This is one of the most favorite questions I get from my clients. Which is better? Bank loan or HDB loan?
Very subjective topic, and I have discussed and gathered polarizing opinions on this. Let's discuss further.
HDB has a 5-year Minimum Occupation Period ( MOP ), meaning the owner must be living in the premise for 5 years, before they are allowed to sell or rent the whole unit.
Lets assume 5 years MOP has just been reached. And owner took a loan of 300k, Fixed Interest Rate, when they first bought this unit.
5 years MOP
Bank Loan (1.5% Fixed Interest Rate)
After 5 yrs
Principal paid = $ 41,652
Interest paid = $ 17,139
Total = $58,791
HDB Loan (2.6% Accrued Interest)
After 5 yrs
Principal paid = $36,714
Accrued Interest paid = $29,976
Total = $66,690
Notice that for the Bank loan its Interest, where you will have to pay back to the bank, and one is Accrued Interest, where that interest will be returned back to your CPF.
As you have noticed above, after 5 years, the total paid by the owner choosing a Bank Loan and HDB Loan is a difference of $7,899. Mathematically, on paper, this definitely looks nicer right? Some may argue that if you take the HDB loan will be an extra savings of $7,899 instead. That will go back into your CPF.
For those taking the Bank loan will argue that, in the end, they will receive more in their Cash Sales proceeds, if any.
So, which one would you choose? HDB Loan or Bank Loan?
For me personally, my advice is, for those with a steady income like government officers, where it's almost like an iron rice bowl, go for the Bank Loan.
No wrong between the two Both type of loans has its pros and cons.
Looking to sell your Property but still lost on how to calculate for your sales proceeds and for your future property, contact us at +65(9062-2444). Ill breakdown for you the financial calculations for you.
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