Optimal loan period

[highsulphur]

When I was in my early 30s, I did what my seniors advised me - took the longest possible loan.

Now I'm around 40, I'm not too sure now. For a 10, 15 and 20 year mortgage period, the interest one pays would be 10,16 and 22% respectively of your principal assuming 2% interest.

How many of you here aim for shortest possible loan? Especially those past 40s? The risk is obviously when you are retrenched and face cash flow issue.

 

[dork32]

When I was in my early 30s, I did what my seniors advised me - took the longest possible loan.

Now I'm around 40, I'm not too sure now. For a 10, 15 and 20 year mortgage period, the interest one pays would be 10,16 and 22% respectively of your principal assuming 2% interest.

How many of you here aim for shortest possible loan? Especially those past 40s? The risk is obviously when you are retrenched and face cash flow issue.

if you have instruments that can beat the 2% consistently, take a long loan.

 

[NewInvestor]

Take the longest loan u can because it is the safest. Whenever u hv excess funds that u do not intend to use in the next few years, u can always partially redeem your loan.

A short loan carries high monthly repayment. If for some reason u r not able to pay the monthly instalment, the effect could be disastrous.

 

[limster]

There is no problem taking maximum length loan as long as you are allowed to repay extra or redeem early with no penalty.

My SOR linked housing loan had no penalty for paying extra or redeeming early.

When STI was above 3,000, I didn't feel like buying shares, so just pay back more of the loan.

 

[chopra]

When I was in my early 30s, I did what my seniors advised me - took the longest possible loan.

Now I'm around 40, I'm not too sure now. For a 10, 15 and 20 year mortgage period, the interest one pays would be 10,16 and 22% respectively of your principal assuming 2% interest.

How many of you here aim for shortest possible loan? Especially those past 40s? The risk is obviously when you are ret6renched and face cash flow issue.

If you are paying by OA, it doesnt matter.

Pay early, you save hdb loan 2.6% but "incur" accrued cpf oa interest.

Pay later, you earn 2.5% oa but incur 2.6% hdb loan.

-- noticed from the other threads that some of u are transferring OA to SA early. So not sure how this would apply to u. --

 

[highsulphur]

If you are paying by OA, it doesnt matter.

Pay early, you save hdb loan 2.6% but "incur" accrued cpf oa interest.

Pay later, you earn 2.5% oa but incur 2.6% hdb loan.

-- noticed from the other threads that some of u are transferring OA to SA early. So not sure how this would apply to u. --

My next property can't be a HDB so hdb loan doesn't apply but I see your point if my first property is a HDB

 

[dork32]

If you are paying by OA, it doesnt matter.

Pay early, you save bank loan xx% but "incur" accrued cpf oa interest.

Pay later, you earn 2.5% oa but incur xx% hdb loan.

-- noticed from the other threads that some of u are transferring OA to SA early. So not sure how this would apply to u. --

if xx>2.5 pay early
if xx<2.5 pay late

 

[dork32]

if xx = 2.5, like what chopra said, no diff

 

[henrylbh]

For me, optimal loan period is till the day I leave the world or when loan interest rate exceed the rate of return on the fund that I can use to repay the loan, though it's an uncomfortable feeling to be in debt. But my bank doesn't allow me to service interest only

 

[starfish.starfish]

I always aim for longest loan period but save up to be able to redeem partially or fully if the money is not earning me more interest.
Long loan terms just means more flexibility, nothing to do with how much you can pay.

 

[Bedokian]

Different strokes for different folks, I guess. For me, my priority will be to clear the loan ASAP, and since I will be staying put at where I am, I would not be affected by the accrued interest part.

My target to pay off would be within this year. I had shortened my 20-year loan to slightly less than 10.

 

[henrylbh]

Different strokes for different folks, I guess. For me, my priority will be to clear the loan ASAP, and since I will be staying put at where I am, I would not be affected by the accrued interest part.

My target to pay off would be within this year. I had shortened my 20-year loan to slightly less than 10.

Except for feeling good, it doesn't make financial sense if the amount you used to prepayment the loan can earn better rate than the loan rate.

 

[starfish.starfish]

Different strokes for different folks, I guess. For me, my priority will be to clear the loan ASAP, and since I will be staying put at where I am, I would not be affected by the accrued interest part.

My target to pay off would be within this year. I had shortened my 20-year loan to slightly less than 10.

For me having some loan ensure I be more prudent with money, think twice before spending on any yolo stuff. Lol
It's more psychological I guess.

 

[Bedokian]

Except for feeling good, it doesn't make financial sense if the amount you used to prepayment the loan can earn better rate than the loan rate.

Yes, I agree there is an emotional element in our decision (on the "feel good" factor). We are using the HDB concessionary rate of 2.6%, so we had made a decision back then to clear off the loan quickly with capital repayments.

 

[highsulphur]

My guess is starfish.starfish is younger than me and Bedokian

 

[mummy1234]

When I was in my early 30s, I did what my seniors advised me - took the longest possible loan.

Now I'm around 40, I'm not too sure now. For a 10, 15 and 20 year mortgage period, the interest one pays would be 10,16 and 22% respectively of your principal assuming 2% interest.

How many of you here aim for shortest possible loan? Especially those past 40s? The risk is obviously when you are retrenched and face cash flow issue.

Ideally, the roof over your head should be paid up as early as possible while investment property tenure should be stretched as long as possible imo...

 

[dork32]

Ideally, the roof over your head should be paid up as early as possible while investment property tenure should be stretched as long as possible imo...

is there a difference? so if i decide to stay in the investment property that i should switch my loan around?

 

[dork32]

is this what you are practising? you are taking equity loan on the landed that you are staying in so that you can fully pay up for the investment terrrace in jb.

 

[mummy1234]

is this what you are practising? you are taking equity loan on the landed that you are staying in so that you can fully pay up for the investment terrrace in jb.

If I sell my terrace in Sg, which I regard as an investment ultimately, I would have paid up my JB house which I intend to retire in...

 

[dork32]

If I sell my terrace in Sg, which I regard as an investment ultimately, I would have paid up my JB house which I intend to retire in...

so you are staying in the property that is meant for investment and renting out the property that you want to stay in.