It’s been a while since my last post. I have been busy with work, travel and re-financing my mortgage.
Some background is in order here. I took out a $300k mortgage 2 years ago. Back then in 2017, the interest rate was 1.3%. Given that the floating rate was lower than the fixed rate, I opted for the former.
You can guess what happen next. Shortly after congratulating myself for being so savvy and saving some $, the bank (whom I shall not name here) sent a notice to increase the interest rate after a couple of months. You may think lightning does not strike twice. In less than 24 months (the bank has mercifully spared us an increase in the last few months given the global downward trend in interest rate), I received the notice of increase in interest rate no fewer than 4 times! I seriously don’t remember the same rate of increase being applied to my savings in the bank.
As of now, I am paying 2.4%, slightly below the HDB mortgage rate of 2.6%. 1.3% to 2.4%, a 85% increase in about 18 months? This is daylight robbery, only legal. It is thus no rocket science to re-finance my mortgage. The current market rate is about 1.9%. This means I get to shave 0.5% off my mortgage rate. It may not sound like a lot but this translates to a $1,250 saving per year, or more than $100 per month (assuming a $250k mortgage balance).
So, should you pay down your mortgage? There are 2 schools of thought out there. One – yes, pay everything off and get peace of mind. Two – no, money is cheap. Borrow at 2% and invest at 4%. Simple mathematics.
I have been mulling over this issue ever since I bought my own apartment and became a mortgage slave. Like most of life circumstances, I believe the answer is “it depends”. Sure, if you are an investment guru and can reap consistent returns above the mortgage rate, then it’s a no-brainer. But if you are a mere mortal and appreciate the vicissitudes of life and investment, you will understand that there are no sure things in both.
For me, I am taking the balanced approach. I am paying down my mortgage and shortening my loan tenure. I am more conservative and do not like to owe $. Mortgage may be a good debt but why pay interest for 30 years and be at the mercy of the bank when you can choose otherwise? At the same time, I will still be carrying a sizable mortgage (to me) in the near to middle term (5-8 years). I hope to deploy the money in dividend stocks to earn returns above my mortgage rate.
The best of both worlds? You bet!