Asked by Anonymous

Spare cash to invest or service housing loan?

Suppose you have: $1 million housing Loan 3% interest p.a. 30 years After 30 years, total paid $1.5million (!!!) IF: You have $100k spare cash after 1 year... Would you: a. Put all to housing loan to substantially reduce the overall interest paid to the banking after 30 years? (By the way, can someone help me do a calculation). Or: b. Work hard to invest $100k AND still have to pay the housing loan interest which btw adds up to $500k after 30 years (!!!) (~$17k annual in interest alone!)

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    • Luke Ho
      Luke Ho, Money Maverick at Money Maverick
      153 Answers, 256 Upvotes
      Answered on 06 Dec 2018

      I'm not sure how you got such a ridiculously high housing loan to begin with. The highest one anyone should settle for is the HDB one 2.6%. And trust me, every 0.1% counts. The first thing I would do for you is negotiate and refinance a much lower rate, like 2% or less.

      It ultimately depends on your investing skill and discipline. Especially discipline, since investing for 30 years is not something every likes. But its very easy to beat 3%.

      So if you ask me personally, I would absolutely just invest the $100k. The interest may look high by not paying it off early but it would be nothing compared to compounding $100k for 30 years. With that kind of time horizon, I could also take a more aggressive position and make double digits annualized.

      In 30 years, your 100k at a 10% compounded rate - which is VERY'd have 1.745 million dollars.

      This would be on the basis that I don't intend to sell my house in the future. I can still take out a second mortgage on it later for even more income.

      Do let me know if I can help you further by messaging me below.

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