Falling interest rates in Singapore presents both opportunities and complexities for to-be and current HDB homeowners.

As rates decline, the first instinct may be to refinance with bank loans to take advantage of lower interest rates. However, your decision should consider beyond just the dollar sum of interest savings to your overall wealth accumulation plans.

You may have encountered the acronym, SORA, multiple times when researching about mortgage loans. SORA stands for the Singapore Overnight Rate Average, and it is useful to understand how and why its fluctuations translate to movements in mortgage loans.

In this article, we lay out the differences between HDB and bank loans, which will be important for homeowners like yourself to weigh against your individual circumstances and wider interest rate environments.

Understanding SORA rate and its impact on mortgage loans

SORA represents the volume-weighted average rate of overnight SGD interbank transactions.

Historically, Singapore’s interest rates tend to move in tandem with the US fed fund rates. This is because Singapore's central bank, the Monetary Authority of Singapore's (MAS) monetary policy framework is centred on managing the Singapore dollar against a trade-weighted basket of currencies, which is known as the Singapore dollar nominal effective exchange rate (S$NEER). 

As such, movements in US fed fund rates, which impact the strength of the US dollar, typically influence the trajectory of interest rates in Singapore.

The three-month compounded SORA is used by banks to determine floating-rate home loans. When it rises, mortgage interest rates increase as well. For a typical S$400,000 loan on a 25-year tenure, a 0.25% SORA increase could translate to approximately S$50 more in monthly repayments.

Since peaking in 2023, the three-month compounded SORA has declined and hovers around 1.2%, as of 26 November 2025. This favourable environment presents an opportunity for homeowners to lock in more competitive rates when borrowing or refinancing mortgage loans through banks, potentially saving thousands over the entire loan tenure.

Should you take a HDB loan or bank loan?

HDB loans currently charge a fixed interest rate of 2.6%, pegged at 0.1% above the CPF Ordinary Account (OA) rate. This stability provides predictable monthly repayments throughout your loan tenure.

Bank loans offer either fixed or floating rate options. Fixed rate loans maintain a consistent interest rate during the lock-in period, providing certainty in monthly payments regardless of market fluctuations. After this period, rates typically become variable.

On the other hand, floating rate loans fluctuate with SORA—they are cheaper than fixed rate loans, but offer less certainty.

Other considerations, including downpayment structure and lock-in periods, have been summarised in the table below:

Upfront and future cost considerations of a bank loan

Once you have refinanced your HDB loan with a bank, you cannot switch back in the future. Before you jump the gun, you should be aware of the refinancing costs and possible costs you may incur subsequently from early repayment or refinancing before making this decision. 

Here are the cost considerations of refinancing and repricing with bank loans:

• Upfront costs: Legal fees typically range from S$1,500 to S$3,000, and property valuation may cost S$300 to S$500 depending on your property type. Some banks offer subsidies for legal and valuation fees, but if you refinance to another bank within the clawback period, you may have to repay the subsidy.
• Early repayment penalty: There is none for an HDB loan, but banks typically charge a fee if you make early repayment. However, if the interest savings from early repayment is more than the penalty fee, it is worth paying for.
• Penalty for switching banks: Banks might also impose a penalty fee if you refinance before your lock-in period ends, which is usually about 1.5% of your outstanding loan amount. Additionally, some promotional packages include clawback clauses that require you to return subsidised legal fees if you refinance early.
• Repricing costs: Repricing, which means taking a new home loan package with the same bank you took a loan with, may also incur a one-time administrative fee. You should work out if the cost saving from a new loan rate is worth the administrative fee.

Note that fixed rate loans tend to have promotional rates in the first few years. You should seek clarity with the bank on the subsequent rates for the remainder of the loan.

Is now the right time to refinance your home loan?

With interest rates gradually falling, you might be wondering if now is the optimal time to refinance your HDB loan. Consider more than just the current differential loan rate between HDB and banks—as we have seen in 2023, interest rates fluctuate and bank loans can be costlier than the HDB loan when rates are high.

• You are willing to put in the time and effort to weigh the costs versus savings of refinancing, and evaluating the different loan packages.
• You have sufficient cash and OA savings to handle potential future rate fluctuations.
• Your remaining loan tenure is still substantial as shorter loan tenures may not generate enough interest savings to justify the refinancing costs.

Cheaper doesn't always mean better

Even though we are in an ongoing rate cut cycle, remember that it is difficult to predict interest rates, especially what they will be a decade or two later. Your housing loan decisions require careful consideration of both immediate and long-term financial implications.

Additionally, mortgage decisions form just one aspect of your overall wealth plan. Balance the costs, effort and outcomes against that of other aspects, such as your investments and pension plan.

To learn more about optimising your personal finances and creating a comprehensive wealth plan, explore our financial planning resources.

Further reads: 

• Why you should use your CPF to pay for your housing loan
• Grants, loans and downpayment: Every young couple's financial guide to BTO