suggestion on housing mortage?

[Saline]

Hi All,

Currently owing HDB $290K with 25 years more to go.
have the ability clear $90K with CPF.
question is, should I pay down to $200K with 25 years to go?
or refinance with bank for a lower interest rate?

which will be more cost effective in terms of interest saving?

 

[chopra]

Hi All,

Currently owing HDB $290K with 25 years more to go.
have the ability clear $90K with CPF.
question is, should I pay down to $200K with 25 years to go?
or refinance with bank for a lower interest rate?

which will be more cost effective in terms of interest saving?

question would have been easier to answer if cpf is 250k. that would be a case of arbitrage.

 

[hwmook]

Hi All,

Currently owing HDB $290K with 25 years more to go.
have the ability clear $90K with CPF.
question is, should I pay down to $200K with 25 years to go?
or refinance with bank for a lower interest rate?

which will be more cost effective in terms of interest saving?

Mortgage loan is one of the 'cheapest' loan you can take so don't pay down unless you intend to take up another mortgage. Invest your CPF monies. Even if you do nothing, CPF pay you 2.5% interest compared to mortgage loan of 1% or so. Its really nothing.

 

[PruCorgi]

First, what are your current loan terms and conditions? Interest rate payable? Tenure?

Second, I suggest you get some refinancing rate quotations/offers from at least 2 banks and compare.

Third, consider what else you can do with the $90K CPF money. What's the opportunity cost?

Fourth, does it bother you to have this loan "hovering" over your head? Peace of mind should also be a consideration. Paying off the loan sooner will lift the burden sooner.

 

[Livinginsg]

Depends on whether you are a person who take risk, You should however keep money at hand and take up another apartment and build up your passive rental income.

Mortgage loan is one of the 'cheapest' loan you can take so don't pay down unless you intend to take up another mortgage. Invest your CPF monies. Even if you do nothing, CPF pay you 2.5% interest compared to mortgage loan of 1% or so. Its really nothing.

 

[alisonfisher325]

All valid points brought up by other members, personally I don't like having a huge debt hanging over my head but that's just me. Having a mortgage has become so commonplace now that it's like having a credit card debt except a mortgage debt is so much larger. Anyway give the current climate for mortgage loan rates, I would say refinance. In addition, have also read that CPF is considering upping its interest rate which would mean the interest on your hdb loan will increase too. But there are certain things you should be aware of before you decide to refinance..Got this from DBS home refinancing page:

Some of the costs you might incur when you exit from your current loan provider,

Prepayment penalty: Charges incurred when you terminate your housing loan early with your existing lender.

*(Apparently DBS has a penalty subsidy, so part or all the penalty may be covered)

Legal fees: Costs for legal services rendered in the property purchase and mortgage documentation relating to the bank loan; typically there is a 3-year clawback period.

Cash rebate: Clawback of cash rebates that may have been given to you when you took up your existing loan

Property valuation: Cost incurred for providing property valuation.

Cancellation fee: Cost incurred for cancelling the loan.

Fire insurance: Cost of the fire insurance policy on your property - if you refinance, you would have to terminate your existing policy and take up a new one in favour of the bank that is refinancing you

Interest-in-lieu of notice: Interest costs for refinancing. Typically, you will need to serve a 3-month notice in writing to your existing financier. This is the interest you may have to pay your existing financier, if you give less than three months notice to fully repay your loan.

So you should take all that into consideration and see if its really worth refinancing. Hope this helps!

 

[antonpoh]

Why is it not gd to refinance your home loan after 3 yrs (my loan amount for 35yrs)

Hi All,

Currently owing HDB $290K with 25 years more to go.
have the ability clear $90K with CPF.
question is, should I pay down to $200K with 25 years to go?
or refinance with bank for a lower interest rate?

which will be more cost effective in terms of interest saving?

My Loan Amount (35yrs) : $250,000
Monthly installment : $ 739
Amount for Interest : $ 375

Left monthly amount to pay principal : $364 x 12 x 35yrs = $152,880 (how can finish paying the loan of 250k in 35yrs?)


If interest rate keeps at this rate, total amount paid after 35yrs : $739 x 12 x 35 = $310,380

Total interest for 35yrs would be : $310,380 - $250,000 = $60,380 (average $1725 per yr)

So how many years would the bank have needed to take back all their interest
for those 35yrs: $60,380 ÷ $375 = 161 ÷ 12 = 13.4yrs.


So for my 35yrs loan, the Bank took back all their interest in just 13.4yrs.

After 3yrs, the interest i would had paid : $60,380 ÷ 13.4 x 3 = $13,517

So how many years of interest would i have paid in those 3yrs : 13517 ÷ 1725 = 7.8yrs.



So do you still want to refinance?

 

[Saj.Mahal]

Hi All,

Currently owing HDB $290K with 25 years more to go.
have the ability clear $90K with CPF.
question is, should I pay down to $200K with 25 years to go?
or refinance with bank for a lower interest rate?

which will be more cost effective in terms of interest saving?

Long story short, you stand to save 1.5% p.a. with a bank loan if rates remain low. You stand to lose x.x% p.a. if rates rise. Can you live with paying a small premium for certainty? Or you prefer to try your luck?
(I take it that you are on a HDB loan and that the CPF rate stays at 2.5%)

First 40k in your OA gives higher return than the 2.6% interest rate. Hence, if you were to pay down the loan with your OA, pay down to 240k at most.

However, as HDB loan is just 0.1% over then CPF interest rate, I personally will be in NO hurry to pay down the loan.

Regarding refinancing with the bank, I believe there is no opportunity cost at all if this is you switching from a HDB loan to a bank loan.

In the short run, you surely will stand to gain. Interest rates are what, 1.1% now?

However, in the longer run, maybe 3-5 years down the road, you will have to be okay with the movement of interest rates. Further, refinancing a bank loan will incur charges.

 

[chopra]

My Loan Amount (35yrs) : $250,000
Monthly installment : $ 739
Amount for Interest : $ 375

Don't understand the maths. How do you arrive at 375? Interest is decreasing for housing loan.

 

[chopra]

First 40k in your OA gives higher return than the 2.6% interest rate.

Nitpick. Shld be first 20k.

 

[anfielder]

My Loan Amount (35yrs) : $250,000
Monthly installment : $ 739
Amount for Interest : $ 375

Left monthly amount to pay principal : $364 x 12 x 35yrs = $152,880 (how can finish paying the loan of 250k in 35yrs?)


If interest rate keeps at this rate, total amount paid after 35yrs : $739 x 12 x 35 = $310,380

Total interest for 35yrs would be : $310,380 - $250,000 = $60,380 (average $1725 per yr)

So how many years would the bank have needed to take back all their interest
for those 35yrs: $60,380 ÷ $375 = 161 ÷ 12 = 13.4yrs.


So for my 35yrs loan, the Bank took back all their interest in just 13.4yrs.

After 3yrs, the interest i would had paid : $60,380 ÷ 13.4 x 3 = $13,517

So how many years of interest would i have paid in those 3yrs : 13517 ÷ 1725 = 7.8yrs.



So do you still want to refinance?

You've assumed wrongly that the interest component stays constant throughout the loan tenure. Mortgage loans are amortizing so your interest payment starts high and gets smaller as time goes by. That's the case for all banks and has no bearing on whether you should refinance.

 

[antonpoh]

Don't understand the maths. How do you arrive at 375? Interest is decreasing for housing loan.

I got that amount from my quarterly statement from the Bank, they put *DR Interest on Loan $375. So base on my monthly $739, that $375 goes into paying the interest.. and the rest of the amount $364 to pay principal.

 

[antonpoh]

You've assumed wrongly that the interest component stays constant throughout the loan tenure. Mortgage loans are amortizing so your interest payment starts high and gets smaller as time goes by. That's the case for all banks and has no bearing on whether you should refinance.

Yes, yes.. interest rate won't stay constant. As you know interest payment starts high and gets smaller as time goes by.. that's why by the 3rd year the Bank would have taken aro 7.8yrs of interest base on my calculations.

 

[hwmook]

Yes, yes.. interest rate won't stay constant. As you know interest payment starts high and gets smaller as time goes by.. that's why by the 3rd year the Bank would have taken aro 7.8yrs of interest base on my calculations.

Your understanding is totally wrong thus you confused others. You only pay interest on what you owe. For example, your loan is $250k. Interest is 2.5k and you paid off 10k of principal sum owe thus in the 2nd year, interest you paid will be lesser at 2.4k and 11.2k go towards paying your principal. It doesn't mean what 3rd paid 7.8 years interest, its confusing and misleading.

 

[antonpoh]

Don't understand the maths. How do you arrive at 375? Interest is decreasing for housing loan.

Base on the DR interest from Sep 12 - Dec 12

Sep - $401
Oct - $342
Nov - $378
Dec - $390

Total: $1511 ÷ 4 = $377.75 (I roundoff down to $375)