Tuesday, March 18, 2008

Invest to earn more than 2.6%

Dear Mr. Tan,
I currently have a housing loan with HDB. Is it a good idea to pay off as much of the loan as early as possible? I have heard different views regarding this issue. Some people say it's better to use the money in the ordinary account to invest and earn more returns. Others say paying the loan earlier will help to reduce the interest amount. What is your advice?

REPLY
Interest charge on the HDB loan is 2.6%. You should be able to earn a better return over the long term from a low cost investment fund.

If you are willing to take some risk and invest for the long term, it is better to keep the loan and invest your savings. Read the following:
http://www.tankinlian.com/faq/savings.html
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2 comments:

Anonymous said...

It is not worth taking the risk if the investment earns slightly above the 2.5%. It must at least have an excess return of 3%. So what can give you the excess? It is obviously the equity funds and not those single premium endowment stuffs..
Get an adviser who is skillful in investment planning to help you. Again to remind you, not to use an insurance salesman.He or she is useless.Don't let them screw up your CPF asset.

March 19, 2008 9:04 AM
Anonymous said...

Avoid those single premium endowment products which require long lock in. You can be trapped especially when you want to redeem or you want to pay off some your mortgages. This type of product also gives marginal return above 2.5%, you might as well keep in CPF
Invest in funds which give higher return. It is "liquid" in case you need the money.

March 19, 2008 1:16 PM

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