Sunday, October 25, 2009

My housing loan

In 2003, I have bought my flat with good location(5min to mrt, amenities, swimming pool, shopping mall and sport hall). The price that I paid is at a good bargain, I am considered very lucky to buy it. Seeing the property agent leaflets, the flat may cost $100000 to $200000 more if I buy now. So I am seeing myself at least $100000 richer than my peers who bought the flat now. If you are interested how I select my flat, you may click on the link under "My Lessons on choosing a house" on the right side bar of my other blog "Singapore Property Guides"

If you can see at below my blog, my housing loan monthly payment is $400. My wife is actually paying a lot less than me. I manage to gain $167.60 (from interest and dividends) from my OA account. Remember the OA account currently give you 3.5% interest per year for the first $20000(cannot use for investment). That alone already give me 0.035x$20000 = $700 per year or, $58 per month. Other amount are from the dividends. I look at passive income and not capital gain or loss when it comes to investment.

I am currently paying $400-$167.60 = $232.40 per month for my flat. That will mean that I can save more OA amount to be invested next time. By following this cycle, sooner or later about 3 to 4 years, my OA passive income will eventually reach $400, and my house is free!!! See my cash flow diagram for reinvesting passive income.

You may want to find out more about whether it is better to take 15 years or 30 years housing loan here.

4 comments:

PanzerGrenadier said...

Your returns from CPF ordinary account at 3.5% would still be less than your outstanding HDB loan amount x 2.6%.

Have you computed your loan interest expense per year versus the returns from CPF ordinary account not used to pay off your loan?

Typically, unless your HDB loan amount is small, the higher interest in CPF OA is not enough to offset your higher interest incurred even on 2.6% loan because the principal amount of loan is much much bigger than your 20,000 in ordinary account.

Be well and prosper.

Freedom Achiever said...

Hi PanzerGrenadier,

Thank for the questions. Actually some of the answers can be found in my link @
http://lifelongfreedom.blogspot.com/2009/09/housing-loan-make-it-15-years-or-30.html

My calculation is based on month and not year. It is because the housing loan is paid monthly and not yearly. The monthly housing loan payment already includes the interest you need to pay in order to service the loan. For example, out of the $400 that I paid for my loan, $180 may be just for the interest.

So you are right to say that 3.5% for first $20000 in OA account would still be less than my outstanding HDB loan amount x 2.6%. But don't forget that the amount over the first $20000 also give you an interest of 2.5%. If you are investing this amount, you might be able to get more.

Currently the ratio of my total OA Saving to outstanding housing loan is about 1 : 2. But in a few year time, this ratio will reach 1 : 1. That will mean that I can pay out every thing to become debtless. But I will not do that because HDB loan is considered as good debt. I will use the money to invest something can give me more than 2.6% return.

If you still in doubt, feel free to question me.

Regards
Freedom Achiever

ashikane said...

Hi Freedom Achiever

First of all, a healthy good blog.
On this topic, a newbie question, isn't proceeds from the 1% goes into the SA instead of OA to boost up that account??

Regards

Freedom Achiever said...

Hi Ashikane,

Thank for spotting the mistake, I always thought that the extra interest of 1% from OA will go to OA account. Really appreciated it.

http://mycpf.cpf.gov.sg/CPF/News/News-Release/N_16Nov2009.htm

Regards
Freedom Achiever

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