HDB Concessionary Loan or Bank HDB Loan?

The 1st of January 2003 changed the options Singaporeans had for buying an HDB flat (Housing Development Board flat), which were either an HDB Concessionary Rate Loan or an HDB market rate loan. The latter was then replaced by home loans from financial institutions, published by the Monetary Authority of Singapore. For home owners over a certain income bracket Banks’ HDB loans are required. For those under the income bracket, an HDB concessionary loan is available, provided they meet all requirements established by the Housing Development Board. During the period of time in which the loan is given, home owners can refinance their loans from HDB to banks, if they decide it is optimal.

HDB Concessionary Loan

An HDB loan has requirements that are more strict than home loans offered by financial institutions. Such a loan is for Housing Development Board flats only, either purchased directly or from resale. At least one member of the family of buyers must be a Singapore citizen and have a gross monthly income that does not surpass $10,000, or $15,000 in the case of extended families. The buyers must also not own private residence, not even abroad, and must not have obtained an HDB loan within the previous 30 months, and must also not have obtained more than two HDB loans on the whole.

Bank Loans

Loan packages offered by banks are pegged to market benchmarks. They have been around in Singapore for a short time, and are known for greater transparency and security, as they are available in publications such as The Business Times or on websites such as Bloomberg. They are also available on Teletext. Most packages are now pegged at a spread above the SIBOR, a daily reference rate set by the Association of Banks in Singapore.

Now, the concessionary interest rate is revised annually, while banks’ interest rate packages are pegged to SIBOR/SOR or to Fixed or Variable Board Rates.

HDB loans that banks offer generally take advantage of the low interest rate environment, when there is one, because their loan packages ensure larger savings compared to HDB loans. It is evident that lower monthly installments will guarantee more savings for home buyers.

However, while HDB loans are more expensive in the case that the SIBOR or SOR are low, they are more stable and have more policies and regulations that will help you restructure your loan or postpone your payments, if you are in need to do so. HDB concessionary loans also have more flexibility when it comes to allowing payment, because they do not charge borrowers on prepayment, as opposed to banks.

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