Paying down HDB loan using CPF?

punkster

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Is it a good idea to pay down HDB loan with CPF whenever a lump sum is accumulated? Assuming i just keep 20k in OA given it's higher interest rate.

Any downside to this idea?
 

havetheveryfun

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depends on whether u are confident to get returns of more than 2.6% with that lump sum of money instead...
 

punkster

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I have already reached the max allowable limit for shares and I’m not interested in UT so thought it would be a better idea to start paying down to save on interest.

depends on whether u are confident to get returns of more than 2.6% with that lump sum of money instead...
 

henrylbh

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Is it a good idea to pay down HDB loan with CPF whenever a lump sum is accumulated? Assuming i just keep 20k in OA given it's higher interest rate.

Any downside to this idea?

Why need to keep 20k in OA, unless MA + SA total is less than 60k?

If confident of servicing the loan without the reserve, dump it into SA for 4% than repaying the loan to save 2.6%.
 

chopra

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r u taking hdb loan? the difference is only 0.1%. i have worked out previously using a 300k loan for 30years vs 15years. U can work out something similar for lump sum payment.


the conclusion drawn, for my example, was that paying 15years provides insignificant savings as compared to 30years. I highly suspect you would get comparable results for lump sum payments, given the minute difference of 0.1%.

BJglNrhl.jpg
 
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punkster

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Thanks for the reminder. I forgot that It’s 60k across. Just kept remembering that first 20k in OA extra interest =:p

Confident of servicing the loan, reason why I don’t wanna go to SA is that I may want to get another property so I can either use the money again if I sell it off, or if I can fully pay off this one I can get another loan with higher quantum

Why need to keep 20k in OA, unless MA + SA total is less than 60k?

If confident of servicing the loan without the reserve, dump it into SA for 4% than repaying the loan to save 2.6%.
 

harky

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Do you share this excel? Where can I download?

r u taking hdb loan? the difference is only 0.1%. i have worked out previously using a 300k loan for 30years vs 15years. U can work out something similar for lump sum payment.


the conclusion drawn, for my example, was that paying 15years provides insignificant savings as compared to 30years. I highly suspect you would get comparable results for lump sum payments, given the minute difference of 0.1%.

BJglNrhl.jpg
 

punkster

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Yes it’s a HDB loan. I also suspect savings is small, but I’m just thinking if it would make any difference in terms of the total interest paid towards the place and I’m really doing nothing with the money there.

r u taking hdb loan? the difference is only 0.1%. i have worked out previously using a 300k loan for 30years vs 15years. U can work out something similar for lump sum payment.


the conclusion drawn, for my example, was that paying 15years provides insignificant savings as compared to 30years. I highly suspect you would get comparable results for lump sum payments, given the minute difference of 0.1%.

BJglNrhl.jpg
 

BBCWatcher

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Confident of servicing the loan, reason why I don’t wanna go to SA is that I may want to get another property so I can either use the money again if I sell it off, or if I can fully pay off this one I can get another loan with higher quantum
I don't think that argument really makes sense, though.

If you've got more money working harder for retirement, starting now, then you can sensibly and prudently afford to ease back slightly on your non-CPF retirement savings flow. Most money is fungible, and there's nothing stopping you from using greater non-CPF wealth however you wish.

And you're not making a great argument for skipping all OA to SA transfers. You can choose exactly how many dollars you wish to transfer. It's not an all or nothing decision. But 4% sure beats 2.5%, a lot.

If you're not saving for retirement (beyond CPF), and if you're solely focused on shorter term objectives, that's probably a bigger problem.

As a scenario, let's suppose you're currently saving $1,000/month outside CPF toward retirement. You have $30,000 sitting in OA (let's suppose), and you could transfer all or some of it to SA. Let's also assume you are already collecting maximum CPF bonus interest, so we can leave that out of the picture. An extra 1.5% interest on $30,000 would generate $450/year (before compounding), which equals roughly half a month of your retirement savings flow -- or a couple electric bills with a lot of air conditioning if you prefer to think of it that way. It's real money. So if you transfer $30K to SA you could ease back to $965/month in your non-CPF retirement savings and achieve exactly the same financial outcomes -- or even slightly better outcomes. Put the extra $35/month that you've liberated toward your dreams of real estate tycoon-ism if you wish.

You're leaving money on the table, basically. I wouldn't, at least not all of it.
 

dork32

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punker, you do not have to believe everything that bbc says.

you are right. money in oa can be used for your next property. if you move all into sa, it will set u back tens of thousands of dollars.

also if you need 150k in cpf oa for a downpayment, this 150k does not appear overnight. it takes years to accumulate. if you are still a distance from your target, you probably would not have a very specific property target. you will not know exactly how much you need for that purchase.

if you are eyeing your next property with oa, do not do any transfer.

bbc is not local. he probably did not even buy a property here. most of us are here for good. most of us believe in owning property. of course he does not care about the oa.

if you follow the insight in sunday times, you realize most of the people make their best investment through their properties.

even for my own property, it has appreciated twice the amount i bought. and i get to stay in it. lets see you stay in your cpf sa account.
 

SBC

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punker, you do not have to believe everything that bbc says.

you are right. money in oa can be used for your next property. if you move all into sa, it will set u back tens of thousands of dollars.

also if you need 150k in cpf oa for a downpayment, this 150k does not appear overnight. it takes years to accumulate. if you are still a distance from your target, you probably would not have a very specific property target. you will not know exactly how much you need for that purchase.

if you are eyeing your next property with oa, do not do any transfer.

bbc is not local. he probably did not even buy a property here. most of us are here for good. most of us believe in owning property. of course he does not care about the oa.

if you follow the insight in sunday times, you realize most of the people make their best investment through their properties.

even for my own property, it has appreciated twice the amount i bought. and i get to stay in it. lets see you stay in your cpf sa account.

Fully agreed. HDB loan LTV is at 80% while private is 75%.

Thus, deposit for private is up by 5% to 25%. More cash/CPF is required.

A private today is easily 1mil to 1.2mil. Translate into 50k to 60k more deposit.
 

yoongf

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I used to play the game of invest rather than pay down housing loan. But back then returns were more predictable.
These days, the risks are so much higher and returns lower.
For greater peace of mind, i am deleveraging, paying down loans.
 

Toni90

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Don’t pay back lah. Keep it in OA. CPF can use your money to lend others who don’t have money.
 

BBCWatcher

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Good grief.

I'll repeat: if you have more money for retirement -- and you surely will if you have more savings earning 4% instead of 2.5% -- then you can dial down your retirement savings flow and achieve exactly the same financial outcome. That means more current cashflow available for ANY purposes, including for real estate down payments if you wish.

It's simple financial optimization, and you can decide, to the exact dollar and every month, exactly how you want to optimize. There is nothing magical or necessarily optimal about CPF's default allocations across your OA, MA, and SA. You get to decide, for you, what makes sense. But 4% interest is better than 2.5% interest, a lot better. And you're raising this question within the context of trying to decide whether to accelerate repayment of a 2.6% mortgage using 2.5% earning money. Evidently because you can't think of anything better to do with your OA, and it's piling up. This is a common, happy problem to have.

Well, there is something a lot higher yielding: 4% SA. How about at least some of that? It's certainly not a silly or crazy idea. Plenty of people do it, including many people in this forum. I do it, my spouse does it.... It's rather popular among those people who have absolutely no problem with housing down payments and mortgages.

The more savings (and better yielding savings) you have for retirement, the less you have to save for retirement to achieve an equal retirement outcome. This is just basic financial math, REALLY basic. And the math is correct: 4% is more than 2.5%. 4% is also more than 2.6%.

Now, if you're not saving anything for retirement at present, that's (a) most probably a problem, and (b) a limit on your ability to time-shift cashflows and savings to take advantage of 4% interest. Or, to the extent you would have problems managing housing costs, you may need to hold back some OA. But YOU decide what makes sense for YOU. CPF only sets the minimum SA allocation. If you want to transfer every OA dollar into SA (up to the FRS) every month, you can. (My spouse and I do exactly that, and many people do the same.) It's up to you and your personal financial circumstances, but...4% is most definitely, assuredly, higher than 2.5% and 2.6%. No question, no rational argument to the contrary.
 
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havetheveryfun

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Good grief simi sai when u urself agree that OA to SA transfer may not always be the holy grail depending on the TS situation ?

"Now, if you're not saving anything for retirement at present, that's (a) most probably a problem, and (b) a limit on your ability to time-shift cashflows and savings to take advantage of 4% interest. Or, to the extent you would have problems managing housing costs, you may need to hold back some OA"
 

BBCWatcher

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I'm certainly not the poster to this thread who is refusing to consider even the possibility of not using OA for housing!

Assuming the assumptions I've carefully explained, I would point out this important reality. In order to beat SA's 4% you would have to be reasonably well convinced that you could plow OA dollars (that you need as OA, in order to afford a down payment for example because you don't have enough cash and remaining OA) into a real estate purchase that would reliably generate a total long-term return (net of all costs, including taxes) rather well above 4%. I say "rather well above 4%" because SA's 4% interest rate is available immediately, backdated to the first of the month. For example, it's December 6, 2018, as I write this. If you transfer OA funds to SA today, or even on December 31, then the higher 4% interest rate starts from December 1, 2018 (the whole month of December). If you leave OA funds as OA to wait to build up enough funds for a down payment (because you'd be short of other sources of funds for a down payment), then you're running behind (2.5% v. 4%) for however long that build-up takes. So, after you make your real estate buy, you have to blow past 4%, reliably and net of all costs, in order to make the real estate investment end up better than SA. You've also got to account for the higher non-CPF retirement savings that you must have in order to account correctly for the lost SA 4% opportunity on your savings. And you have to account for the "lumpiness" of real estate. Surplus SA dollars can be withdrawn one dollar at time. That's not true of a whole property. You have to sell the whole thing to liberate funds, and then what? Where do you put those dollars to earn 4%? Tough.

Does this financial math seem realistic to you? Do you think you can reliably hit a ~4.5% or better total return on your real estate tycoonism (net of all costs), and every OA dollar is absolutely critical to achieving that investment goal? If that's how you want to double down on your financial bets, you can. I don't think it's wise (with the key assumptions I've described), but it's up to you.

I happen to think that sort of ~4.5% or better total real estate return forecast ranges somewhere between unlikely and delusional. Why would/should total real estate returns outpace general inflation for decades by ~300 basis points or more? Does that make any sense? Is that logical? But if I'm wrong, no big problem. The real estate you already own (and continue to own more of as you pay off your mortgage on schedule) will do just fine, and your SA will lag only a little behind the wonderful, immense riches you think you'll achieve in Singapore real estate. You'll also only be a bit late to this raging, multi-decade bender of party, because you're not allowed to transfer OA funds into SA once your SA hits the Full Retirement Sum. Thereafter, OA dollars start piling up again. Who knows, you might even catch a real estate cycle at its trough instead of its peak.

Some people might argue that it's wonderful to have some level of persistent mortgage debt, i.e. leverage. Maybe, until it isn't. There's a risk in that, and there's a cost to defend against that risk. I have no problem with manageable and low cost debt, but it's the unmanageable and/or high cost debt that can really bite you hard.

Anyway, to repeat, you only need OA dollars as OA if they are vital to your housing needs or any punts you want to take in real estate. If you're reasonably (or more) flush with funds and simply don't ever need OA as OA -- like us, like many -- then the smart play is to push OA into SA. Because you can already do everything you could ever possibly want to do involving real estate without OA as OA. Some of us are that fortunate, and for the increasing numbers of those who are so fortunate, CPF can be extra wonderful.
 
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havetheveryfun

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Yes the maths work out very well... it is very simple as you said. But too bad life isn't that straight forward and simple as it is.

Not everyone wants to buy a 2nd property for investment.... There are intangible benefits of buying a 2nd property.. such as a person may only buy a 3-room flat at the start but he plan to buy a bigger space once he has children... buy a bigger flat in the future when he is doing better in his job to fetch his parents over to stay... buy a flat in a better location to stay...buy a flat with a new 99-year lease which is able to last the next generation till he's 80-90... and so on.

Surplus SA dollars can be withdrawn one dollar at time.

Yes but only after you hit 55 years old.

Some of us are that fortunate, and for the increasing numbers of those who are so fortunate, CPF can be extra wonderful.

Not all of us are that fortunate.
 

dork32

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Yes the maths work out very well... it is very simple as you said. But too bad life isn't that straight forward and simple as it is.

Not everyone wants to buy a 2nd property for investment.... There are intangible benefits of buying a 2nd property.. such as a person may only buy a 3-room flat at the start but he plan to buy a bigger space once he has children... buy a bigger flat in the future when he is doing better in his job to fetch his parents over to stay... buy a flat in a better location to stay...buy a flat with a new 99-year lease which is able to last the next generation till he's 80-90... and so on.

whether a second property or a bigger property, you will need a large sum of money, both cash and cpf.

reaching this large sum gets more difficult each time to rstu or oa to sa transfer.

everyone knows that 4% >2.6%. but do the transfer if you are really satisfied with your property.

bbc prob stay in a rented home. he does not see the need of having the oa. he is just interested in preventing himself from being a destitute at 95. of course oa to sa is the sensible thing for him to do.

we sinkies have a lot vested here. wanting to get a second or bigger property is always in our blood. bbc can never understand this.
 

dork32

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I happen to think that sort of ~4.5% or better total real estate return forecast ranges somewhere between unlikely and delusional. Why would/should total real estate returns outpace general inflation for decades by ~300 basis points or more? Does that make any sense? Is that logical? But if I'm wrong, no big problem. The real estate you already own (and continue to own more of as you pay off your mortgage on schedule) will do just fine, and your SA will lag only a little behind the wonderful, immense riches you think you'll achieve in Singapore real estate. You'll also only be a bit late to this raging, multi-decade bender of party, because you're not allowed to transfer OA funds into SA once your SA hits the Full Retirement Sum. Thereafter, OA dollars start piling up again. Who knows, you might even catch a real estate cycle at its trough instead of its peak.

this is where bbc is very wrong. my property more than double its value in 20 years. even if it is just double, it amounts to 3.5%. If i have rented it out all the way for the 20 years, it would have given me an average rental return of 3.5%. ( i anyhow whack this number)
total 7%. this is much larger than the 4.5% than bbc quoted.

my numbers are not fantastic because the property rode many cycles during the past 20 years. if you have gone in at the right time, you returns could be much better.

then again if you chose the wrong time, then it could be worse off.

i already mentioned bbc have not seen the full cycle. even if he have knowledge of the the cycle, he is not local. he will pack up and go when the time is right. most of us are stuck here for life. most of our kids and grandkids are stuck here for life. our view towards property is very different from his.
 

dork32

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just for your info,
i have a old 3 bedder condo which i am staying
i have a 4-room hdb which i am renting out.
i have a terrace in bukit indah jb which i am renting out.

my plan is to give son the condo, daughter the hdb, we retire in the terrace.

i am still working towards to that next property.
 
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