Taking a loan VS Pay by cash

I have come across many people wanting to use a lump sum to buy property when they can take up a housing loan. Many people like to be debt free, and sort of have some phobia of getting a loan from the bank. Some people also come to the bank and want to make a partial loan repayment whenever they have a lumpsum of money, as if owing the bank money is a very "suay" thing to do. But the truth is exactly the opposite. Here, I want to share some knowledge on why we want to take up a housing loan.

1) Because housing loan is a good debt on an asset, not a consumption.
Yes, your property is an asset, not a car or any luxury. Some mistaken car loan as asset loan, it is not. It is a liability because the value of car can only depreciate. Asset, on the other hand, will appreciate. Taking up a loan on an appreciating asset is always the right thing to do.

2) Because housing loan is the CHEAPEST loan you can ever find in the market.
No other loans can give as low as 3-5% interest rates in the market. Secured loans usually range from 6% onwards. Unsecured loans are at 24% by default.

3) Because housing loan interests runs by REDUCING BALANCE while your savings runs by COMPOUNDED interest
Many people failed to know this. Reducing balance VS Compounded interest, I leave it to you to google it yourself. A simple illustration, a man takes $500k loan for 20 years at 4%pa interest will pay a total of $227k interests, while he puts $500k at savings interest rate of only 3%pa earns a total of $377k interests. He is still better off with a net gain of $150k in 20 years despite lower yields on his savings!

4) Because housing loan is one of few that can be paid by CPF
We will not be able to use our CPF money until the retirement age. But when we are young, it is the time we struggle the most and need the money the most because it is our prime time and we are at the peak of our career and family planning. Therefore paying loan by CPF is a wise thing to do because we are using future money to help us. This may be controversial to our retirement planning. However, retirement planning can be done by making use of insurance and long-term investment plans.

5) Because you can invest the cash to gain higher returns than loan interest rates.
Equities and bonds investing has achieved historically good returns of 8% - 15% in a 20 years horizon. With effective wealth planning, getting 10%pa returns over the long term period is quite achievable

6) Because inflation rate is higher than loan interest rates
Inflation has been on a high of about 5%-7% since the start of 2008. Hence, future's money is less valuable than current money. While home loan rates are stil at 3%-5%, we still have net gains of about 2% by using future's money. For eg, if you can use $6 to buy a big breakfast meal today, one year later it may cost $8. So we use next year's $7 to pay for today's $6 meal first, and unnoticeably we gained $1 by leveraging on loan.