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Pay home loan and HDB housing grant fast?

Thursday, January 25, 2018

Reader says...
I hope you bear with me while I share the info about it - resale flat was purchased at 480k and I got a hdb housing grant of 50k for 1st timer.

My fiancee and myself went for a bank loan instead of hdb loan.

The loan principle I have to service is 384k.

I would really appreciate your advice/guidance to my following questions:

a. I thought of repaying my housing loan using cash instead of cpf.

I think this is still manageable from my side from a cash liquidity perspective since I could save on the chargeable accrued interest (at the point of future flat sale) and at the same time continue to earn the 2.5% int.

What do you think about this approach in terms of pros/cons?

b. I took the housing grant of 50k which I know will be charged accrued interest.

I'm not sure how accrued interest is charged on this 50k but is it considered wise if I try to repay this?

Or in actual fact, it doesn't make a difference because it will net off from the interest that I earned for the OA that continues to reside in my cpf account?

c. If at any point in time I thought of partial loan repayment to my bank, say a sum of 30k in cash every beginning of the year so that principal amount will reduce and I look to repay the full loan in 7 to 10 years.

What do you think about this approach and possibly the risks that go with it?

Many thanks in advance, and I really appreciate your feedback and suggestions.

AK says...
As long as your home loan attracts an interest rate of less than 2.5%, it makes sense to pay your loan with cash instead of using money in your OA.

(I would also add that as long as money in your savings account is paid less interest than the interest paid by the OA, it makes sense to pay your loan with cash.)

If you have no intention of ever selling your HDB flat, you can worry less about accrued interest on OA money used or the grant as long as you hit the prevailing full retirement sum (FRS) by the time you are 55.

By 55, you can withdraw all money from your OA and SA in excess of the FRS.

So, if you were to sell the HDB flat after you turn 55, you could take out all the money which includes the accrued interest you owe your CPF account.

It would be like asking you to put in money only to immediately take it out again.

Partial capital repayment makes sense when interest rate goes much higher.

When exactly to do that?

It is up to you as it should also partially depend on what you feel you could get if you were to invest the money instead.

I remember when I paid the housing loan for my previous home in full, the interest rate on the loan went from 4.1% to 5.1%.


Congratulations on your new home.

Related posts:
1. How to stop accrued interest from growing?
2. Almost 55 and worried about CPF.


laurence said...

ASSI now looks like a CPF Advisory Service. Lol.

AK71 said...

Aiyoh. I anyhow talking only one lah.

GP Blogger said...

If I understand correctly, banks do charge some penalty for early repayment.
However if the money can be saved in a high interest account, we can reduce the tenure at the refinancing & pay a higher EMI using the saved money.
I have managed to reduce my tenure from 30 to 12 years in 7 years with 2 refinances & 3rd on the way.
It is not very impressive but I am on the way to being loan free in a few years

AK71 said...

Hi GP,

It depends on what we signed up for.

My home loan had no penalty for early repayment.

Usually, those who signed up for fixed rates have lock in periods and should be aware of any penalties or claw back of legal subsidies.

Debt free is a very attractive idea. ;)

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