Singapore’s housing market is among the most expensive worldwide. For instance, the average cost of an HDB property listing is S$532,768 or S$507 per square foot. Compare that to the average monthly salary of S$5,783, and it isn’t difficult to see that many Singaporean homeowners will need to use debt (i.e. take out a home loan) to afford property. For those fortunate enough to have extra cash in hand after a few years of homeownership, they may find that paying off the outstanding mortgage may not necessarily be the wisest choice – mainly since the option of refinancing or investing are available.
- Assuming an initial home loan of S$200,000, investing the amount into an STI ETF like the Nikko AM can produce returns nearly 10 times as much as the total interest paid on a HDB loan.
- Paying off the mortgage early – then running into cash flow issues – can cause you to pay more than S$20,000 worth of installments when you resort to taking out a personal loan.
- Paying off your mortgage early saves you on interest payments (more than 50% if you pay off a S$300,000 loan in 5 years, compared to 10 years).