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Fully paid off HDB during key collection. Is it wise?

I've a happy problem now.

I'm expected to get my keys by end this year. I was deliberating on the options to settle the loans - whether to pay off as much cash as we have, to minimise the loan we have.

By some stroke of luck, our parents are extending their money to us...with interest of course, but slightly lesser than HDB loan of 2.6%. Works for us since the interest we pay them is better than what the banks give.

With this loan, plus wiping out our CPF (leaving $20k behind), we can actually pay the remaining  with our savings at point of key collection.

This is our scenario, amounts adjusted for simplicity:

Remaining to pay after downpayment$550,000
Parents loan$200,000
CPF OA$100,000
Remaining balance (to pay using cash?)$250,000

And, I'd have paid off my HDB at point of key collection (though effectively, we still owe our parents money with interest).

Use Cash, Grow CPF


Our idea is to use as much cash where possible.

First, the interest generated from our savings accounts are not as high as hdb loan at 2.6% nor the 2.5% from CPF OA. It's not like bulk of my money are in investments - my portfolio yields ~4.5%.

My hubby also dreams of owning a second property, or even selling our HDB to upgrade. I'm not in favour of selling since I think nothing beats staying in central, and to sell and buy another resale in central is just going to create a bigger hole in our pockets, plus with lesser lease. I'm also not confident of buying a second property given the exorbitant levies. He feels that we should let our CPF OA grow so that we can use them for a private property.

Are we stretching ourselves too thin?

I've cash lying around now that's not growing much interests. After splitting the balance with my hubby to pay off our HDB, I should have around $100k left. We are splitting all expenses equally (I'm such a sensible wife *flicks hair*) - we need to set aside $25k each for reno. I'm estimating all other expenses like aircon, furniture, appliances etc at $30k max so that's $15k each. The balance cash I have would be $50k.

I'll try not to touch that $50k as that would be for emergency.

For my monthly expenses (household and personal) and monthly loan pay-back to parents, I would like tapping on my monthly pay. Good thing I don't spend much, so I think my take home pay would be able to cover. Off the top of my head, household expenses would be:
  • electrical bills
  • broadband/wifi
  • hdb conservancy
  • groceries
I'm estimating these at $400/month. That should still leave me some money to save.

Downside of paying off too early?

I'm trying to think of the downside and 1 main thing that cross my mind was the Housing Protection Scheme. Given that I can pay off the entire flat at one shot, I would not need the HPS anymore. Should anything happen to my spouse, the flat would not be insured as I don't owe anything.

But, I wouldn't want anything to happen to my spouse to claim HPS! 

I can't think of any other downside of paying off early...would like to hear how you guys think!

Comments

  1. Good to pay off early as it give piece of mind. House is still the most important asset for family in time of good or back financial situation. Much so now that putting money in bank is like giving bank money free of interest to help them do their loan business.

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    Replies
    1. It makes no sense to pay it out early. Keep the savings and should you feel like reducing the principle with say 50,000.00 lump sum payment you have the option to do this I believe. With today's economy and lending restrictions on investing in a second property keeping cash reserve at maximum is best.

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  2. Only considering HDB loan at 2.6%? Why not take bank loans at around 2%? You can buy a simple term insurance to cover tpd so not sure why HPS is a downside. In fact, I believe one can apply to waive off HPS requirement if one has adequate insurance coverage. Personally I did not buy HPS (allowed because I do not use CPF for monthly mortgage payments) as I see it as unnecessary in my situation.

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  3. 250k can b better used fr investment rather strip yrself instantly

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  4. Your biggest and only worry should be that selling the house , causes all your cash to locked in cpf.due to accrued interest

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  5. You can earn higher in etf or in other investments you use to work for you rather than putting it all in. Just a thought though.

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  6. Investment yield at 4-5% = there is more options in market giving you more than this.

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  7. It's better to used other people money instead of your parent. They would get better return with other investments

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  8. Hi, I always wanted to be in your position. Well, if I m in your shoe, I rather set aside some money in the cpf to service the HDB loan for about 10-15 yrs. The balance I will use for business or wise investment. Also do always make time to find a suitable guru to teach u how they to own 2 or 3 property n gain income. I believe they have a workable formula that is worth trying, do mingle with positive minded & resourceful individuals.😉

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  9. I agree with Seet ps , better to pay off instead of owning. You rather own your parents then bank or HDB cause who know one day you got retrench by your company?

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  10. If you owe HDB 250k and something unfortunate happened to you, HPS will take care of the house loan and your family can claim your CPF. If you settle early, your family will end up will a fully paid up house and no CPF to claim, probably end up downgrading to survive. Think about it

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  11. From my own experience, to pay off and clear it once and for all is better than owe the outstanding N slogging it out to pay off the monthly instalments. We didn't have enough and till today I m still slogging to pay off the 1800 instalments every month, if you add the interest, what I had paid off is actually doubled but my house is worth much less than that. Grossly overpaid for a valueless asset. 99 years? Been paying since 1996, and my last instalment is 2025.,sigh!

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  12. I think you should consider carefully to pay off one shot because I believe holding very liquid asset/cash is very important.

    Right now bank home loan interest rate is around 2.1-2.2% for fix 2-3yrs. There is even ocbc promotion for 2.03%. Say conservatively 2.3% bank home loan and you loan 250k from bank, u put this 250k in fix D right now probably is 2%. U only lose ouy 0.3%. 0.3% of 250k is only $750 dollar. You may consider is it more important to have 250k liquid cash in hand or lose out $750? To me the choice is pretty obvious.

    Can consider fix 2years bank loan, then pay off 2years later or refinance again.

    There is amortization spreadhseet available online for you to calculate home loan prepayment. Check it out.

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  13. Paying off early would favour for those who have cash on hand. But for those earn very less and not much CPF it is a struggle specially for single parents who earn very little

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  14. Don't loan from parent. Keep paying ur hdb installment using cpf. Save all ur cash and u will have enough for down payment and more for the 2nd investment property after mop. And with sufficient cash reserves to tide thru the rainy days.

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  15. A wise move by borrowing from your parents.

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  16. I would rather pay off, so to have peaceful mind not to owe hdb or bank. We may not know what will happen to our jobs. So pay off will be a good idea. And enjoy care free life.

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  17. Hi, my advice is as such...
    1- pay monthly mortgage via cash.
    2- let cpf do the magic of compounding interest as that is meant for your retirement.
    3- if you use cpf money to service your mortgage, it will incur accrued interest. this amount is very significant if you sell your hdb 10-20 years down the road.
    4- it's always easier to get a lump sum loan than to save a lump sum cash.
    5- even if you do the basic investments like etf etc, long term returns are higher than hle 2.6%, that means every year you still get some returns.

    ReplyDelete

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