Why you should NOT Pay off your Home Loan Early

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Жыл бұрын

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I get it, being debt free is very attractive.
You do not feel the stress of not having a roof above your head when you are met with a financial setback and become unable to pay the mortgage
And for retirees it is even more important since you may not have a monthly income coming to pay that mortgage anymore.
Why many people who are not comfortable with debt pay off their mortgage loans early.
Certain trauma seen in family when young, being in poor financial situations
But for the rest who are in healthy financial situations, here are some good reasons why I feel you should not pay off your home loan early.
1. Opportunity cost in high interest environment
2. Reverse impact of inflation
3. Insurance & Inheritance
Just do what you like, no need to argue
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Пікірлер: 33

@HoneyMoneySG Жыл бұрын

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@happy-wave-form Жыл бұрын

not a good advise, especially if the housing loan is meant for the first property for own occupancy. The money invested elsewhere may incur risks. The interest payable for non-HDB housing loan would likely be subjected to interest rate variation every 2 to 4 years, dependent on market rates and refinancing or repricing of loan package. Would be wise not to drag the repayment if possible ,and repay as much as possible before retirement age. As one progress in life, especially if one has setup a family with children, the expenses for taking care of the young and aging parents would also escalate.

@sumit6190p Жыл бұрын

If you are one of those anxious type of people nothing beats the piece of mind you het once you prepay your loans.

@NinJa-qr1sp Жыл бұрын

The opportunity cost argument is the most common but if your mortgage is 10 - 15 or eve 20 years it means you need to beat 2.6% consistently for that period to make sense. In a high interest rate environment, yes no problem but looking back, a huge chunk of the past 2 decades was very very low interest rate. When you first start paying mortgage, a large part of your monthly payment is actually interest because your outstanding principal is high so the longer you drag out a mortgage the more accumulated interest you will end up paying. For HDB loans, whatever you pay back early goes 100% into clearing off your principal which have a ripple effect on your subsequent monthly payments in terms of interest charged.

@stephanieteo91 Жыл бұрын

2.6% is extremely easy to beat, regardless of the interest rate environment. It doesn’t matter how much % of your mortgage payment go towards principal vs interest - as long as you can earn a return higher than 2.6% (be it through stocks, bonds, business venture etc), you should delay paying your housing loan for as long as possible. And if a person cannot beat 2.6%, I honestly think something is every wrong (even dollar cost averaging into STI ETF, one of the least popular markets, will get you around 4% over the last 15 years when the STI was basically flat).

@VamboraSingapore Жыл бұрын

If the goal is just to beat interest of the loan then as Chris mentioned, SSB can do that over 10Y unless your loan quantum is significantly higher than the 200K cap

@GooLid-eh4og Жыл бұрын

Having watched all the other local financial videos maker , i still think the selling point of Chris is in his trustworthiness and responsible contents . Keep it up Chris .

@skylownc Жыл бұрын

Interest is calculated and added to loan principle. Bank is lending to u and interest is accuted based on loan amount. That is how money is created.

@raytan9824 3 ай бұрын

If I am currently 48yrs old getting a resale private property, we have option A to get 75% loan + 25% downpayment and assuming the loan tenure is 18yrs, Option B to loan 55% + 45% downpayment based on 28yrs loan tenure. Option A seem to maximise the opportunity cost because we have more cash in hand however the loan tenure is short and it does not stretch the loan tenure like Option B with higher downpayment but longer tenure and lower monthly recurring charges. Which is a better option?

@hjapheth 10 ай бұрын

should I then opt for 15 years or 25 years mortgage loan?

@Youdunnome-zc8dd Жыл бұрын

If pay already then how? Should re-mortgage to play arbitrage? Anyway it feels less stress when me or spouse feel like quitting/changing job. Tired lah.

@winwinwin282828 Жыл бұрын

Sgs bond max 200k only. What else can I do with my other 800k ? Moo moo mai lah...got others? If fd still giving 3.5% I think it's ok

@dannytan8080 Жыл бұрын

the argument on HPS seem questionable - you could use the for HPS premium to buy term life insurance, and death could also mean winfall to your dependents.

@billyngwawa Жыл бұрын

Thank you for your explanation, I am starting to not feel the burden of my house loan!

@user-oc7ek1hz8s Жыл бұрын

Great video!!

@kipklop975 8 ай бұрын

Hmm your $1k may be worth less in the future than now, but isn't that also why the amount of interest you pay 10 years later is higher too? In the end if the interest rate you borrowed at is the same or more than inflation rate, you would still pay back the same amount or more.

@davidlim5751 Ай бұрын

if u pay off ur house u hv a fully paid house to transfer to your children...

@rox711 Жыл бұрын

If I don't use my cash, but just use accumulated OA funds to clear out as much of the balance mortgage as possible every year to pay off the loan earlier, does it make sense?

@xxxcool2565 8 ай бұрын

No because OA funds use to pay off mortgage loan will result in you losing interest from CPF. i.e. if you take $100k from OA to pay down your housing loan, CPF will not be paying you the 2.5% interest on the $100k. YOU will be paying yourself the 2.5% interest accrued until you sell off the house at which time you refund to CPF both the initial $100k + accrued interest of 2.5% over the years. Lose-lose situation for you

@rox711 8 ай бұрын

@xxxcool2565 but what about the compounded interest on the loan that is being charged that goes to HDB? If I clear it faster, then the loan interest would it be reduced?

@xxxcool2565 8 ай бұрын

@@rox711 home loan interest are not compounded. In fact its on a reducing balance method meaning every month you pay installment part of it goes to repay principal which reduces your interest

@jackywong4806 Жыл бұрын

Hi Chris, well, I would say yes the loan in “value” will “decrease” on the consideration that wages increased as well. If wages stay stagnant or increase slower than inflation, coupled with real inflation, will make the situation more tough.

@SGCraftYoutube Жыл бұрын

Hey bro, what if the home loan value is very low? Our home loan is only 180k total and we can pay it off one shot with our CPF.

@user-cw4mf1ub9n Жыл бұрын

High or low does not matter. The same reasonings from the video will still apply

@Unhomiee Жыл бұрын

The loan amount doesn't matter. If your home loan remaining 180k, and you have 180k in your CPF, then you're better off arbitraging by delaying payment and investing that 180k in something safe like SSB or T-bills. That way, you earn 3.x%, but only give up 2.6% (if HDB Loan). So you profit from that difference of about 1%. So that's nearly $2000 of "free" money every year that you're not paying off your HDB loan early.

@ustradingdiary Жыл бұрын

So whether the being debt free [peace of mind] vs arbitrage opportunity. Which one win. If u being stress in debt than maybe debt free is better. So is just own choice

@SGCraftYoutube Жыл бұрын

@@Unhomiee tks man

@lestertan0326 10 ай бұрын

I think it largely depends on your age and do you have enough inflow vs outflow. If you are going to die with the flat meaning its your last home. I do agree that is important to pay it but if you are young or at least not at the age of stop working then keeping the loan is a better option as you probably selling the house anyway.

@Fireworks-ns8lq Жыл бұрын

Same mind thinks alike 😂

@rizqdanniel824 Жыл бұрын

Hi..sorry to ask you something about not related to the topic of the video.. I’m interested to invest in foreign currencies..especially USD SGD EURO and POUND STERLING.. I’m from Malaysia and you know RM is depreciating like nobody business..lost trust and confidence in RM..just don’t wanna take risk..not going to risk to put all my eggs in one basket..could you make a video for non-resident like me living and stay in Malaysia to invest in high rate profit passively like just deposit money in one of investment tools like Fixed deposit? Plus unit trust here like ASB is losing their paying dividends rate as well..mutual fund as well coz have to find a really good agent to trust the money to them. I’ve discuss this with my friend about mutual fund..he then told me a story that he once deposit money for mutual fund like RM2k and expecting to have a return more like 8% and above which is mutual fund can really give like 13% annually for example But unfortunately he trusted his money with the lame and inexperience agent that make he lost about RM400 over one and half year..then he just quit it and scared to invest in mutual fund..he just ask me to careful with selected agent coz some of them not doing well.. Back to my query before How do I invest in foreign currencies just to cushion my losses due to RM depreciating ?

@HoneyMoneySG Жыл бұрын

I understand your concern, but cannot give personal finance advice. You may ask it in my telegram group at t.me/honeymoneysg and the community will try to help at best ability

@rizqdanniel824 Жыл бұрын

@@HoneyMoneySG thanks pal..I’ve joined the group