Saturday, October 29, 2011

How much interest you pay for your housing loan ? (Revision 02)

Revision 02 (last paragraph): updated on November 5, 2014

I took 80% housing loan 2 years back for my new home with 3-Year Fixed Rate Package from Maybank Singapore (1.6%, 2.6% & 2.9%) in June 2009 with loan tenure of 20 years and it turns out to be a bad bet. I paid S$18,800.96 interest (until June 2012) for the loan amount of $284,000 , and that's effective interest of 6.62%!

It is my mistake to extend my original loan tenure of 10 years to 20 years. My intention is to bet on the equities market and additional investment at real estate in Singapore. It is not a good bet as for now. I have reviewed carefully and decided to change some of my strategies next year, especially housing loan.

It is easy to look back 2 years ago of what you should have done:
(1) I should have sticked to my original housing loan tenure of 10 years
(2) I should have selected the 3-months SIBOR pegged housing loan packages
(3) Even with equities investment, I should have followed my original plan of Starhub single investment at S$1.91 andd keep it with dividend yield of 10.47%.

It is time to look forward! I have done the survey on the home loan rates available at Singapore. I will place a certain lump sum downpayment next year June (re-finance) to reduce the housing loan to S$169,447. With this amount, here are the big picture.

CIMB 3-Year Fixed Rate Package stands out among the peers, with fixed rate of 0.98%, 1.38% and 1.98%, the total interested paid for 3 years is only $3,235.49, and that's a mere 1.91% effective interest that you pay for the loan amount. I will be out of debt at age 35, sound like a good plan.

By then, year 2015, I hope the equities market is on the bull cycle, and that will be really double bonus for me. :) Let's plan and God will take care the rest.

Take note, the lump sum down payment during re-finance next year is about 32% of the remaining loan balance.

If I refinance with another 20 years, the total interest will be $106,016 (42.5% of loan balance). If I refinance with 10 years, the total interest will be $37,019 (14.8% of loan balance). That is one of the reason why I want to reduce the remaining loan and the interest is then greatly reduced to only 1.91% !

Take note, due to CPF OA contribution rate change, the monthly OA contribution has now increased from $1,035.51 to $1,150.20 , you can wipe them off for housing loan monthly payment.

Typical Singaporean (in my case) who takes CPF 2.6% loan will enjoy much lower interst in the long run due to the low interest rate of fix 2.6% throughout entire 20 years, but it is still a big amount of money. We are talking about 30% of interest.

If they take 80% loan and spread 20 years (which many Singaporen did that or even 30, 35 years), the total interest is $80,511 (28.3% of loan amount).

Updated on November 5, 2014
Looking back at the blog written 3 years ago, I am happy to say we have fully paid our HDB housing loan in June, 2014.

Once you have cleared your HDB housing loan, you will receive this important document - The Land Titles Act Lease document. 

You have to pay S$450 lawyer fees while you do the HDB housing loan redemption.

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