Rushing To Buy HDB Might Be A Big Mistake

Have you heard common financial advise asking you to “Come on, pay off your home loan as soon as possible so you will be debt free”. While this might apply to many other neighbouring countries, In Singapore, rushing to pay off your HDB might be a big mistake. And that applies to any form of property as well.

There are still advantages paying off earlier but in comparison to NOT rushing to pay it off post more upsights.
For a start, no one likes to be burdened with debt as its a taboo word taught to us since young. But are you aware there are Good Debt & Bad Debt?

Lets zoom in on the 3 reasons why:

1. Flat are not able to help you cash out in emergencies
   There have been so many cases because of uninformed information and education, many owners end up still broke even after paying off their house on the context they do not want to be in debt.Example, you have $150,000 remaining on your HDB loan. After years of saving, you have managed to accumulate $100,000 – either in cash or your CPF.
   Then you were told about “paying off your home now so you will not be in debt” news. And since you are not updated of what this move might do for you, the intention of not having to pay any sums monthly sounds logical or pay lesser in the loan.You then take the $100,000, and pour it all into your HDB loan repayment. Congratulations, you now owe just $50,000.A few weeks or months down the road, you encounter an emergency. Perhaps you lose your job, or a loved one needs expensive surgery. Consider your situation when that happens:You have $0 to deal with the problem, as your $100,000 has been poured into your HDB loan. You have zero cash and CPF in this point now. It’s true you now owe $50,000 only, but that is not able to help you pay your bills.
   Have you ever thought about this, what if you are unable to pay the mortgage cause you lost your job or got sick? You potentially might even lose your home right?But if you had kept the $100,000 in savings, you could have continued to service the mortgage for years, and had more time to find another income source. At the very least, you could have taken your time to sell and downgrade, making sure you got the best price. So before you rush your loan repayment, decide if you’re prepared to deal with emergencies. If you insist on repaying your flat early, make sure you set aside sufficient savings for six months of your income first.

   As an aside, note that borrowers who use a private bank loan have a partial solution to this. If they make a mistake and pay too early, they can use cash out refinancing (a home equity loan) to get money out of their house again. But this isn’t a cheap or fast option, and don’t always assume it’s available.

2. You could be paying off your debts in the wrong order
   The average home loan rate from banks is about two per cent per annum, and HDB Concessionary Loans are 2.6 per cent per annum. This is peanuts compared to a personal loan or credit card loan. Most personal loans compound at six to nine per cent per annum. Credit card loans balloon at an absurd 24 to 26 per cent per annum.If you service it with your CPF. The CPF OA rate is up to 3.5 per cent per annum, which is more than enough to cope with HDB loans and most bank loans. On the other hand, nothing is helping with your credit card and personal loans, which snowball every month.Always pay off your other debts first. Your home loan should be the last debt you pay off in your lifetime. Otherwise, you’ll finish paying for your flat just in time to sell it off to pay your other debts.
3. If you using a private bank loan, you will incur repayment penalties
   You will often hear the argument that, the sooner you repay your home loan, the less interest you will pay. If you are using a private bank loan, this may not be the case.Banks don’t give up on the interest they’re owed, just because you decide to pay off your debts early. Most of the time, you can expect to pay about 1.5 per cent of the undisbursed loan amount (but it can be as high as twice this amount).#unlockrealestatewealthnow #clientsforlife #futureofrealestate #singaporerealestateinsider