How do you actually decide between paying off your HDB loan early or keeping the cash in CPF and investments?

Question

We have about 180k in savings and a HDB loan of 250k at 2.6% HDB concessionary rate. Part of me wants to smash the loan and be debt-free, wife says keep the money working since CPF OA earns 2.5% and we could invest the rest. What did you all actually do and does it work out?

Salaryman Desmond · Accepted Answer

We ran the numbers and chose NOT to prepay, and three years on it was the right call. The HDB loan is 2.6% but our CPF OA earns 2.5% risk-free, so the real cost of the loan is basically 0.1% after you account for the OA you'd otherwise use. We kept a chunk in OA, put the excess cash into a mix of T-bills and a low-cost global equity ETF, and even conservatively that beat the 2.6% loan comfortably. The key insight most people miss: a 2.6% mortgage in a world of 3.7% T-bills and 6% long-term equities is cheap leverage, not a burden. Prepaying only makes emotional sense, not mathematical sense, unless the rate climbs well above what your safe alternatives return.

HR Sis Michelle · Answer

Consider your age and risk appetite honestly. If you're in your 50s nearing retirement, reducing debt and de-risking makes more sense, the peace of mind and lower obligations matter more than squeezing returns. If you're in your 30s with a long runway, keeping cheap 2.6% debt while investing for decades is the textbook wealth-building move, time in market does the heavy lifting. There's no universal answer, it genuinely depends on how many years of earning you have left and whether you'll panic-sell when markets drop.

Bank Teller Sis Amanda · Answer

Middle path is what we did, don't go all-in either way. We used part of the savings to reduce the loan enough that our monthly instalment fully fits within our CPF OA contributions, so we pay zero cash out of pocket monthly. The rest of the cash we kept invested. That way the loan servicing is painless and invisible, but we still keep liquidity and market exposure. Being fully debt-free is overrated if it means draining your emergency buffer, keep at least 12 months of expenses liquid first.

Auntie Susan Church · Answer

I'm the emotional one and I prepaid, no regrets. Yes maybe I left some returns on the table, but the feeling of owning our flat outright and having zero monthly loan hanging over us during the shaky 2020 to 2022 period was worth more than a couple percent of theoretical gains. When my wife got retrenched for 5 months, having no mortgage meant we barely felt the squeeze. Money math is one thing, but sleeping well and having low fixed obligations when income is uncertain has real value that spreadsheets don't capture.

Career Switcher Priscilla · Answer

Whatever you do, don't wipe out your OA to prepay, because OA money is doing a quiet job. Beyond the 2.5% interest, OA is your buffer that services the loan automatically if you lose your job, that safety net alone is worth keeping. Also if you ever upgrade, having OA balance helps with the next downpayment. I'd only aggressively prepay if the loan were a bank loan that had floated up past 3.5 to 4%, which changes the whole equation versus HDB's stable concessionary rate.

How do you actually decide between paying off your HDB loan early or keeping the cash in CPF and investments?

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