Question from a client:
What’s the difference in taking a bank loan as compared to CPF loan.
I believe your CPF loan refer to HDB loan.
HDB loan is much stable than bank loan. HDB loan is at 2.6% (CPF interest rate at 2.5% + 0.1% spread) and have not change for many years. Somehow it is like a “fixed rate”.
Maximum bank can only fixed their home loan rate for the beginning 5 years. After that you are expose to floating rate.
Example of bank fixed rate
Year 1: 1.99% fixed
Year 2: 1.99% fixed
Year 3: 1.99% fixed
Year 4: 1.99% fixed
Year 5: 1.99% fixed
Thereafter: Sibor + 1.25% –> floating rate
I would recommend you to take up a HDB loan if you qualify. Unless you are confident in repaying your full HDB in the next 5 years then it makes more sense to take a bank loan.