Housing mortgage loan as an inflation hedge?

The US Fed has gamely revealed their poker hands for the next 2 years – rates will remain low. No surprise this decision is not unanimous! 3 out of 10 committee members dissented – the biggest split in 20 years. Talk about living in unusual times!

What is your housing mortgage loan rate? What’s the inflation rate in Singapore now?

I will soon have some spare cash by December of this year due to a recent “enbloc” of one shares counter in my portfolio. It’s more than enough to cover my remaining SGD 70,000 HDB loan. Would I pay up my HDB loan in advance and save on the 3.75% loan interests annually?

No way!

At least for the next 2 years anyway… Singapore’s bank rates are influenced by US rates. So savings and loan rates will remain depressed. Add to money printing in US, I don’t think inflation will go down anytime soon. More on the upside unless MAS allows our Sing dollars to strengthen to offset imported inflation; but that is mitigated by the need to maintain our export competitiveness – hence the Sing dollar “weakness” during 2008/09. Your guess is as good as mine (OK, yours is better!)

Was your pay increment more than 4.5% last year? If not, you are being “scrxxed” (pardon my French) – just like the bank savings account interests we are getting.

This unusual situation today regarding the housing loan interests offered by banks and the inflation rate is one rare chance where I can “stick it to the man”. Pay the bank back in money that’s worth less and less. Once in a while, the “smol” (the unintended acronym of my nick fits me well) man wins!

I am doing what the US government is doing – inflate your way out of the debt. So having a housing loan is an inflation hedge? No? Yes? Two can play the game what!?

In this “correction” or “bear” market (you take your pick of semantics!) scenario today, close one eye can easily find blue-chip counters that yield more than 4.5% annually. If I take more iron tablets to fortify my stomach, I can even swallow REITs and small caps that yield more than 9% annually.

Of course this game can only be played until the music stops – when housing loan interests is above inflation rate (and/or I can’t find other profitable investments that yield more than the housing loan or inflation interest rate – whichever comes first).

I have full respect for those who can’t sleep with a loan weighing on their mind; and would advocate paying off their loans as soon as possible. A good night’s sleep is worth its weight in gold! This I concur. I wish you sweet dreams!

Hey! Different strokes for different folks!

New readers may one to read an earlier post for "context":

Have my cake and eat it