Pay Off Mortgage In Shortest Time Or Longest Time?

[Phantom 1]

Does it make sense to have a shorter loan or longer loan?

Or is it a simple question of just being asset rich or cash rich, because it's a zero sum game.

Initially I thought of taking a short loan of about 10 years if I buy a HDB... then... I've come to the conclusion after much thought that it is a zero sum game ultimately and that 1 bird in the hand is worth 2 in the bush.

The principal of a dollar today is worth more tomorrow.

What's your thoughts?

[kellogs 0]

Does it make sense to have a shorter loan or longer loan?

Or is it a simple question of just being asset rich or cash rich, because it's a zero sum game.

Initially I thought of taking a short loan of about 10 years if I buy a HDB... then... I've come to the conclusion after much thought that it is a zero sum game ultimately and that 1 bird in the hand is worth 2 in the bush.

The principal of a dollar today is worth more tomorrow.

What's your thoughts?

I have been thinking about this as well. I have decided to pay all my loan once my unit TOP end of the year for the peace of mind.

A lot of my friends said it is stupid to do so as the money could be used for other investment purposes but there is an inherent risk to any sort of investment.

nothing beats the feeling of fully paid home

[Phantom 1]

I have been thinking about this as well. I have decided to pay all my loan once my unit TOP end of the year for the peace of mind.

A lot of my friends said it is stupid to do so as the money could be used for other investment purposes but there is an inherent risk to any sort of investment.

nothing beats the feeling of fully paid home

I guess it's 2 sides of a coin. I'm thinking of buying a HDB and after doing some sums.. it seems that for a HDB purchase today,

Agent Fee + 5% cash + COV + some minor reno might set one back between 60k to 100k on an average.

Assuming the flat is an estimated 400k to 450k in valuation and COV is an average of 30k to 60k and reno is around 15k on average..

Buying a private on the other hand I'd need to fork out (if the valuation is around the purchase price) the 5%... which is probably just 45k for a 900k place.

basically the rest will come from the CPF.

I guess if you can pay of your loan on the investment property, then if that makes sense to you, all the better.

A property is also an investment there's also risk of valuation.. with so many properties TOP already and within the next 2-3 years, rental yields are going to get squeezed..

[bepgof 20]

I guess it's 2 sides of a coin. I'm thinking of buying a HDB and after doing some sums.. it seems that for a HDB purchase today,

Agent Fee + 5% cash + COV + some minor reno might set one back between 60k to 100k on an average.

Assuming the flat is an estimated 400k to 450k in valuation and COV is an average of 30k to 60k and reno is around 15k on average..

Buying a private on the other hand I'd need to fork out (if the valuation is around the purchase price) the 5%... which is probably just 45k for a 900k place.

basically the rest will come from the CPF.

I guess if you can pay of your loan on the investment property, then if that makes sense to you, all the better.

A property is also an investment there's also risk of valuation.. with so many properties TOP already and within the next 2-3 years, rental yields are going to get squeezed..

Great man "think" alike? Don't think, action. U have missed out the stamp duty.(3%-5,400)

-I would clear the liability first. U must take into consideration the opportunity cost by paying the interest over the years.

- Only then I would consider 2nd property. Based on my experence, it is safer to have 60% (cash+cpf) on hand before buying 2nd property. Anyway, remeber cpf's 120% & $117,000 apply for this, don't get caught in between.

- One of the reson I moved back to hdb, beginning this yr, is to "save" maintenain cost, I found not worth paying(subjective)for MCST.

- I have spare cash of 200k in stock mkt. Last yr, total purchased of stocks >1.2 mil.! Last wk just made another 7.5k .

- Found not worth to put $ in saving/FD. Euro is too risky now (Greek, Portugal, Spain in problem), USD is another problematic one, NZ has low interest yield for 3/6/9 month. Only Aust can consider. Too bad banks don't sell RMB.

- Stock mkt has seasonal trend, quite time consuming to follow up the dividend declared and close day for various counters. Once div declared worth to park $ there if conservative. Many cos have declared div, CDL, allgreen, ho bee, M1, capital land....

- Don't buy mfg counters.

- stock mkt hot, high hdb resale cov will follow. Paying money as if paper.

Edited March 17, 2010 by bepgof

[therat 18]

Everyone has their preference.

Mine.

Debt free.

Use all the CPF for the HDB for own stay.

Since it will be getting harder to see my CPF when I retire.

Every few year, will come out new rule , new requirement.

[leechaorui 2]

Everyone has their preference.

Mine.

Debt free.

Use all the CPF for the HDB for own stay.

Since it will be getting harder to see my CPF when I retire.

Every few year, will come out new rule , new requirement.

I think it is very relaxing to live a debt free life. At least you don't need to worry about a mortgage over the head. Cheers!

[therat 18]

I think it is very relaxing to live a debt free life. At least you don't need to worry about a mortgage over the head. Cheers!

yes, very relax.

Even if both of us got crop (touch wood)

We don't need to worry about the monthly installment.

[Plastic3 0]

- One of the reson I moved back to hdb, beginning this yr, is to "save" maintenain cost, I found not worth paying(subjective)for MCST.

- I have spare cash of 200k in stock mkt. Last yr, total purchased of stocks >1.2 mil.! Last wk just made another 7.5k .

- Found not worth to put $ in saving/FD. Euro is too risky now (Greek, Portugal, Spain in problem), USD is another problematic one, NZ has low interest yield for 3/6/9 month. Only Aust can consider. Too bad banks don't sell RMB.

- Stock mkt has seasonal trend, quite time consuming to follow up the dividend declared and close day for various counters. Once div declared worth to park $ there if conservative. Many cos have declared div, CDL, allgreen, ho bee, M1, capital land....

- Don't buy mfg counters.

- stock mkt hot, high hdb resale cov will follow. Paying money as if paper.

If you do not use the facilities often then is it really not worth paying the maintenance fee...

You entered the stock market last year should have made a decent return

Market slowly crawling back to 3000pts, if your investment horizon is long-term don't really need to track everyday, perhaps can pick some bluechips that you like and collect dividends although capital appreciation is slow, definitely still beats savings/FD!

[leechaorui 2]

yes, very relax.

Even if both of us got crop (touch wood)

We don't need to worry about the monthly installment.

I also paid off my mortgage loan but took up another loan to rebuild the house. So now go back to square one, on debt again.

[bepgof 20]

I also paid off my mortgage loan but took up another loan to rebuild the house. So now go back to square one, on debt again.

Western school of toughts likes "leverage" to maximise the return- heard of cows story?

- Buy one cow by loan in open mkt.

- Rent the cow out for profit (income-loan payment)

- Sametime remortgate cow out to get more capital to buy more cows, again loan, loan, loan.

- Rent all cows out. And the tenants rent cow to another tenants.

- Sit at home, shake leg & count money, lead a peaceful & enjoable life! It's not the end yet.

- Mad cow diesease come, all cows dead.

- Who suffer in the end?

Edited March 18, 2010 by bepgof

[dreamhouse 0]

recently i did some of this analysis myself...

can broadly categorise into 3 groups of people with different needs:

1) those who can afford to fully pay up

2) those who have to take max loan and max duration

3) those who are in between

consideration:

group 1)

should i fully pay up and have peace of mind?

should i use CPF and pay slowly every month since CPF is giving 2.5% and HDB loan interest is just a little higher at 2.6%

group 2)

monthly instalment is the lowest, but total interest incurred is the max

did i over-commit for this home?

if for investment purpose, is the rental income sufficient to cover instalment?

group 3)

should i tend towards group 1 or group 2?

can i generate more income using spare cash on hand?

logical thinking:

now that bank interest rate is low, borrowing cost is relatively lower = good time to borrow

now that bank interest is < CPF interest, it is better to keep $ in CPF and use it to pay instalment than using it to do lump sum payment - extra $ in CPF also acts as a buffer should there be a loss or reduction of income

but things will change (interest rate, your income, your expenditure, value of your home) and you have to balance everything...

in the end, by taking a loan means that i am spending $ that i have not yet earned - eventually will have to pay back (with interest)

[bepgof 20]

recently i did some of this analysis myself...

can broadly categorise into 3 groups of people with different needs:

1) those who can afford to fully pay up

2) those who have to take max loan and max duration

3) those who are in between

consideration:

group 1)

should i fully pay up and have peace of mind?

should i use CPF and pay slowly every month since CPF is giving 2.5% and HDB loan interest is just a little higher at 2.6%

group 2)

monthly instalment is the lowest, but total interest incurred is the max

did i over-commit for this home?

if for investment purpose, is the rental income sufficient to cover instalment?

group 3)

should i tend towards group 1 or group 2?

can i generate more income using spare cash on hand?

logical thinking:

now that bank interest rate is low, borrowing cost is relatively lower = good time to borrow

now that bank interest is < CPF interest, it is better to keep $ in CPF and use it to pay instalment than using it to do lump sum payment - extra $ in CPF also acts as a buffer should there be a loss or reduction of income

but things will change (interest rate, your income, your expenditure, value of your home) and you have to balance everything...

in the end, by taking a loan means that i am spending $ that i have not yet earned - eventually will have to pay back (with interest)

Yr analysis is sound & logical, but things in life do not follow exactly to what have been planned. As grow "older" & "wiser", I tend toward believing this saying: 30% depends on God, 70% depend on people.

Grp 1 - Human nature to have more & more money, remember "If you've earned the whole world but at your life", would you earger to have more money. I set "peace of mind" as 1 prirority - paid full and see what I have left and do next planning.

Should use CPF to pay all at one go - accured interest & "peace of mind" can never be measured in term of $. Calculate $500,000 x 0.1% = 500/12 per annum, worth?

Grp 2- Either they have no choice, or they do not understand what they are doing/lack of knowledge or greed or misled. Never make yourself into such situation, if you have a choice. This grp's ppl always pay for the rich. Yield fm rental can never be sure. Income tax & property tax will take away some. Capital bdgeting management taught in school has over-simplied the "yield fm rental". Simply put it: yield at expense of future uncertainties.

Grp 3 - Interest % in present's technology edge with so many institutions in play, make no much different or could be negligible. Cos they come with different "strings" - best find one that suits yr needs, btw, say is easy than done.

Remember these mindsets: " Don't eat all, let others eat some", "Ppls don't want, I take, ppl want then I give".

Edited March 20, 2010 by bepgof

[silverfins 0]

I did review and found that the total interest paid was much higher for 35 yr loan vs 30 yr loan.

You should ask your banker to tell you the total interest under each option before you decide.

[seek_a_home 0]

I did review and found that the total interest paid was much higher for 35 yr loan vs 30 yr loan.

You should ask your banker to tell you the total interest under each option before you decide.

If can $ in hand can make more returns than the interest incurred ever year, then stretch the loan and use te $ to invest.

If cannt make sufficient return to cover, then pay up asap

[random_username 0]

If can $ in hand can make more returns than the interest incurred ever year, then stretch the loan and use te $ to invest.

If cannt make sufficient return to cover, then pay up asap

how about the value of peace of mind which i suppose will differ whether it's the roof over one's head or an investment property, and the owner's age, family commitments etc. Might you elaborate more? thanks

Edited June 6, 2010 by random_username