Would you recommend me to pay off my HDB loan ASAP? To minimise interest and if I get thrown out of job I don't have to worry about paying mortgage anymore? - Seedly
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Aizat

Asked 2w ago

Would you recommend me to pay off my HDB loan ASAP? To minimise interest and if I get thrown out of job I don't have to worry about paying mortgage anymore?

Hi guys, I would like to ask for your opinions.

Currently living in a 4A HDB Resale in Tampines. Intend to stay here all the way till age 102 as I have no plans on moving out. Doing partial repayments to minimize interest using OA. Not gonna use cash because I want to spend on other stuff. Plan to pay off house by age 35. Then invest my CPF afterwards. By that age I will have no housing liabilities. Is it wise and anybody doing the same? To me having a paid off house by 35 is fast.

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I think at the end of the day, it always comes back to this simple economic concept called opportunity cost.

What would you have done, if you did not use the money to pay off your housing loan?

If you're able to use the funds to generate a higher return than the interest you're going to pay. By all means, don't pay down your housing loan.

If you are not able to use the funds to generate a higher return, if paying down the loan is going to be a lot better for you. Go ahead and pay down the loan.

Personally, because i am building my way towards financial independence. i would want to channel all my resources and funds to my investment to generate a higher return on investment on my funds.

As such i wouldn't want to use the funds to pay my home loan, because it's a great opportunity cost for me to do so.

The questions u should always ask yourself, with this 10k that i have on hand, can i turn into 10.5k by the end of this year. if it can beat the 2.5% interest, then invest the money. If you can't, then pay down the loan.

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I went this route.

Bought a 4A resale flat in Yishun and worked hard to pay my HDB loan within 5 years and 2 months. I turned 40 this year.

People say, housing loan is a good debt. But I think the feeling of having no debt is priceless. emotional lightness, mental clarity - I feel having no loan is a huge load off my mind.

admittedly, my net worth is not high now, so I need to chiong towards saving my retirement fund, lol.

all the best!

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Z

ZY

Level 5. Genius

Answered 2w ago

Paying off your house loan by 35 is indeed fast.

I would like to share what I did with my HDB loan recently.

I was on HDB loan (2.6%) until earlier this year, when the interest rates dipped so low. I decided to refinance to a bank loan (floating rate, roughly 1.3% now) to save on interest. With this change, I save about $400 a month out of my previous $3k+ monthly payments to HDB. Of course, there are pros and cons of refinancing to a bank loan.

Housing loans are usually regarded as good debt, because of the relatively low interest rates. If there is an investment opportunity, with an acceptable risk level, out there with a better return (say at least 3% p.a. vs 2.6% HDB loan), you would be better off using your extra cash to invest to get 3% return, rather than saving 2.6% on interest. If you refinance to a bank loan of 1.3%-1.5%, even a low-risk 2% return p.a. investment would have made you better off.

In short, if you have an extra $10k today and you pay off your HDB loan, you manage to save $260 in interest to HDB. But if you invest $10k that generates 3% p.a. return, you have $300 by end of the year. You can use this $10300 to pay off the $10260 to HDB and still have $40 to spare.

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