Saturday, 21 January 2017
Why I chose a 30 year bank loan over a shorter one
OK, this post no short cut.
For the proper perspective and context, you really have to read this old post:
My aim is to have my cake and eat it – a 3 room HDB flat for free!
As you can see, although I can pay 100% of HDB resale flat in full using my CPF OA, I chose to take out the longest 30 year bank loan.
What? And pay the bank 30 years of interests for nothing???
That's what the "save more" would spot first.
These are the same people who would switch their savings accounts and credit cards every 1-2 years just to hop on the latest bank promotions - even though they knew the banks are making them jump through hoops just to earn that extra 1% in interests...
The same ones who are having fits of ecstasy as they do their voluntary CPF top-ups or CPF transfers from OA to SA.
They see the world in 1 to 2% increments.
They pray to the God of Compounding.
Needless to say, I belong to the "earn more" camp. As a hybrid investor/trader with aspirations to become a full fledged speculator one day, I am turned on by words like: carry, margin, leverage, and all things they warned you never to try.
During my corporate days, I quickly learned the less I do and the more I talked, the more money I made.
If I can leverage on Other People's Talents (OPT), surely I can do the same with Other People's Money (OPM)?
I danced with the Demon of Debt; I do the leading of course!
Today's post is not about the nuts and bolts or dollars and cents of financial literacy.
We can debate until we all turn into smurfs (blue), and we still can't agree. Which is the right answer all along.
We all are different.
One man's meat is another man's poison.
You are risk averse; I am gambler. We choose the vehicle that suits us best!
But there's one non-financial aspect of decision making that eludes most "financially literate" people.
You may have did your sums to take on a 10 year bank loan, calculating how much extra bank interests you have saved by having a shorter bank loan, and once the bank loan is fully paid, the extra CPF interests you would be compounding from the 10th year forward...
What happens when you get retrenched and your cash investments have lost money?
Of course you can approach your bank to consolidate and reschedule your bank payments.
But you would be going in cap-in-hand.
To some people, once their self-beliefs (ego, pride, face; etc) have been shaken, they never fully recover from this fall...
By taking on a 30 year maxed-out duration loan, it may not make financial sense to some, but it was the most "conservative stance" psychologically speaking to me.
I know if my investments made money, I can easily repay my bank loan anytime once the early payment penalty is over.
For my case, because of SERS, I've be repaying my 30 year bank loan 11 years early in 4 years' time.
I am approaching my bank in a position of strength.
The funny thing about blogging is sometimes we do meet kindred spirits. The young mother
who wants to start her own thing would understand.
Its never about money or sticking the middle finger to our bosses. (If you can't manage difficult bosses, how can you manage difficult customers?)
Sometimes the path that "appear" dangerous to others could be the "safest" ones for us.
Especially for those of us who never want to go cap-in-hand...