Updated: Jun 6, 2022
There is a lot of confusion concerning HDB buying policies. One of the most challenging components of buying a HDB is paying off the down payments. What information do individuals require to know about down payments?
How Much Does One Need for Down Payment?
The table below illustrates how much one's first HDB unit down payment will cost.
Simply multiply the percentage by the purchase price to get the total amount you need for down payment. For example, if one buys a $600,000 BTO property with a HDB loan, the down payment will be $90,000 (15%) in CPF. Meanwhile, if a bank loan is chosen, the down payment will be $30,000 (5%) in cash + $120,000 (20%) in CPF.
What Is the Difference Between the Two HDB Down payments?
The downpayment is determined by the loan you take.
Most Singaporeans choose the HDB loan since it allows you to borrow up to 85% of the flat price with only a 15% down payment. The interest rate, though, is higher at 2.6%.
These days, bank loans have much lower interest rates, ranging from 1.2%to 1.5%.
The down payment, on the other hand, is significantly higher — 25% of the purchase price, with at least 5% paid in cash.
Should I Get a HDB Loan or a Bank Loan?
Choosing between a HDB loan and a bank loan has a substantial influence on your HDB down payment.
Pros & Cons of HDB loan
A HDB loan requires only a 15% down payment, which may be paid entirely from your CPF OA balance. Although the interest rate is greater than bank loans, the loan can be set up to 25 years allowing for lower monthly interest payments.
Next, unlike bank loans, HDB loan interest rates are pegged at 0.10% above the CPF OA interest rate, so they are highly unlikely to fluctuate unless the CPF interest rate is revised.
This makes your cash outflows predictable and consistent, making financial planning for a wedding or a vehicle purchase in the near future much easier.
There is no lock-in period, and the loan can be converted to a bank loan at any time.
Also, to lower the total interest paid over the years, you can choose to pay off your HDB loan early without penalty. Furthermore, up to 85% of the purchase price can be financed.
If you and your spouse have recently entered the workforce, you probably do not have much cash on hand.
HDB loans are therefore more appealing because of the lower down payment, predictable interest payments, longer loan tenure, flexibility to pay earlier without penalties and ability to pay fully with CPF.
Pros & Cons of bank loan
A bank loan, on the other hand, often has a lower interest rate than HDB loans, which average 2.6%per annum. Bank loans typically charge interest of 1.2%to 1.5%.
The qualifying conditions are easier to satisfy since there are fewer limitations, such as the lack of an income ceiling.
Next, bank loan interest rates are based on current SORA rates, so it may be necessary to refinance every few years to take advantage of the best rates. But, as they change, they may be better or worse than the 2.6%HDB loan.
Another con is that bank loans include a lock-in term that prevents you from repaying your loan early, and the penalty is typically 1.5% of the loan amount.
The maximum mortgage duration allowed in Singapore varies depending on the type of property you want to buy.
According to the Monetary Authority of Singapore (MAS), the maximum home loan duration for HDB flats is 30 years and for private homes, it is 35 years.
A larger down payment is also required, culminating in a 25% down payment requirement, with at least 5% of the payment made in cash.
Those who are not in financial distress and have more cash on hand for a down payment should seek a bank loan.
Not only are the interest rates lower, but the lower Loan To Value (LTV) limit of 75% will help you save more money in the long run.
For those who don’t know, LTV determines the maximum amount an individual can borrow from a financial institution (FI) for a housing loan. If the value of a property is $1,000,000 and LTV is 80%, that means you can borrow up to $800,000.
When Should the HDB Down Payment Be Paid?
Downpayment for BTO flat via HDB loan
The down payment on a BTO unit with a HDB loan must be paid after the leasing agreement is signed. If you choose the Staggered Down Payment Scheme, you will pay 5% when you sign the lease agreement and another 5% when you pick up your keys.
The Staggered Downpayment Scheme is a method of splitting your down payment into two payments. When you sign the Lease Agreement, you pay a portion of the down payment.
To qualify for the HDB Staggered Downpayment Scheme, you have to be a flat owner switching to a 2-room or 3-room flat in non-mature estates, and meet the following criteria:
You have bought an uncompleted 2-room or 3-room flat in a non-mature estate through one of HDB’s sales launches; or
You have not sold your existing flat, or the sale has not yet been legally completed at the point of flat application.
Downpayment for Resale flat via HDB loan
When purchasing a resale property with a HDB loan, the down payment is due once your financial plan has been confirmed through the HDB Resale Portal (using CPF). In addition, the down payment (cashier's order) is due at the resale completion appointment.
Downpayment for BTO, Resale & EC flat via Bank loan
When using a bank loan to purchase a BTO, resale, or EC apartment, verify with your bank about the payment plan for the down payment.
How much can you loan for a HDB Flat?
Assuming that your Mortgage Servicing Ratio and Total Debt Servicing Ratio are within reason, the top limit of your bank loan is determined by two factors: the loan's tenure and the number of housing loans you have at the time of application.
The Mortgage Servicing Ratio (MSR) is the percentage of your total monthly income that goes toward paying off all of your property loans, including the one you are applying for. MSRs are limited to 30% of your total monthly income.
The Total Debt Servicing Ratio (TDSR) is the percentage of your total monthly income that is used to pay off monthly debt obligations, including the loan being sought for. Your TDSR should be less than or equivalent to 55%.
A concise overview of your LTV limit is provided in the table below.
Should I pay Down Payment with CPF or Cash?
Pros & Cons of paying down payment with Cash
If you decide to sell your flat, one factor to think about is your profit. Keep in mind, should you make a down payment with CPF that you must refund the down payment, along with the principal amount borrowed and interest gained, as well as any upfront expenditures (conveyancing, stamp duty fees) to your OA balance.
This might deplete a significant portion of your profit. Conversely, if the down payment is made in cash, you will receive a higher cash inflow than you would if you made the down payment with CPF.
Moreover, the CPF interest rate is another reason why you should use cash.
At 55, your OA and SA balances will be consolidated into a Retirement Account that enjoys 4% per annum until you’re 65. After which, your balance will be used to purchase CPF life, an annuity that pays out monthly.
Withdrawing from your CPF funds to make a down payment will result in lower monthly payouts in the future.
As such, It may be better to leave your CPF savings in your account to enjoy the interest.
Pros & Cons of paying down payment with CPF
Using CPF for a down payment will mean more cash available, which can be placed towards a larger selection of investment instruments.
While you may invest with CPF through the CPF Investment Scheme, your options are limited. For instance, shares can only be purchased if they are SGX listed.
More importantly, having cash allows you to invest not only in assets with higher potential returns like stocks or ETFs from international markets but also in other opportunities.
For example, if you have the opportunity to do a startup, join a partnership, or establish your own business, you will not be able to use CPF to fund these ventures.
Uncertain about what types of assets to invest in and the level of risk you should take up? Check out our risk profile calculator to determine what you should be investing in!
If you have a significant amount of cash and no idea how to invest it, it may be wiser to use it for your downpayment and take advantage of the OA (or SA) interest rates.
On the other hand, if you would rather have more cash on hand and are fairly certain that you can invest it to generate higher returns than your CPF would, you could use your CPF OA for the down payment.
But if you’re new to finance or are an amateur investor, then your greatest concern would be “How do I beat the CPF interest rate?”. After all, this is a big-ticket item, you can’t afford to invest with uncertainty.
It would be smart then to work with a financial professional.
Contrary to their reputation for pushy sales tactics, financial advisers help new investors cut through the noise.
According to a survey report by St James’s Place Wealth Management, a majority of Singaporeans or 81%, stated that they heavily prioritise seeking financial advice before making any major financial decision.
And 56% ranked financial advisers as their top source of financial advice.
Financial advisors can arrange your investments and build a financial plan that helps ensure you will meet your financial goals in a sustainable manner.
With the right investing strategy, that growth may be accelerated and you’re more likely to beat the CPF interest rate.
If you’re interested in seeing for yourself what a financial advisor can help you achieve, Techiya is offering a limited-time offer for a free comprehensive and personalized financial assessment worth over $200!