Anonymous

07 Jun 2019

∙

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

07 Jun 2019

Founder and Director at CFX Money Maverick Pte Ltd

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 doable...you'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.

https://www.facebook.com/luke.ho.54

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