are Available for HDB flats and Private Properties?

If you are buying an HDB flat, you can take a loan directly from HDB or, if you prefer, a bank of your choosing.

On the other hand, if you want to buy a private property (such as condominiums and Executive Condominiums), your only choice is to get a loan from a bank.

Now, with that out of the way, let’s examine both types of loans on the market. 

HDB Housing Loan (for HDB Properties Only) 

HDB provides a housing loan to eligible HDB flat buyers at a concessionary interest rate, currently pegged at 2.6%, or 0.1%, above the interest rate of Central Provident Fund’s Ordinary Account (CPF OA). 

Thanks to the new August 2024 property cooling measures, the HDB loan limits have been tightened. With the LTV limit at 75% for HDB loans, the HDB loan downpayment is now 25% (assuming you get the maximum loan amount for your property).

The good thing about the HDB loan downpayment is you can pay the HDB downpayment entirely from your CPF OA savings. First-time buyers are likely in their mid-to late-twenties and just starting out in their careers. This group may not have as much cash liquidity, and the HDB loan and the HDB downpayment payment mode may be a good option.

Bank Loan (for All Property Types) 

The interest rate of the bank loan depends on the bank itself. If you do a mortgage loan comparison, you’ll see the lowest mortgage rates on the market are 2.50% for a 3-year fixed rate home loan and 3.75% for a 2-year floating rate home loan (based on the lowest interest rate offered in the first year, as at 12 September 2024).

While the fixed-rate home loan offered by banks is currently slightly lower than the mortgage interest rate for HDB loans, you shouldn’t only consider the home loan with the lowest mortgage rates when picking a package.

That said, the interest rate on bank loans fluctuates depending on market conditions. We expect interest rates to fall gradually in the coming year.

There are several types of bank loan packages you can choose from when taking a housing loan in Singapore.

Fixed Rate Bank Loans

For one, there are fixed-rate bank loans. A fixed-rate home loan applies the same agreed-upon rate throughout the contractual period. For example, if you signed up for a five-year fixed rate package at 2.5% per annum, the interest rate for your loan will remain 2.5% for five years before it reverts to a floating rate. 

Floating Rate Bank Loans

Then, there are floating rate bank loans, which feature rates that vary upwards and/or downwards along a pre-agreed base rate, like the Singapore Overnight Rate Average (SORA).

For example, if you take a home loan with a 1M-SORA rate package, that means your interest rates are ‘updated’ every month. Consequently, the repayment amounts for your housing loan in Singapore will fluctuate monthly.

What Is the Minimum Downpayment Required? 

Since HDB loans allow you to borrow up to 75% of the property value, this means that the minimum HDB loan downpayment is 25%. The entire HDB loan downpayment can be paid with your CPF OA savings.

Meanwhile, bank loans only allow you to borrow up to 75% of the property value or purchase price, whichever is lower. Of which, a minimum 5% of the downpayment must be paid for in cash.

Let’s say you are buying a $500,000 BTO flat or an HDB resale flat. If you took a 75% loan from HDB, the HDB downpayment would be 25%, or $125,000.

If you have sufficient funds or wish to, you can pay your entire HDB loan downpayment using your CPF savings. If you took out a bank loan instead, your HDB downpayment would be $125,000, of which $25,000 must be paid in cash. 

Based on this example, it is clear that the upfront HDB downpayment cost for an HDB loan is a lot lower for public property. Those buying ECs and private property only have the option of taking out bank loans.

The private property downpayment will depend on how much you borrow. Assuming you get the maximum loan amount (the LTV limit for bank loans is 75% for your first loan), then your private property downpayment will be 25%. Of this 25% private property downpayment, 5% must be paid for in cash.

Is it Wise to Only Pay the Minimum Downpayment? 

In other words, should you borrow as much as HDB or the bank allows you to?

If you have limited amounts of money on hand, sticking with the minimum downpayment means borrowing more to finance the property. However, remember that the more you borrow for a housing loan in Singapore, the more you have to return – with interest – by the end of your term period. Even if the interest rate remains the same, the amount paid as interest payment eventually adds up. 

Conversely, if you can afford to put down more as a downpayment, this means borrowing less and repaying less as interest payments. It may seem counterintuitive at first since you are paying more upfront; however, by the end of your repayment term, you may find that a bigger down payment does mean a smaller financial footprint.

Different approaches work for different people. Before buying a home, it would be wise to use tools to figure out how much you can actually afford. Budgeting includes working out a feasible budget and comparing home loan interest rates.

You’ll also need to pay Buyer’s Stamp Duty (BSD). Depending on the number of properties you own and your citizenship status, you may also have to pay Additional Buyer’s Stamp Duty (ABSD). How much these duties will cost also depends on the price of your property. So, do include these costs when budgeting!

Can I Use My CPF for the Downpayment?

It doesn’t matter whether you are purchasing an HDB flat or a private property. The good news is that your CPF OA savings can assist with the down payment for both. 

There are some opportunity costs to emptying out your CPF savings for housing though. If you’re on the fence about whether you should use your CPF to pay off your housing loan in Singapore, you can always reach out to PropertyGuru Finance’s Mortgage Experts.

Whether it is helping you pick the right housing loan in Singapore or offering personalised home financing advice, our friendly and professional experts can guide you every step of the way. The best part? It’s free!

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