No, this write-up is not sponsored by Ah Longs. Loans can really be good. Some of you may already be facepalming, thinking "Alamak, no money, should save, not borrow!" This conventional wisdom does generally hold true but not all loans are the same. Affordability, financial discipline and low interest rate make a home loan the best kind of loan to take up.
Affordability
Can you pay for your property in full using cash? If so, skip to the next point. For the rest of us, affordability is the crux. Do you want to save until you can pay up in full for a property? Or would you prefer to own and enjoy your home in the not too distant future?
Saving $3,500 a month can net you a $500,000 flat 12 years down the road. Suppose you are fine with this, you still have to keep your fingers crossed that $500,000 can get you as good a property as what you can get now.
Financial Discipline
It cultivates financial discipline to buy a property and take up a home loan: you must set aside a significant sum of money to service the monthly instalment.
How many people do you know who after working for 5 years, saved $50,000, let alone $50,000 in a year?
Without such a commitment, it is quite easy to spend more each month.
Lowest Interest Rate
There is no other type of loan that has a lower interest rate than housing loans. Period.
Not only is the stated interest rate lower than the other types of loans, its amortization methodology is also on a daily or monthly rest basis.
Taking a car loan as an example, the monthly interest payment is computed based on the initial sum borrowed. The monthly interest for your housing loan is computed based on the outstanding balance as of the day (daily rest) or month (monthly rest) of your payment.
Essentially, what this means is that a home loan's effective interest rate is much lower than others.
If you choose your property prudently, you can own a home and earn more money from it than what you pay in mortgage interest at the end of the day. Like the majority of property owners in Singapore, you can have your cake and eat it too.