Repay HDB LOAN?

[jnashville]

Purchased my HDB flat in end 2014.

Currently left about $100k loan remaining for my HDB loa.

Me and wife CPF combine have about $100k in OA. Is it wise to make a full repayment of HDB loan?

Read somewhere people say dont make full payment and use the money for investments that can get better than the hdb interest rate of 2.6 percent etc, but i am not using liquid cash but CPF instead, is it better to make full payment?

i do not know how to "invest" my OA and got no reason to put that OA amount at risk by investing it, since i have also hear news of people losing money in cpf related investments.

So in my situation, bottomline, should i clear my OA to pay off the HDB loan?

 

[romeo88]

I used to sit on cash pile in the past not knowing you can redeem housing loan even not selling.

Putting money back in the OA earns 2.5%, better than cash earning almost nothing in banks.

You can do it partially.

Purchased my HDB flat in end 2014.

Currently left about $100k loan remaining for my HDB loa.

Me and wife CPF combine have about $100k in OA. Is it wise to make a full repayment of HDB loan?

Read somewhere people say dont make full payment etc, but i am not using liquid cash but CPF instead, is it better to make full payment?

 

[jnashville]

I used to sit on cash pile in the past not knowing you can redeem housing loan even not selling.

Putting money back in the OA earns 2.5%, better than cash earning almost nothing in banks.

You can do it partially.

hmm if i do partially, i will still be paying interest on my hdb loan. The extra interest i pay for the hdb loan every month, is it worth it? especially so when i can clear it right away and not to pay any more extra interest from the hdb loan.

Currently from my hdb statement, i am paying around $600 per month. $300 goes to just interest only, and $300 to reduce the hdb loan amount. thats...crazy high. like half of the monthly payment amount is just to give HDB interest.

 

[romeo88]

I was saying you can pay in full or partially in multiple times. It's your decision to make.

hmm if i do partially, i will still be paying interest on my hdb loan. The extra interest i pay for the hdb loan every month, is it worth it? especially so when i can clear it right away and not to pay any more extra interest from the hdb loan.

Currently from my hdb statement, i am paying around $600 per month. $300 goes to just interest only, and $300 to reduce the hdb loan amount. thats...crazy high. like half of the monthly payment amount is just to give HDB interest.

 

[ceciltan]

Repay all. Incurred accrued interest but stop paying interest to HDB. Rather own ownself money then give free money to HDB.

 

[BBCWatcher]

This question comes up a lot, and you may wish to review the many previous threads on this subject.

For what it's worth, I personally would not accelerate repayment of a 2.6% interest Singapore dollar mortgage, especially since it's under the Home Protection Scheme (HPS). I consider 2.6% money to be cheap money in present or similar market conditions.

As one simple example to illustrate how cheap 2.6% is, if you and your spouse are under age 55, and if either or both of your Special Accounts have not reached the Full Retirement Sum, then you are eligible to transfer at least some of your Ordinary Account dollars to your Special Account where they will earn at least 4% interest. And 4% beats 2.6% any/every day. Your Special Account dollars are reserved for your retirement, and some may be available for withdrawal starting from age 55. In other words, earning 4% interest requires no special skill whatsoever, and you don't have to go very far (it's also a CPF offer).

 

[madtari]

I have done partial repayment using OA every now and then... especially after bonus came in. And then recently I did a $100k cash repayment. Main consideration is I'm using joint savings account, which I have no intention to use for investment. We are also thinking of getting a 2nd property if opportunity is ripe, so by then, we will need to make cash repayment anyway (no outstanding mortgage so can borrow more). So instead of doing it later, why not doing it sooner to save interest?

However, if I've no intention to get a 2nd property, I would likely not do the cash payment. I would rather invest that 100k into reits & banks when opportunity arises.

 

[BBCWatcher]

So instead of doing it later, why not doing it sooner to save interest?

One important reason why not: because it’s only .1% (at most), and if you accelerate repayment then you lose a significant potential Home Protection Scheme payout if/when one spouse dies or becomes permanently disabled.

You’d be rowing against the free home lottery, basically. I hope that nobody dies or becomes permanently disabled, but it does happen from time to time.

 

[Mecisteus]

Can always choose the middle option.

Transfer some to SA and make partial payment to loan.

 

[madtari]

Not only the 0.1%, but I get to slow down the incurred interest as well. HPS will do refund to you with every early repayment. You don't really lose out until someone dies.

One important reason why not: because it’s only .1% (at most), and if you accelerate repayment then you lose a significant potential Home Protection Scheme payout if/when one spouse dies or becomes permanently disabled.

You’d be rowing against the free home lottery, basically. I hope that nobody dies or becomes permanently disabled, but it does happen from time to time.

 

[BBCWatcher]

Can always choose the middle option.
Transfer some to SA and make partial payment to loan.

You could also refinance with a bank loan at 2% or less these days, in which case you’re making at least .5% in free money as long as interest rates stay lowish. Just to illustrate how really, really not wise it is to accelerate repayment on cheap money....

....Except if you really don’t have much financial self control/prudence.

 

[deepblueli]

One important reason why not: because it’s only .1% (at most), and if you accelerate repayment then you lose a significant potential Home Protection Scheme payout if/when one spouse dies or becomes permanently disabled.

You’d be rowing against the free home lottery, basically. I hope that nobody dies or becomes permanently disabled, but it does happen from time to time.

I would disagree with this. HPS is not free and the premium is paid by your own CPF. And its premium is slightly higher compared to term insurance outside.

 

[BBCWatcher]

HPS is not free and the premium is paid by your own CPF.

Right, but the fact it's CPF payable (i.e. payable using restricted funds) is quite special. Term life insurance above the DPS you have to pay unrestricted cash to buy.

For perspective, accelerating repayment on 2.6% mortgage by $100,000 of outstanding principal (a LOT of Ordinary Account dollars!) using 2.5% money (i.e. your Ordinary Account) will net you a whopping $100/year in simple terms (0.1% of $100,000). And for some more perspective, you can earn $100/year more interest if you transfer a mere $6,667 from your Ordinary Account into your Special Account (1.5% of $6,667 = $100). Whereupon you'd still have $93,333 in your Ordinary Account (in this example).

I *really* don't think you should be at all worried about a 2.6% mortgage. Go chase the reliably higher returns first, such as your Special Account interest. Once you and your spouse have maxed out your SAs at least, then let's take another look.

 

[Mecisteus]

You could also refinance with a bank loan at 2% or less these days, in which case you’re making at least .5% in free money as long as interest rates stay lowish. Just to illustrate how really, really not wise it is to accelerate repayment on cheap money....

....Except if you really don’t have much financial self control/prudence.

There is a small risk that i/r can rise significantly and you have to pay a penalty fee for redeeming the loan early.

 

[jnashville]

hmmm if i transfer my OA to SA, the "burden" of knowing that i still must slog out to get my HDB repaid comes to my mind haha..

if use current OA to pay off the hdb loan, its like peace of mind.

 

[jnashville]

Can always choose the middle option.

Transfer some to SA and make partial payment to loan.

i was thinking on the line like,

i use all of mine and wife OA to pay off the hdb loan and clear it, and if got no more intention to get a 2nd home, the OA will continue to slowly rebuild, i transfer that OA to SA then.

So i save on interest inccured by HDB loan. Good idea?

 

[BBCWatcher]

There is a small risk that i/r can rise significantly and you have to pay a penalty fee for redeeming the loan early.

Not if you get a mortgage without a prepayment penalty, after the fixed (and low) interest rate period anyway. Which you should/would, of course.

 

[culture_counter]

hmmm if i transfer my OA to SA, the "burden" of knowing that i still must slog out to get my HDB repaid comes to my mind haha..

if use current OA to pay off the hdb loan, its like peace of mind.

Provided your job income is still stable. If you pay up all, you become asset rich but cash poor. If your regular income not secure，it will be hard to rebuild your CPF lump sum again.

 

[culture_counter]

This question comes up a lot, and you may wish to review the many previous threads on this subject.

For what it's worth, I personally would not accelerate repayment of a 2.6% interest Singapore dollar mortgage, especially since it's under the Home Protection Scheme (HPS). I consider 2.6% money to be cheap money in present or similar market conditions.

As one simple example to illustrate how cheap 2.6% is, if you and your spouse are under age 55, and if either or both of your Special Accounts have not reached the Full Retirement Sum, then you are eligible to transfer at least some of your Ordinary Account dollars to your Special Account where they will earn at least 4% interest. And 4% beats 2.6% any/every day. Your Special Account dollars are reserved for your retirement, and some may be available for withdrawal starting from age 55. In other words, earning 4% interest requires no special skill whatsoever, and you don't have to go very far (it's also a CPF offer).

I concur with BBCWatcher on this.

 

[jnashville]

Provided your job income is still stable. If you pay up all, you become asset rich but cash poor. If your regular income not secure，it will be hard to rebuild your CPF lump sum again.

oh i have cash savings still that i placed in maxigain, great eastern endowment, dbs multipier and some other banks.

i treat those as savings and didnt really bother about CPF money since its stuck inside till age 60++

ahhh after all the suggestions, back to square one. now confused to pay up all or just leave it to slowly deduct