Should You Take Housing Loan or Pay Your HDB House In Full If You Got The Money?

Thu, Jul 2, 2009

Investment

If you recently read my blog, I spoke of my aspirations to accumulate my money as soon as possible, so that when I get married in 4 years time, I can pay my 4 room HDB house, in full, IMMEDIATELY. (clearing the biggest loan, one can have in a lifetime)

hdb

My rationale is that, when you start up a family, the 2 most important things that you need to have is YOUR house and sufficient life insurance coverage (MONEY) to leave for YOUR wife & children should you go to heaven.

My rationale of getting “resale” HDB house because,

1) enjoy HDB grant of $40,000 (if you stay within 2km from your parents’ house and your household income is less than $8000)

2) (touch wood) should I go bankrupt in my daring entrepreneurial pursuit,  creditors cant touch my house. My family still have roof over our head, in the worst case scenario.

3) If I pay my house in full, another 3 years (HDB ruling), I can start scouting and buy my first private property (condominium).

So you see, that I have been saying on playing it SAFE. Security…Safety….Now…..Let us look at the OTHER OPTION. Let us look at the other side of the coin.

loans

Car loan interest rate is 5%/year.

Renovation loan interest rate is 7%/year.

Personal credit interest rate is 16%/year.

Credit card interest rate is 24%/year.

So, in fact, HDB loan which is about 2.6%/annum or now lower, its the cheapest loan one can find in Singapore.

The rationale, goes, if you have excess cash, instead of paying your HDB house in full, you leverage on the cheap interest borrowing rate, and use your excess cash to invest in places where you can earn higher interest.

I believe, it is a feasible idea, borrow at average interest rate of 2.6% and invest your excess cash to get higher return. There are a number of tools, where you can put your money to get higher returns.

Amongst the recommendations (depending on one’s risk profile):

1) Indexes like STI, Dow Jones etc2
2) Capital Guaranteed Instruments like NTUC Income Growth Plan

Truly, I believe, the decision to to take up HDB loan or pay house in full is a subjective one. Myself, I will be exploring the options available till the big day comes, and for now, just work hard, accumulate money and make it grow!!!

Share your thoughts!!! :) :)

My other related posts that may interest you:

This post was written by:

- who has written 367 posts on The Official Helmi Hakim Website.

A certified financial consultant, Helmi Hakim has won praise for his patience, perseverance and practicality when solving his clients' financial concerns. For more information on how you can manage your finances better, contact Helmi Hakim at 96520134.

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6 Responses to “Should You Take Housing Loan or Pay Your HDB House In Full If You Got The Money?”

  1. Justina Says:

    Hi Helmi,

    Do note that if you get a Housing grant for your resale flat, you’ll only be able to resell it after 5 years due to Minimum Occupation Requirements, regardless of whether you have paid down your loan in full.

    If you can afford, I would suggest instead refinancing your loan to a bank loan after 5 years, then rent out your flat (rental yield for HDB flats are good, and more than enough to cover your mortgage and generate passive income).

    And then using the refunded CPF monies from your HDB refinancing, you can than put down a down payment for the condo of your dreams.

    Of course if you can afford to pay down your HDB Flat in full, and still have money to foot the down payment for your condo, the rental from your HDB flat should help pay off a nice part of your condo mortgage.

    Cheers!

  2. wiseinvestor Says:

    I would say depends on one level of financial intelligence and personal risk.
    Personal risk – This is like buy term insurance instead of life and then invest the difference. Some people spend the difference such that it is better for him to buy life insurance to have the forced savings.

    Financial intelligence – The danger of not paying off for housing is that one may ends up investing in structured products and Sunshine Empire.

    As a result, it is very hard to say whether one should pay off completely or not, at least for the case of primary residence.

    But for the case of second house for investment, one must use leverage as in mortgages, even Li Ka Shing do not put in $1 millions in cash for a property for rental purposes even if he got the cash.

    Anyway, download famous author of Rich Dad Poor Dad latest book for free at his own website, conspiracyoftherich.com, by 07 July 2007.

    Free reading of book ends on 07 July 2009, after which it will be published as hardcopy and selling for more than $20.

    It is very informative and readable, like Rich Dad Poor Dad.

  3. GCY Says:

    If your concern is whether there will be a flat for your loved ones to live in when you passes on, I think having sufficient home insurance coverage is better than repaying the loans with all your cash.

    As for the comparisons on the loan rates, I think you should also compare against the current home loan rates too rather than just stating the other kind of loan rates. Nevertheless, I agree HDB loan is probably the cheapest around.

  4. Ben Says:

    Your second option is better esp. since this is a clear recession and you can almost throw a stone at almost any investment portfolio and have it give better than 3% return over a period of say 10 years.

  5. lchunl Says:

    though i agree that the money instead of paying off the housing can be used for investment purposes, but is the money invested “guarantee” to earn more than the 2.6% ? As no investment returns is ever guaranteed, it is caveat emptor. The realization of HDB housing loan interest being the lowest is not uncommon, and being so, how come people are still not earning buckets of money utilizing these “common sense” finding? I believe in my own opinion is because it looks nice on theory but never in real life.

  6. samuel sapp Says:

    This information is very useful ,thank you for sharing!


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