How To Escape Paying High Loan Cost For Your HDB Flat (Case Study)

Updated: May 19, 2020

High Loan Cost HDB
How To Escape Paying High Loan Cost For Your HDB Flat (Case Study)

This is a case study about helping one client to escape the high loan cost for his HDB flat.

People often overlook the implications of taking a HDB Home Loan and then to follow after what their friends do.

A comparison on the interest paid between an HDB Home Loan vs a bank loan.

A second squeeze of CPF accrued interest was highlighted to highlight the pitfall of taking the wrong decision in the first place.

Recently, I helped my friend to avoid the high cost of borrowing for his HDB flat.

Ah Teck (not his real name) had just turned 35 years old and wanted to get a place on his own.

He wanted to get a 4-room HDB Flat in Punggol estate that is within 10 minutes walk from the nearest MRT Station, so he got me to serve him as a Buyer.

His colleagues advised him to use the HDB website to transact on his own since they had heard so much from HDB ads. They, however, have not used the website yet.

After several rounds of exasperated failed-attempts to register himself onto the HDB portal (either system hang or asking him to provide info that is not applicable to him), he finally gave up.

That was when he decided to ask for my help.

When you need professional advice, get it from a professional. Not from your friends. - Ray Simard



One of the very first thing I helped Ah Teck to do was to compute for him on the financial calculations.

When we came to the portion about the home loan, Ah Teck said he will take the home loan from HDB. A lot of his friends also took their home loans from HDB because they felt that it was very "safe" to go with HDB.

He added that he heard from his friends that with HDB Home Loan, he doesn't need to come out a single cent (cash) for down payment.

I was worried for Ah Teck that he didn't understand the implications.

So we sat down before I gave him a comparison between a home loan taken from HDB vs one taken from a bank.


HDB Home Loan
HDB Home Loan

Assuming the price of the HDB flat is $450,000. and that his TDSR and MSR meets all the required amounts.

HDB Loan LTV is 90%. Ah Teck can borrow $405,000 (90% x $450,000).

He has to take care of the balance 10% ($45,000).

According to HDB Loan, he can use his monies from his CPF Ordinary Account (CPF OA) to pay for this $45,000.

That's why he doesn't feel pressured to come up with any cash.

But Ah Teck didn't take into account about the 2.6% loan interest that HDB charges.

The HDB Act states that the HDB interest rate shall be 0.1% above the savings interest rate given by CPF, which is 2.5%. Simply put, HDB borrows from CPF at 2.5%, then it adds 0.1% on top of it.

Let's say that Ah Teck is taking a 20-year loan from HDB.

At the end of the loan, Ah Teck would have paid $114,814.12 on the loan interest.


If Ah Teck were to borrow from a bank instead, the loan interest rate would be 1.6% at that time.

Although the LTV for a bank loan is 75%, let's just say we use the same amount $405,000 to see the comparison.

At the end of the 20-year loan, Ah Teck would have paid $68,517.86 on the loan interest.

This is a savings of $46,296.26 over the HDB Home Loan!


The Second Squeeze
The Second Squeeze

Ah Teck's jaw dropped! He said this $46,296.26 is his hard earned money, and it would be a very good retirement money for him instead of passing it all to HDB.

I told Ah Teck that there was a second squeeze of this Interest thing but not sure if he could take it. His hands gripped both the armrests and said, "Let me have it".

I drew his attention to this $46,296.26.

I asked him if he intended to use his monies from his CPF OA to pay for the monthly mortgage. He said, "Yes"

I told him that for using his monies in his CPF OA, he has to pay accrued interest on it. At the end of 20 years, the accrued interest would be about $10,000. That is paying interest on top of interest.

Ah Teck gasped at the total of $56,296.26 he would have lost!


Heresay Is The Most Dangerous Thing
Heresay Is The Most Dangerous Thing

Ah Teck heaved a sigh of relief. He realised that it was dangerous to follow blindly.

He wanted to understand why would the government create this HDB loan scheme and let people end up paying more money on the interest.

I told him that HDB Home Loan is not without its merits. This is meant for those who have very limited cash. By allowing borrowers to fully utilise CPF monies on the 10% balance of payment, borrowers can use their limited cash for renovations and buying of furniture.


Share this article with a friend or a relative if they plan to buy a HDB flat.

Or if they are unsure on the complexities of the HDB portal submission, they can alway book a free 30-min consultation with me.

I've been working with hundreds of HDB sellers and buyers since 2009.

Some of these cases were complex and involved divorce and inheritance.

More importantly is that you can consult with a professional and make better informed decisions before you proceed.

Anthony Yeo, Mentor, Coach, Trainer, Real Estate
Anthony Yeo, Senior Associate District Director

Anthony Yeo has helped 450+ home owners successfully find buyers and tenants for their properties since 2009.

As a certified Masters Practitioner in NLP (Neurolinguistic Programming), Anthony blends NLP techniques into all his real estate courses, and made them into his MORE sYSTEM.

The sYSTEM not only helps agents to apply the sales tools effectively in their daily work, they can use it to train their downlines.

Over the years, Anthony and his Division have gotten numerous awards. Since 2017, his Division has consistently earned more than $2.5 Million in commissions annually.

Anthony has a cheerful disposition, with a soft spot for aromatic coffee brews. He is dead serious when it comes to café hunting expeditions in the concrete jungle.

His previous HDB article was "25 Biggest Mistakes Landlords Make That Could Wipe Out Their Profits (Part 2 of 2)" under the "HDB Property" Section.