facebookIf I intend to sell my BTO right after MOP, should I take up a 25 year or 20 year loan? - Seedly

Anonymous

20 Jan 2021

Property

If I intend to sell my BTO right after MOP, should I take up a 25 year or 20 year loan?

Is there any difference between taking up a 25 year or 20 year loan if I intend to sell my BTO right after MOP?

Discussion (2)

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Peter Lin

20 Jan 2021

Brand Comms Lead at Mortgage Master

This is a great question! The general understanding is that a longer loan tenure means a lower monthly repayment, assuming the same loan amount.

For example, assuming a loan size of $500,000.

A 25-year-loan at 1.5% over 5 years means you pay about $2,000 every month - and paid a total of about $120,000 over 5 years ($85,600 to the principal amount, $34,400 in interest).

A 20-year-loan at 1.5% means you pay about $2,413 every month - and paid a total of a $144,760 over 5 years (~$111,320 to the principal amount, $33,450 in interest). That's a significant difference in how much principal you're paying back!

So here are the considerations when determining loan tenure:

1) Can you afford the higher monthly repayment of a shorter loan tenure? How will it affect your cashflow?

2) If you're paying by CPF, you will need to pay back the amount used (to your OA of course, it's still your money at the end of the day) including the 2.5% interest. A shorter loan tenure means more of your CPF savings are used.

3) Is the difference in interest paid really that significant in the grand scheme of things? Unlike other types of loans (such as car loans or personal loans), home loans in Singapore have a relatively lower interest rate.

Of course, other things you should consider if you're planning to sell after MOP is your home loan package. Some bank loan packages increase rates after the 3rd or 4th year. Normally this is not a problem because you can refinance to a package with a lower interest rate.

However, if you're planning to sell immediately after MOP, you would need to look out for a home loan package without a lock-in period (so that you can sell your property without penalty), or consider waiting for the lock-in period to end before selling.

Hope this clarifies!

The difference possibly will be the amount of interest you need to pay.

Especially if you are taking a bank loan. Does the bank have any terms and conditions for loan period? If not, paying in a shorter time means more of your monthly payment goes into the loan more than the interest.

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