Bank loan interest rates are currently looking attractive, sometimes around 1% lower than the HDB’s concessionary rate. It’s a tempting picture: switch now, save money immediately.
But here is the cold, hard truth: Refinancing from an HDB loan to a bank loan is a one-way, irreversible decision.
The Ministry of National Development (MND) has already clarified this during the 2022 rate hike stress: homeowners who switched out and regretted it were rejected when they appealed to switch back. Once you cross this line, you cannot uncross it.
This irreversible nature makes the following four considerations absolutely critical.
1. Health — The Most Overlooked Factor (HPS & Underwriting)
Interest savings cannot replace financial security. This is the single most important factor that most homeowners overlook.
The Home Protection Scheme (HPS) is compulsory only for HDB loans when CPF is used to service the monthly installment. When you switch to a bank loan, you are required to secure mortgage insurance, which may not automatically continue your existing HPS coverage.
Depending on your situation, you may be required to re-apply, which triggers health declaration and medical underwriting.
For clients with any prior health conditions, recent medical issues, or chronic illnesses, the outcome can be painful:
- Coverage may be declined or excluded.
- The premium for private mortgage insurance may be significantly higher.
Before chasing a lower interest rate, you must ensure your family’s protection remains intact.
2. CPF Valuation & Withdrawal Limits (Especially for BTO Owners)
When you refinance your HDB loan, the CPF rules become more stringent and can seriously impact your long-term cash flow.
The problem lies in the Valuation Limit (VL), which is the lower of:
- The original HDB Purchase Price (PP), OR
- The bank’s valuation at refinancing.
For BTO owners who bought years ago, the original purchase price is almost always significantly lower than today’s market value. By basing your VL on the lower original price, you may:
- Hit your VL faster.
- Eventually hit your Withdrawal Limit (WL = 120% of VL) faster.
This means your CPF usage may be restricted much earlier than expected, forcing you to use more cash for your monthly installments down the road. What looks like a “simple refinance to save interest” can become a serious, long-term cashflow issue.
3. Market Interest Rate Volatility
The only reason you are considering this switch is because bank rates have dropped. But do you remember 2022–2024, when mortgage rates shot up to 3.5%–4%?
HDB rates are pegged to the stable CPF OA rate and are famously non-volatile.
Bank rates are subject to market forces and fluctuate every few years.
While interest savings are real today, you must be comfortable with the future uncertainty of rate movements. You must have the financial stability to weather a sudden hike in interest rates, which could wipe out several years of savings in a single year.
4. Refinancing Costs & Minimum Loan Sizes
While banks often subsidise legal and valuation fees to attract you, this typically only applies if your loan is above certain thresholds (usually S$250,000–S$300,000).
| Refinancing Costs | Amount usually covered by bank subsidies1 |
| Legal Fee | ~S$1,500 |
| Valuation Fee | ~S$250 |
| Fire Insurance | ~S$50 per year |
| HDB Legal Admin Fee | ~S$100 |
1depending on respective bank policies and loan quantum.
For homeowners with small outstanding loans (e.g., below S$100,000), the refinance subsidies may not kick in. You may end up paying the full upfront costs, making the cost-benefit decision marginal or even negative.
Here is a snapshot of the difference in legal fees when you eventually sell, which reinforces why the refinancing decision needs to be based on the full picture, not just immediate interest savings:
| Loan Type | Estimated Legal Fee for Sale Conveyance | Reason for Difference |
| HDB Loan | S$330 – S$500 | HDB has a highly subsidized, streamlined legal process handled by HDB’s appointed solicitors. |
| Bank Loan | S$1,500 and up | Handled by private law firms, who charge market rates for conveyancing, which is significantly higher. |
This means that by switching to a bank loan, you are likely committing to an additional legal cost of S$1,000 to S$1,200 or more when you eventually sell. For homeowners with small loan sizes or a short holding period, this extra selling cost can significantly erode the interest savings gained from refinancing.
The 4 Questions to Ask Yourself Before Refinancing
1. Is my health stable enough to secure HPS or private mortgage insurance?
Confirm your coverage will remain intact before chasing lower interest.
2. Will CPF limits (VL/WL) impact my cashflow in the future?
Check your original purchase price against current valuation, especially if you are a BTO owner with a low initial price.
3. What happens when my loan becomes lesser than S$100,000?
Low loan sizes may not meet subsidy requirements and may be expensive to refinance later.
4. What is my plan for the property?
Refinancing is ideal if you plan to sell soon or clear the loan early. If you are holding long-term with tight cashflow, the stability of the HDB loan may be better.
Refinancing from HDB to bank loan can be a smart move, but it must be a fully informed decision, not driven by short-term interest rate headlines. If you are unsure, always speak with an independent mortgage advisor to assess the long-term impact on your family’s financial security.
