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Conventional Wisdom- Stretch Housing Loan?


housingnightI read this article by Bad Money Advice’s Frank Curmudgeon about “The Truth About Mortgages” and I agree with what he says about stretching your housing loan to the maximum.

Whether you live in United States or here in tiny Singapore, the conclusion is the same.

If you borrow it at 2.6% for the HDB home loan here in Singapore or 2.48% after taxes in Frank Curmudgeon’s case, it will be possible to get a return higher than that low base rate. Just last year, my dividend returns on just the shares and ETFs were 2.2%. That’s not counting the returns for unit trust nor the returns from last year. If I had panicked and took out all my investment at the start of 2009 and ploughed it all back to my housing payment, I would be much worse off today.

And the fact of the matter is that there are investors out there who’s return are even better than mine. A fellow investment blogger, Musicwhiz, has dividends returns north of 3% and a very solid portfolio.

The question is then, are you prepared to change your mindset and weigh the pros and cons of paying off a housing loan later rather than earlier?

If you need further persuasion, an earlier article of mine, “Early House Repayment or Invest the Sum” will give you more food for thought. And if you have gotten this far in this article, you should go and do the sums for yourself to decide what your own position is.

Sometimes, investing needs you to do a fair bit of calculations and “what if ” scenarios to decide what is the best option for yourself. Paraphrasing what Gandalf said in Lord of the Rings, “All you have to decide is what to do with the money that is earned by you

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la papillion said...
March 5, 2010 at 1:36 AM  

It's a good thing to pay off the debts. It's because once you are debt free, no job instability can affect you as much as someone who still has to pay the mortgage loan.

I think it's good to do something in between. Put in a certain amt of spare cash for investment and put in a certain amt back to reduce your debts. As for the %, I think only one who can answer is yourself.

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