A common financial goal amongst Singaporeans is to become debt-free. It is a deeply-ingrained mentality that having any kind of debt is terrible and should be avoided like the plague.
However, many don’t realise that a housing loan is one of the debts with the lowest interest rates, which means you can easily net a return of more than 2.6 per cent if you invested the cash instead. Do note that this is an oversimplification and does not consider other factors involved, such as market conditions and other risks associated with investing.
Instead of repaying your mortgage early, here’s how much you stand to gain from moving your money into your CPF SA.Returns from CPF SA: $100,000 x 4 per cent=$4,000The potential gains would be even higher if you have a bank loan or choose to refinance with a bank, as the interest rates are much lower than HDB’s rate of 2.6 per cent.
Furthermore, if your home loan is from the bank instead of HDB, you will probably incur a prepayment penalty, usually around 1.5 per cent of the prepaid amount. Banks impose this to make up for lost interest.A much better alternative would be to refinance your home loan. Refinancing is quite common amongst homeowners, where you replace your current home loan with a new loan from a different bank after completing the lock-in period.
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