1) Interest rate volatility. As the HDB concessionary loan rate is pegged at 0.1% above the CPF interest rate, it is already a pretty low rate at 2.6%. The CPF interest rate has been 2.5% for a number years since 1999. Whereas with a HDB bank loan, your home loan will be subjected to interest rate fluctuations after the period of fixed rates. Usually up to 3 years
2) Different objectives. The objective of HDB is to provide affordable housing for the people. While the objective of the banks is to enhance shareholder returns. So while HDB may be more lenient on granting you a maximum loan quantum, banks may find every reason to lower your HDB bank loan quantum or not offer you a HDB bank loan.
3) Lock-in period and penalty for early redemption. You may make a partial repayment for HDB loan at any time without a penalty fee. Banks will most likely have a lock-in period on their HDB bank loans and penalty fees for full or partial repayment of the HDB bank loan.
4) HDB is more likely to be more “understanding” than banks in times of financial difficulty. If you happen to default on your home loan, banks may repossess your HDB flat without a care for your family well-being. Whereas HDB is likely to be less harsh. If you are taking a HDB concessionary loan, you can apply to defer your HDB loan monthly payment for a period of time if your household is facing financial problems.
The main reason why most people consider HDB bank loans is that they are not eligible for a HDB concessionary loan. Even though HDB bank loans offered by the banks can seem to have a lower interest rate, bear in mind that that is only guaranteed for a short period of time. Because once the interest rate floats to move with the SIBOR or SWAP rates, the interest you will pay for your HDB bank loan really depends on the market.
Always choose the HDB concessionary loan as the first option. Note also that once you take up a HDB bank loan, you will probably not be eligible for a HDB concessionary loan in the future.