On HDB loan, 2.6% interest. Planning to repay the loan earlier (w any accumulated spare cash savings in next few years - after taking into consideration of savings, liquidity, other investments, insurances, needs etc.), wanting to be debt free as early as possible + save on loan interest / allow some OA to accumulate (instead of heavily used on property). Comparing this option to refunding to OA, this does seems more sensible.
Any thoughts to share? Anyone tried this? Sharing of experiences - actual early repayment and tips/insights will be appreciated, thanks in advance!
Found interesting articles on this topic too: https://blog.moneysmart.sg/property/retirement-...
I have never taken hdb loan, but I don't like that it is 2.6% when you can get a lower rate from bank.
1) look to convert from hdb loan to bank loan for lower rate - I believe it will lower the rate by 1% or more, although you may need to pay some down-payment in order to keep to max loan value, but you were already asking about paying down some amount, so should be non-issue.
2) if you do convert to bank loan at lower rate, try to set aside a certain amount to pay from cash, instead of all from cpf.
At current rates, the bank pays you about 1% for cash in account, you pay abt 1.2+% on the mortgage on bank loan, and cpf pays you 2.5% for oa.
If you can pay for the mortgage with cash, continue doing so. If still got a lot of money in bank, then two prong approach - each year, you do voluntary housing refund equal to 1 to 4 months of mortgage payment, and learn to invest a bit with remainder of "excess cash".
Why not all in to voluntary housing refund? If you know how to invest, its really not that difficult to aim for average return above 3%. But you never know if things turn bad, so paying down a bit of the house is like diversifying into bonds, and covers the downside.
Why do voluntary housing refund over early pay down loan? You get 2.5% from OA, you pay bank 1.2+%, in a weird way you actually earn a net interest income of 1.3% Once the vhr goes back into cpf, in worst case, you can always change the loan payments to be from cpf again. So the risk of you not paying off the loan is a lot lower, you always have some reserve in oa to pay the loan, and at some point in time, if you have enough balance in oa to cover the mortgage, you can really think about early retirement because the cpf can pay for house already.
Kind of three birds with one stone.
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Edited 19 Sep 2021
Executive at Singapore
I am new at this but lets say u have 100k hdb loan, and 100k available in cpf.
if u choose not to do a lump sum, arent you just paying 0.1% ?
e.g. -2.6% hdb +2.5% cpf
and cpf has an additional +1% interest on the 1st 60k ...
please correct me if i'm wrong. thanks.
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Too me, both ways have both advantages and disadvantages points, but there is one major different :
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