Thursday, December 17, 2015

Absolute Cost of My House

I did a quick calculation of the actual cost of my HDB flat today. While I bought the flat from HDB at a low $300K, when I add up interests at 2.6% for a 30 year repayment period of the mortgage loan, it actually adds up to cost in absolute dollars of over $400K.

That is simply quite amazing!

That is an additional $100K more than the mental figure I had in my head.

It happens all the time when people ask me how much I bought my flat for, I simply give them the price at which I bought it from HDB.

But today, after doing a real calculation of how much in absolute dollars and cents I am paying, I realise that the figure I ought to be quoting them is actually $100K more. That is of course if I do not make any early repayment of the mortgage loan and if I do not sell my house within the 30 year timeframe.

This sorts of shifts my thinking abit about whether I ought to repay a part of my loan earlier with cash sitting in the bank that is earning an interest rate lower than 2.6%. Food for thought...


  1. Hi FF,

    If your spare cash is not making more than what your housing loan costs you in interest, paying down the loan makes a lot of sense. :)

  2. however, spare cash are there for a purpose. to use in emergency.

    ahhh.. the difficulties on managing cost of carrying cash.

  3. periodically use your extra spare cash to pay off part of the loan if you can't generate more 2.6% returns with it.

  4. Spare cash is useful when u would like to take advantage of opportunities presented by the market. And opportunities are presented from time to time! :-)

    Actually if you think about it, while it may be difficult to get risk free returns of 2.6%, it's also difficult to get a loan at only 2.6% when u need it in a hurry.

  5. Housing loan is the cheapest loan you can find.

    If you are in it for 30 years, then you better invest well and don't lose money or else you become so jialiat as you can't even beat 2.6%

  6. Can visit this blog - "6 Reasons Why You Should NOT Repay Your Housing Loan Early"

  7. We have Asian Financial crisis and then Sub-prime crisis, and what will be the next big one coming? It will certainly come.

    Guess who will be damn worry of getting retrenched and everyday praying hard? Those with housing loan or those without?

  8. I mean housing loan for residential home.

  9. Thanks for the inputs.

    I don't really keep track of whether I am able to get a 2.6% return on my investments yoy. And besides, I still have cash sitting in the bank which is earning a paltry rate of interest.

    The need to have spare cash of course outweighs the benefits of paying off the house loan early.

  10. Here's a little advice I give all my clients:
    If the interest rate of your loan is LOWER than the average inflation rate, take the LONGEST loan possible. There's 2 reasons for this:

    First, the real value of the money your repayments decreases every year.

    Secondly, it's nearly impossible for a majority of investments to have an ROI lower than the inflation rate. This is especially true for commodities. So the money you save from the loan can earn you more income in an investment.

    Finally, if 2.6% is beyond your ability, you could just drop the money off in your CPF OA which makes you 3.5%. Easy profits with no effort.

  11. Hi XnSdVd,

    That is indeed useful advice especially about dropping the money off in CPF OA which earns 3.5% pa (at least until the end of this year).

    However, after 2010, it might be at the floor rate of 2.5% again.


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