{"id":61706,"date":"2022-11-10T17:08:40","date_gmt":"2022-11-10T09:08:40","guid":{"rendered":"https:\/\/www.99.co\/singapore\/insider\/?p=61706"},"modified":"2024-11-07T15:55:14","modified_gmt":"2024-11-07T07:55:14","slug":"instead-fully-paying-off-home-loan-consider-partial-repayment","status":"publish","type":"post","link":"https:\/\/www.99.co\/singapore\/insider\/instead-fully-paying-off-home-loan-consider-partial-repayment\/","title":{"rendered":"Instead of fully paying off your home loan, consider partial repayment"},"content":{"rendered":"
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To some people, it makes sense to pay off their home loan early. After all, it feels really nice to be finally debt-free and not be burdened by a home loan. Doing so can save on the interest as well.<\/p>\n

And now that interest rates are rising, with the US Fed having just increased the interest rate for the sixth time this year<\/a>, it may make sense to pay off the home loan early. So that you won\u2019t have to worry over the ever-increasing interest rates.<\/p>\n

There\u2019s some opportunity cost to fully paying off your home loan. Here\u2019s why you might not want to redeem your home loan fully.<\/p>\n

Why you shouldn\u2019t fully redeem your home loan<\/h2>\n

Even if you have some spare cash (you\u2019ve just struck TOTO) that’s enough to pay off your home loan, it may not be wise to use it to pay off your home loan fully.<\/p>\n

1. You can use the money to clear other high-interest debts<\/h3>\n

Although home loan interest rates are increasing, the home loan is still one loan with the cheapest interest rates. In comparison, other loans like credit cards have an interest rate of around 26% per annum, while the interest rate of personal loans is around 6% per annum.<\/p>\n

So if you have other debts with a higher interest rate than your home loan, it\u2019s better to pay off those debts instead.<\/p>\n

2. You can use the money to work harder for you<\/h3>\n

You can also invest the money into financial instruments that can help you earn higher interest than your home loan interest rate.<\/p>\n

In fact, with the current high-interest rate environment, fixed deposits and bonds are becoming more attractive. So if you\u2019re looking for something low-risk, consider these options.<\/p>\n

\"couple<\/a>
Find a financial instrument with an interest rate that can outpace your home loan interest rate.<\/figcaption><\/figure>\n

For instance, fixed deposit rates are currently around 3.10% to 3.90%<\/a>.<\/p>\n

Another option is the Singapore Savings Bonds<\/a>, which for December\u2019s tranche has an all-time high average return of 3.47% over 10 years<\/a>.<\/p>\n

If you’re risk-averse, there\u2019s always the CPF Special Account where you can put your money to grow your retirement fund and earn 4% annually.<\/p>\n

3. You need to set aside some emergency funds (if you haven\u2019t done so)<\/h3>\n

Most importantly, set aside some cash for emergency use if you haven\u2019t done so. The rule of thumb is to set aside at least six months of your expenses for your emergency fund. Or even six months of your salary if you want to be safe.<\/p>\n

This ensures you have enough funds in case of emergencies or unfortunate situations, such as retrenchment or some medical procedures that\u2019s not fully covered by insurance.<\/p>\n

4. There are other ways to lower your interest rate, such as refinancing or repricing<\/h3>\n

If the main reason for fully repaying your home loan is the increasing interest rates, you can consider refinancing<\/a> or repricing<\/a> instead.<\/p>\n

Given the current situation, the advice is to choose a home loan with a lower fixed interest rate<\/a>. Right now, these home loans have a fixed rate<\/a> for two to three years. With such a home loan, you just have to pay a fixed monthly instalment for the next couple of years, while paying less interest.<\/p>\n

Alternatively, consider partial repayment of your home loan.<\/p>\n

Use 99.co’s mortgage calculator<\/a> to find out how much interest you’re paying.<\/i><\/p>\n

Consider partial repayment of your home loan instead<\/h2>\n

This is a good option to consider, especially if you don\u2019t want to be too burdened by your home loan.<\/p>\n

Partial repayment helps reduce the monthly instalments and amount of interest paid. Or if you\u2019re taking HDB loan<\/a>, you have another option of shortening the loan tenure<\/a>. This means that you\u2019ll still pay the same monthly instalments, but have your loan tenure reduced from, say, 25 years to 20 years.<\/p>\n

\"people<\/a>
Speak to a mortgage broker to find out which option works best for you.<\/figcaption><\/figure>\n

Paying off your home loan partially is also a good way to reduce the amount of interest you\u2019ll have to pay, especially if your loan tenure is left with less than 10 years. Or, if you\u2019re stuck with the ever-increasing interest rate, where you can\u2019t refinance because the remaining loan is less than S$100,000.<\/p>\n

What\u2019s the minimum amount required for partial repayment?<\/h3>\n

For HDB housing loans, here\u2019s the minimum amount for partial repayment:<\/p>\n