To own a house in Singapore is really not cheap. Other than the HDB housing loan, the running cost of maintaining the house can really poke a hole in one’s pocket.
I have just moved into my Nest not too long ago, and entered into another phase of my life. Everything needs to be done by me and my lovely wife.
How to deal with HDB housing loan?
Before we got the keys from HDB, I have spent quite some time to think and read about the repayment of the housing loan.
There are 2 options:
1) let HDB clear off all our OA and reduce the loan amount to the minmum so that the loan can be cleared off ASAP so as to save on the loan interest.
2) let HDB clear the $20k that is left inside the OA while we take out the rest of the amount to invest in stocks.
After some thinking, we have decided to choose option 2.
Some reasons are stated below:
1) I am not comfortable emptying out our OA. In the event of non-employment, we need to use cash to service the loan which could deplete our savings rather quickly. If I take the money out to invest, I can always liquidate my stocks to service the loans.
2) We are covered 100% under Home Protection Scheme (HPS). In the event of early passing on, the outstanding loan amount is covered by HDB. Thus those monies invested could be left for the other half.
3) I aim to achieve enough dividends using CPF monies to pay off the monthly loan payments.
4) Part of the amount invested in stocks can be liquidated to park back into CPF to earn stress free 3.5% p.a. for the first $20k. Even though the excess of the $20k is only getting 2.5%p.a interest, it will be my warchest in times of market meltdown.
5) There is a chance of capital appreciation for my stocks.
On my part, I am contributing $400 monthly ($4800 annually) for servicing the loans. Till date, I have already received $980 in dividends in my OA. The day will come when the dividends can cover the whole amount!
I am poor with maths, so I will not do the calculations here. You might want to see a post at ASSI: Take your time to pay down your HDB housing loan for more info on the interest rate calculations.
Different situations require different plans, choose yours wisely.