There is always the age-old question of whether you should pay off your housing loan as quickly as possible or to delay it as long as possible. One side arguing that you need to pay the loan ASAP to avoid paying interest, and one side arguing that you need to keep free cash in your bank account instead. This is again made complicated by the fact that:
- We are given the option to use CPF to pay off the house loan instead of cash
- CPF have a interest rate of 2.6% at time of writing
- Concern to pay back CPF if we do sell the apartment
In this article, we will be looking at whether we should be paying off our house loan as soon as possible, if we have the means to do it, regardless of doing it via cash or CPF. In my opinion, there is no right and wrong answer, and as always, depend on your financial situation at the point in time.
YES, I DID
High Interest Rate
I can only speak for myself, but when I done up my loan when I first gotten my apartment, my intention is to pay it off as quickly as possible. Main reason being that the loan package that i signed up for have a rather high interest rate. I theorized that if I am unable to earn that same amount of interest if I keep the money in my bank account, I might as well pay off my loan early.
Ease of Mind
Additionally, it have also something to do with being debt-free as soon as possible. There is always a psychological mentality that you always have a huge burden on your back and you cannot have the option to retire earlier if you still have debts to clear.
NO, I DID NOT
Change of Loan Package
After my lock in period for my loan package expired, I shopped around for another loan package, albeit better this time round where I managed to get a lower loan interest then before. With this new change, the loan interest rate is now lower than when I save my money in the bank.
Increase In Expenses
Due to personal situation, my expenses drastically increase. With the changes, I had to re-evaluate my financial situation, and I had to adjust my savings rate to cater for future spendings. As such, I made a decision to keep more free flow cash in my bank account for rainy days.
It is always a tough decision to decide whether to pay off your loan or not, and my thoughts on this changes every time I read more financial articles. But what works for me, is to also do what feels right at that point in time, and adapt whenever your situation change.