How to compare HDB loan to commercial bank loan

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In Singapore, most home owners start off with owning a HDB flat before upgrading to a private apt. And a good percentage of owners will take up a mortgage with HDB. With bank interest rates at a low now, should home owners switch to a bank loan?

HDB loan

The HDB concessionary interest rate is pegged at 0.1% point above CPF Ordinary Account Interest Rate. It is revised quarterly in January, April, July and October each year, in line with the revision of CPF interest rate.

The present formula to calculate CPF OA is introduced in July 1999, since then the CPF interest rate is flat at 2.5% p.a.

Bank loan

Loan packages that are pegged to market benchmarks have only a short history in Singapore. Previously loan packages have always been pegged to the lender’s board rate. Its only in early 2007 that banks started introducing loan packages that are pegged to SIBOR or SOR for greater transparency.

How the benchmark compares?

End of period12M SIBOR (%)CPF OA (%)


Table 1: 12months SIBOR vs CPF OA

Based on the table above, we can see that 12M SIBOR is lower than CPF OA in 8 out of 13 periods. Remember that SIBOR pegged loans only started in 2007. On closer look, this means there is only 1 year when 12M SIBOR is higher than CPF OA. We chose to use 12M SIBOR because its relatively stable when compared to the 3M SIBOR.


Compare HDB and Bank Interest Rate

For our assumption, we have going to assume that the bank loans are 1% above the 12M SIBOR. Loan amount is S$300,000 and tenure is 13 years.

End of period12M SIBOR (%)CPF OA (%)HDB Concessionary loan(0.1% above CPF OA)Spread (1%)
Total Interest paidS$32.525S$29,115

Table 2: interest paid in the first 5 years

Based on our assumption, you are off better if you have opt for a bank loan from 2007 to 2011. (see table 2)

End of period12M SIBOR (%)CPF OA (%)HDB Concessionary loan(0.1% above CPF OA)Spread (1%)
Total Interest paidS$53,872S$65,645

Table 3: interest paid if loan starts in 1999

What happens if the same bank package is available in 1999? Based on our calculation, a HDB bank loan will be better.


HDB concessionary loan is not cheap

Assume the purchase price of a 4 room HDB is $375,000. The buyer took a loan of $300,000 over 30 years at HDB concessionary rate 2.60%. The total interests payable will be $132,367 at the end of the loan tenure. This is about 44% of the loan amount or 35% of your purchase price. This is not all. If the buyer use his CPF to finance the loan, then he would need to refund back to CPF the accrued interests when he sell his 4 room flat. Accrued interests is about 2.50% compounded annually.



Its not easy to compare HDB loan and bank loan. The main reason is because SIBOR will fluctuate. Even for a 12M SIBOR, you can see that it fluctuates from a low of 0.56% to a high of 3.44% in the last 13 years.

For HDB home owners, the benchmark to beat is 2.6% p.a. If you can find a fixed package that is lower than this, go for the maximum fixed years. And remember to refinance after the lock in period is over.

In this post, we have assumed rates to be 1% above 12M SIBOR (this is one of the package that was launched in 2007). We agree that there are other packages that are more competitive now.

The HDB concessionary home loan is a powerful tool that benefits Singaporean in their quest to own a HDB home. Since 1999, the rates has been flat at 2.6% p.a. This is a better alternative when compared to packages that are pegged to the bank’s board rates.

The key to lower your payments is to manage your mortgage actively. Whenever you come across a better loan package, do a cost analysis and decide if you should refinance and switch your lender.

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