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Old 26-03-2019, 05:11 PM   #1125
lingalong
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Are you asking whether it makes financial sense to use Ordinary Account dollars to make mortgage payments at standard pace or at accelerated pace? Those are two very different questions.

Let me answer the second question right now since it's easier. Obviously you shouldn't take dollars that are earning 2.5% interest to pay off a mortgage with an interest rate that's less than 2.5% any faster -- even one dollar per month faster -- than necessary. That's just burning free money (the difference between what your OA dollars are earning and the loan interest rate), and that's not smart. Enjoy that free money as long as it's given to you. (Why do so many people actually do this?)

This particular decision is more interesting if/when the mortgage interest rate crosses 2.5%. Ordinary Account dollars could be doing better than 2.5% through either OA to SA transfers or prudent, long-term CPF Investment Scheme choices.
Hmm ok maybe I didn't phrase it properly, sorry.

Assuming that I am going to take on a HDB loan at 2.6%, for a tenure of say 20 years.

Would it make sense to:

1) Use my OA balance to pay off as much as possible first (Essentially wiping out my OA)

2) Subsequently use monthly CPF contribution into OA + Cash to repay the fixed monthly installment

Since the mortgage rate is 0.1% more than what I could earn in my CPF OA, I am technically not facing any opportunity cost correct?
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