Should HDB owners take a private property loan?

Assuming a HDB home loan of  $350000 to be paid back in full in 30 years at the HDB loan rate of 2.6%.

Total payment after 30 years = $504,428.04. 

Interest paid after 30 years = $154,428.04

Assuming a bank loan instead to be paid back in full in 30 years at the following rates : 1.2% first year, 1.45% second year and 1.95% thereafter. (Based on 3-month Sibor + 0.5%, 3-month Sibor + 0.75% and  3-month Sibor + 1.25% from a local bank).

Total payment after 30 years = $457,747.21

Interest paid after 30 years = $107,747.21

By taking a HDB loan, the customer actually pays $46,681 in interest more over 30 years.

(I have excluded the miscellaneous cost, such as legal fees e.t.c, focusing on interest only. )

Reasons for taking a HDB loan is that HDB is more lenient and you can miss a few payments. (From hearsay)Taking a bank loan is a one way street and you lost the chance of taking a HDB loan forever. 

It makes me wonder whether if you miss payments on a bank loan, can the bank take back your HDB given that it is actually the property of the government and HDB owners are not actually owners but long term tenants with a lease period of 99 years. Maybe the difficulty could be so onerous for the bank that one could be allowed to miss a few payments too.(Maybe)

Especially when interest rates have been so low for so long but the prospect of it rising is a real possibility but when it finally do rise above the 2.6% rate, your outstanding balance would be so small that a lump sum could be paid to settle it. Think about it.

Another reason why equities are a good investment



I have tried my hands in selling bear call credit spreads/ bull put credit spreads in the US market before to earn some premium income using time decay but the decrease in the value of the US dollar often reduces or negates the return. The occasional big moves which results in the prices moving out of the strike prices really sucks. This strategy indeed sucks. A classic example of low probability of losing but big consequence when one loses. I condemn it.

 

Having said that, Warren Buffet has been known to sell options for the premium too.

(Taken from his 2008 letter to shareholders.)But what is suitable for him may not be suitable for a small fry like me.

 

 

Another thing i  contemplated was to own US shares so as to be able to sell call options and earning additional income, on top of the usual dividends and capital appreciation. But alas, damn it, im a small fry which means i am not able to own enough of the shares to earn any meaning income using this strategy and again the reduction in US dollar makes things more sucky. In addition, now, i have to pay custodian fees which again makes things worse.

 

It came as a pleasant surprise that SGX is eyeing single-stock options within 2 years. This reduces the currency risk and complements my boring strategy of holding dividend-yielding stocks, as now i can earn additional income.  I think its good for retail investors also as it, to a small extent, helps people reduce their human instinct of selling when low and buying when high because with this strategy, people would only sell when the higher strike price is reached. Even if it is not reached, one still earns some income. Either way, one is better off.

 

With this initiative, my returns from stocks are from:

• Capital appreciation
• Dividends
• Lending fees - some of my shares have been borrowed for people to short
• Selling call options ( based on new initiative, hopefully)

 





On a side note, many of my shares which people use to short have been returned. Theoretically, this implies that the stock market should see a rally, especially when it coincides with the much publicised year-end or christmas rally. Would i use this knowledge to speculate and trade on shares then?

Nope. I still miss the good old days of 2008 when i entered the market with vengence and without a single uncertainty in my mind. I do not feel it now and anything i do, has doubt. As someone said, if you dont know what to do, just do nothing. Doing nothing is also a strategy.