In my 30s and on a 25-year HDB loan of 350k paid monthly through CPF, should hit FRS by my 40s. Is it sensible to pay the HDB loan thru excesses in OA once I hit FRS, instead of getting a bank loan?

I plan to transfer my OA to SA till I hit FRS and BHS for 4% interest and not do any form of cash top-ups. Would the paid out reduction in interest charged on the HDB loan from paying down earlier through regular lump sum payments from my excess OA be more cost-effective compared with the amount saved from the lower interest rates of a bank loan in the long term? This is also accounting for the bank loan constraints of additional fees & penalties for refinancing or repricing down the road. Thks!

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Jiayee

12 Oct 2020

Salaryman at some company

I assume you will keep at least $20,000 in OA in case of emergencies.

You need to be aware of the following before making the switch from HDB loan to a bank loan, especially so if you have a tight cash flow:

Bank mortgage loan interests are low now, but they may not stay low for the next 25 years. And, banks generally do not refinance loan balances < $100,000, so you may get stuck later with a higher (and possibly increasing depending on the economy) interest rate.

You may want to look up the various loan packages available and/or contact the banks to get the figures.

On the other hand, feel free to write off more of your HDB loan when you have that excess OA. There's no prepayment penalty and OA's interest rate above $20,000 is 2.5% < 2.6% HDB loan interest rate.

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