OUR number one investment is our home.

TEXT/ILLUSTRATION: LARRY HAVERKAMP AND MAROO

The biggest advantage is you can live in it. Savings from rent - called imputed rent - makes the return to home ownership exceptionally high.

Another plus is leverage. You need put up only a little of your own money and can borrow the rest at a low interest rate.

What more could you want? These unique advantages account for the high return to home ownership.

Everything starts with the loan. HDB loans are straightforward.

Bank loans are not. Many lock you in for two or three years. What to do then?

If interest rates fall, you may gain by refinancing. You can switch to a new fixed, variable or pegged rate.

Refinancing saves money

Pegged rates are currently cheapest and are tied to a base rate like the Singapore inter-bank offer rate (Sibor). Your home loan rate will rise or fall with that rate, which is very low now.

At today's interest rates, you will probably gain by refinancing. The problem is many people forget, don't bother or don't know they can refinance.

No bank calls and says: 'Excuse me. It is time to refinance now.'

I asked our banks what per cent of their home loans would benefit from refinancing.

None would tell.

Banks are keen to have you quietly continue with your high fixed or variable rates. For every 1 per cent you save by refinancing, the bank loses 1 per cent.

What should you do?

First, ask the bank if you are out of your lock-in period. It will answer truthfully but only if you ask.

It will also tell how much you can save by refinancing.

Once a bank knows you are keen to refinance, expect it to become very friendly. Banks want to keep your business and will offer you a good deal to convert your loan with them.

It is usually easy and cheap to stay with your present bank. But there is no harm in shopping around. Other banks are eager for your business and will usually waive upfront fees including most legal costs.

One more idea: I know someone who refinanced his home loan with a group of nine friends.

As they were a fairly large group, the banks were even more eager to put together a package that would win their business.

Keep your HDB loan

HDB loans charge 2.6 per cent interest, which is more than most pegged bank loans now.

You can probably save about half a per cent by switching from HDB to a bank loan, but I advise against it.

Why? First, it is a one-way street. Once you move to a bank loan, you can't switch back to HDB.

Second, interest rates will go up again someday. When they do, the 2.6 per cent HDB rate won't jump as quickly. The present HDB rate hasn't budged for the past 10 years.

Third, you can expect more understanding from HDB should you hit hard times and miss a few payments.

HDB won't foreclose on your property but will work with you to find a compassionate solution.

No early repayment

One more thing. You may be tempted to pay down your loan more quickly than you must. Repaying debts early is usually the responsible thing to do.

For home loans, however, I advise against it.

If you have less than $20,000 in your ordinary account (OA), it earns 3.5 per cent interest. It means you are giving up 3.5 per cent interest to pay down debt that costs only 2.6 per cent.

It is not a good deal and you lose 0.9 per cent per year.

If you have more than $20,000 in your OA, you are using 2.5 per cent money to pay off a 2.6 per cent debt. The savings is only 0.1 per cent, which is just $1 per $1,000.

It's not much. Think of it as the price you pay for an HDB loan's many benefits.

Finally, consider this: 2.6 per cent is a low interest rate. There is nowhere else you can borrow so cheaply.

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