Consider partial repayment instead of paying off your The Reserve Residences loan in full
Some people find it sensible to pay off their home loans early. It is nice to have no debt and not be burdened with a home loan. This can help you save interest.
With interest rates rising, the US Fed just raised the interest rate for the sixth consecutive year. It may be a good idea to pay off your home loan early. You won’t have worry about the ever-increasing rates.
However, you might not be able to pay off your entire home loan. These are the reasons you may not want to repay your home loan completely.
You shouldn’t repay your home loan in full
You may not have enough money to fully pay off your home mortgage, even if you do have spare cash (or maybe you just hit TOTO).
1. You can also use the money for other high-interest debts
The home loan has one of the lowest interest rates, despite the fact that home loan interest rates have increased. Comparatively, personal loans and credit cards have interest rates of around 6% per year, while those for loans such as credit cards are around 26%.
It’s better to pay off other debts that have a higher interest than your home loan.
2. The money can be used to do more for you
You can also use the money to invest in financial instruments that will help you earn more interest than your home mortgage interest rate.
Fixed deposits and bonds are increasingly attractive in today’s high-interest rate environment. These are some options to consider if you’re looking at something low-risk.
Fixed deposit rates, for instance, are at presently around 3.10% to 3.9%.
The Singapore Savings Bonds is another option. This December’s tranche has a all time high average return of 3.477% over 10 year.
You can use your money to grow your retirement savings and earn 4% annually if you are cautious about taking on risk.
3. If you haven’t already, it is important to save some money for emergencies.
If you have not done so, it is important to set aside cash for emergencies. A good rule of thumb is to save at least six months of your monthly expenses for an emergency fund. If you are looking to be secure, consider putting aside six months of your salary.
This will ensure that you have sufficient funds for any unfortunate circumstances, such as retrenchment and certain medical procedures not fully covered by your insurance.
4. Refinancing and repricing are two other options to lower your interest rates.
You might consider refinancing, or pricing if the primary reason you are not able to repay your home loan completely.
The current situation calls for a home loan with lower fixed interest rates. These home loans currently have a fixed rate that lasts two to three years. You will only have to pay a fixed monthly payment for the next few years and less interest.
You might also consider partial repayment of your home mortgage.
Instead, consider partial repayment of your home mortgage
This is an option worth considering, especially if your home loan is not too heavy.
Partial repayment reduces monthly instalments as well as the amount of interest. You also have the option to shorten your loan term if you are taking HDB loans. You will still have to pay the same monthly payments, but your loan term will be reduced from 25 years to 20.
Talk to a mortgage broker about which option is best for you.
A partial payment of your home loan is a great way to lower the interest you pay, especially if it has been for less than 10 years. If you are stuck with an ever-increasing rate of interest, you can refinance if the loan balance is less than S$100,000.
Is there a minimum amount that is required to make partial repayments?
Here’s how much you can pay off your HDB Housing Loans.
- Date of loan commencement was prior to 1 April 2012: S$500
- Date of loan commencement was after or on April 1, 2012: S$5,000 with increments of S$1,000
The minimum amount for bank loans from OCBC or UOB is the same at S$5,000, and multiples of S$1,000. UOB also requires that the loan term be at least five consecutive years.
For bank loans from DBS, partial repayments are allowed up to S$10,000 in multiples of S$1,000.
Take a look at these other important points.
You can choose to repay your home loan completely or in part. If you take a bank loan, be aware of the early repayment penalty. There is no lock-in period on HDB housing loans. It’s possible to repay it after the lock in period is over. The lock-in period may last from two to five years.
If the penalty is higher than what you are trying to save, it’s not worth paying an early repayment penalty.
Talk to a Mortgage Broker before you pay off your home loan.