goolie,

A) FD

You put in $100 and you get 3.7%

B) ASB loan

You put in $0 aka NOTHING and you get 1% to 2%.

Do you understand the difference? It is FREE MONEY.

Dreamer

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Added on April 6, 2008, 7:49 pmding_dong,

1) Shop around for the lowest rate.

2) If you assume that ASB dividend rate is higher than the loan rate, it is worth it.

3) You need some extra money to cover the 1 year worth of payment since ASB pay dividend yearly.

Dreamer

This post has been edited by dreamer101: Apr 6 2008, 07:50 PM

ding_dong,

<<so it possible for BLR to hike more than 8%???>>

Everything is possible. But, it is not likely.

A) There is TOO MUCH liquidity aka money in the bank now.

B) BLR could go up because it is too low but I doubt it could hit 8%.


The main thing is how much risk that you want to take versus how much buffer / spare money that you have??

You can have two approaches

1) Buy ASB only with your money and use the dividend to buy more aka slow and steady.

2) Have one year's worth ASB loan payment and borrow to the max that you can. Pay off the loan earlier by making more payment by using the excess of dividend versus loan interest.

The best choice is probably a combination of (1) and (2) that balance the risk and reward.

Most people get toasted because they spent the dividend as opposed to having the discipline of NOT SPENDING the dividend and use it to pay down the ASB loan.

In the old days, the ASB dividend were 14% and there were no limit on ASB. So, I wonder what excuse that people give for not getting rich.

Dreamer

This post has been edited by dreamer101: Apr 7 2008, 12:44 AM

Folks,

There is a third way. Do not be too greedy. Use the dividend to pay the installment instead of putting ALL back into ASB. Then, you will not be too stressed on your monthly cash flow. If and when your income level is high enough, then and only then put the dividend back into ASB.

Do not THINK in binary fashion. Money is flexible and can be divided many way.

Dreamer

backspace66,

1) You are right. But, if the person make the loan last longer like 15 years or 20 years until the monthly installment is only 16K per year, he will not need to top up.

2) With 10 years loan, the 200K is increased by 16K per years. Assuming 8% dividend yield, when the principal of the ASB reaches 312K, he would no longer need to top up. That happened in year 7.

200 16
216 17.28
233.28 18.6624
251.9424 20.155392
272.097792 21.76782336
293.8656154 23.50924923
317.3748646 25.38998917

Dreamer