Why you should not pay your Home Loan Early? | Home Loans in Singapore

Written By Priyadarshini Nandi

October 29, 2020

Home loans are an integral part of our lives. Most people in Singapore buy their homes with the help of home loans. However, many people feel that home loans are a big burden as it may take almost a lifetime for loan repayments. Therefore, most commonly people aim to repay the loan as soon as possible. However, this may not be the best financial decision. Yes, you read that right! We bring to you 3 reasons why you should not pay your home loan early and refinance instead.

Better Utilization of Funds

Always remember home loans are cheaper as compared to other loans you will take up in your life. Although paying off your home loan may be a big task and would drain your pockets but sustaining the interest rates on home loans is much easily doable. Therefore, even if you have enough funds to pay off your home loan at one shot, it is best advised you don’t opt for it. Instead plan to use the extra cash in a better way.

For instance, if you want you can invest the money, or if you don’t want to invest then you can use it somewhere else. You can utilize the extra fund at hand for your higher studies or enrolling in a degree/course overseas. This will not only allow you to fulfil your dream but also later put you in a position of higher income possibilities. This is a vital reason for you to not pay your home loan early. So, hold on to your repayment of loans and decide the best use of the cash you have at hand.

Investment at Higher ROI

Taking up a home loan is no joke as this is probably the biggest loan you will ever take in your life. The one good thing about home loans is that it has reasonable interest rates as compared to other loans. Therefore, investing your savings at a higher rate of interest makes more sense than using that amount to clear off your debt. For instance, let’s assume you have a loan of $150,000 to repay at an interest rate of 2%. You could play smart by investing $150,000 at a higher interest rate which would help you gain more profits and eventually you repay your loan. One more reason why you should not pay your home loan early.

It makes more financial sense to lock the extra savings you have in an endowment plan with higher interest rates. Many people think repaying the loan at once is the right choice however that’s not the best choice always as if you plan your financial move carefully then you can gain profits & loan repayment would be an easy task. If you choose to repay the loan at one go, your bank will charge you a repayment fee. In addition to paying the repayment charges, you will also be losing out on the profits you could have made by investing your funds more wisely. So, think twice about how you choose to repay your loan.

Do you have Mortgage Insurance?

Taking up a home loan and repaying it is a huge task and it worries many. If you are also one of them and you think repaying a home loan stresses you then you can opt for mortgage insurance. Mortgage insurance will give you the leverage to repay your loan amount at your own pace without having a sword hanging over your head. Taking up a home loan also means that you are at risk of a various unforeseen situation that may come which makes you unable to pay your loan off.

Therefore, the bank eventually takes over your home you built with your own blood & sweat. However, having mortgage insurance will help you combat unfortunate situations as should something happen to you, your family will receive cash pay-outs to cover for the rest of the repayment of loans. Getting mortgage insurance will considerably reduce all kinds of risks attached to home loans.

Finally, if you still feel that you do not want to stretch repayment of your home loan & want to pay it off early, you can refinance your home loan package. If you feel that the interest rate you are paying is too high, then you must opt for refinancing your home loan. The goal is to put your savings to better use and try not to overpay for your home.

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