Jiayee, Salaryman at some company
Top Contributor (Dec)
Answered on 23 Nov 2020
Why do you not like it? Is it because you feel uncomfortable living with a debt...? Or is it because you have money sitting in OA while you are servicing a HDB loan?
Housing loan is not an expensive debt. If you have money sitting in OA, you can make use of this to invest or transfer to SA for more interest.
Locking your money in your house is not recommended unless you can't produce returns of more than 2.6% p.a.
At the end of the day, you have to ask yourself why are you not comfortable with this debt?
Most of the time is because most people are not fully utilising their money in their OA or Bank account.
Which makes them feel uneasy when they feel that there is a debt that they have to repay.
Why not consider a low risk investment which can yield 8% annually.
From there you can know that actually, this housing loan is a good debt which helps you not lose out in Opportunity Cost especially when you can get a higher return on your investments.
Check out my video here where i cover this topic:
It really depends on the individual as there are a few ways to go about this.
In general, people would advise against rushing to pay off your debt because of the risk-free interest (2.5%) that you might potentially lose as compared to a mortgage loan which is typically at a lower interest rate.
If this amount from your OA is being transferred to your SA, the loss is even greater.
That being said, there are definitely proponents when it comes to paying off debt early, usually because of the liberation that is felt from being debt-free. If you strongly feel towards that, you can definitely take on higher monthly repayments for your loan and clear it within a short span of time.
It would depend on whether you are currently on a HDB loan or a bank loan.
There is no penalty for early repayment on a HDB loan, and HDB loan interest rates are relatively high at 2.60%. You may consider paying it back in full using your CPF savings in order to save on the interest, but I agree with Jiayee that you should consider what else you can use your OA savings on, since there are long-term options with better guaranteed returns (like SA!)
If you are on a bank loan, there will be a penalty for early repayment, and bank loan interest rates are extremely low now. It probably would not make sense to pay off your bank loan in full, especially as interest rates are expected to remain low for a while.
Ultimately, not all debt is bad. If taking on debt at a very low interest rate frees up your CPF savings to be better used elsewhere, as Jiayee mentioned, then you should focus on long-term gains rather than paying off debt.