Monday, October 13, 2008

CPF Housing Loan Early Repayment?

Is it better to make lump sum payment to pay back your housing loan?

In an attempt to answer this question myself, i have created an excel spreadsheet to calculate how much would i save if i have made lump sum payment.

As an example:
If my loan amount is $200,000 for 30 years at 2.6%
Each month the loan repayment amount is $800.68
At the end of 30 years, I would have paid $288,244.60
That is $88,244.60 in interest!

However, if i choose to pay $1000 at the end of first year of my loan term.
At the end of 30 years, Total payment is $286,819.63
So i will save $1,424.97 - $1,000 = $424.97

On the other hand, what happen if i decide to put the $1000 into my CPF ordinary account?
At the end of 29 years when i fully repaid back my loan. The $1000 in my CPF ordinary account would become $2,046.41 compounded for 29 yrs at 2.5%! (this amount will be even higher if you opt to invest in other dividend yield stocks that give more that 2.5%)

Effectively, you will be better off by 2046.41 - 1424.97 = $621.44
Well you never know all these until we actually sit down to calculate!

Screenshot of the spreadsheet that i used:

Configuring your own loan amount, repayment period and lump sum payment.

Spreadsheet provide summary to give clear numbers.

You can now download the spreadsheet and customized it to your own loan amount, repayment period and lump sum payment. For only SGD 2.50. Click on "Buy Now" button. For the price of less than a McDonald Meal.... @ only SGD 2.50 Get your own housing loan calculation spreadsheet now and figure out how much you can save!

You will be redirected to the download link immediately after payment.

Asian Parenting