Real example of people who regretted reducing Housing Loan

[Dennis Ng]

As I mentioned many times, Housing Loan is the "BEST" (cheapest) form of leverage anyone can possibly enjoy.

I really find it does not make financial sense for people to "eliminate this best leverage as soon as possible".

For people who have cash and don't want to pay interest, now there're "interest offset packages" whereby this can be done and your cash can still remain liquid. Thus, it really makes NO financial sense at all to use cash to reduce Housing Loan at all.

People like to do things that do not make financial sense.

For instance, I've seen people paid off their HDB loan (charging them 2.6% annual interest) and yet when they retire now, with little cash, they went to take up "Reverse Mortgage" from NTUC Income which charges them a "promotional" interest rate of 5% annual interest. ???

I've also seen people paid off Housing Loan and yet they're taking up car loans that charged double the interest!!!

Just becos people do certain things DO NOT mean what they do makes financial sense.

Have you met people who regretted using cash to pay off/reduce their Housing Loans? I have met many due to my business being involved in helping people source for Housing Loans and Business Loans.

Let me show you one real life example of a person who reduced his Housing Loan and now wants to take up some loan secured by his HDB flat.

This is an email I received today:

"I would like to enquire if it is possible to get a secured loan of say 100k at a daily rest interest rate at around 4%. Can I collateral my HDB if it is only partial pay off?"

My reply:
Thanks for your email.

HDB rules do not allow a person to try to get cash loan out of his/her HDB flat. If you have a private property, I might be able to help you.

Regards.

Dennis Ng

additional notes:

It's might, not yes, even for private property becos whether a bank will grant him additional loan depends on:

1. valuation of his property compared to his housing loan outstanding.

2. CPF utilised for the property. An additional loan is a "cash loan" or "equity loan", it ranks behind CPF. (if Housing Loan outstanding plus CPF utlised works out to 80% of valuation of property, the answer is still NO.

3. does he have income? Even if the answer is yes, the question is how much is his income?

4. even if his income is ok, the next question is is his debt-servicing ratio already 50%? If yes, the answer is still NO.

5. even if All answers above are OK, it still depends on "credit bureau check". If it turns out that he already defaulted on other loans, then the bank would still REJECT his application for additional loan.

I've encountered many of such cases. So before anyone be in a hurry to reduce his/her Housing Loan, re-think again. One day you might thank me for this message.