OA to pay HDB Oustanading Loan

[cpuer]

Hi Financial Gurus

Just did an assets and liability stock taking. Realized that our(me and my wife) OA has about same amount of the HDB outstanding loan. With 2 kids finished studying, and we are still working and retiring only in 7 and 9 years time, do you think that its better for me to just use all the QA to pay up the HDB loan? We are risk averse.

Both of our SA is reaching the current FRS, but would prefer ERS if we can.

I am not sure my information if sufficient for you all to comment, do let me know if additional information is required.

TIA

 

[TabascoSauce]

how much non-cpf retirement fund do u have? wat interest rate are they earning?

 

[computers70]

Hi Financial Gurus

Just did an assets and liability stock taking. Realized that our(me and my wife) OA has about same amount of the HDB outstanding loan. With 2 kids finished studying, and we are still working and retiring only in 7 and 9 years time, do you think that its better for me to just use all the QA to pay up the HDB loan? We are risk averse.

Both of our SA is reaching the current FRS, but would prefer ERS if we can.

I am not sure my information if sufficient for you all to comment, do let me know if additional information is required.

TIA

Maybe would you like to mention the figures on how much you owe and cpf balances

 

[hwmook]

What is your current age? If you are targeting to retire at 62 then you are 55 years old now?

Since you mentioned risk adverse then I guess there is no need to discuss about investment, just repay the loan using your OA.

 

[cpuer]

Happy New Year Everyone!

Thanks so far for the advice.

Here's some more to fill you in with.

This year I am 55yo. Wife is 2 years younger.

Owe HDB for 185k.

With these additional information, anymore advice?

Thanks!

 

[HMAN]

Happy New Year Everyone!

Thanks so far for the advice.

Here's some more to fill you in with.

This year I am 55yo. Wife is 2 years younger.

Owe HDB for 185k.

With these additional information, anymore advice?

Thanks!

Virtually you already have the reserve or you are safe.

1.Keep the money in CPF for rainy day use.

You are getting 2.5% interest

2.Convert to commercial Bank loan which is running lower than HDB loan rate.
Commercial interest around 2.0%

3. You have 0.5% of Interest earned on your 180K with offset from Pt (1) and Pt(2)


4. If you dont intend to sell your HDB , dont pay off so soon with CPF money.
The Accrued interest of annual 2.5% on your housing will be very substantial in future.


If you do a lump sum payment of 180K.., interest of this 180K will
start ticking till you sell your HDB. If you are doing progressive payment then your interest also progressive adding up but at slower pace.

Do a spreadsheet calculation of Accrued interest up to 5 years. . you will see the difference .
Pay 180K..what is the interest after 5 years versus

Pay Smaller monthly sum+ housing interest , what is the accrued interest.

Pay off now, you dont have investment opportunity, just psychologically feel more relief..

 

[cpuer]

Thanks for the financial insights, your points well taken and will do a spreadsheet to study more on accrued interest

Virtually you already have the reserve or you are safe.

1.Keep the money in CPF for rainy day use.

You are getting 2.5% interest

2.Convert to commercial Bank loan which is running lower than HDB loan rate.
Commercial interest around 2.0%

3. You have 0.5% of Interest earned on your 180K with offset from Pt (1) and Pt(2)


4. If you dont intend to sell your HDB , dont pay off so soon with CPF money.
The Accrued interest of annual 2.5% on your housing will be very substantial in future.


If you do a lump sum payment of 180K.., interest of this 180K will
start ticking till you sell your HDB. If you are doing progressive payment then your interest also progressive adding up but at slower pace.

Do a spreadsheet calculation of Accrued interest up to 5 years. . you will see the difference .
Pay 180K..what is the interest after 5 years versus

Pay Smaller monthly sum+ housing interest , what is the accrued interest.

Pay off now, you dont have investment opportunity, just psychologically feel more relief..

 

[1nd3x1nv3stor]

Hi Financial Gurus

Just did an assets and liability stock taking. Realized that our(me and my wife) OA has about same amount of the HDB outstanding loan. With 2 kids finished studying, and we are still working and retiring only in 7 and 9 years time, do you think that its better for me to just use all the QA to pay up the HDB loan? We are risk averse.

Both of our SA is reaching the current FRS, but would prefer ERS if we can.

I am not sure my information if sufficient for you all to comment, do let me know if additional information is required.

TIA

From financial stand point alone, I think it is reasonable to pay off your HDB loan since you are paying HDB loan interest 0.1% higher than what your CPF money earns. That is for the current scenarios only (HDB loan interest of 2.6% vs CPF OA interest of 2.5%).

The only two other things from financial stand point is when you can either:
(a) lower the HDB loan interest by taking bank loan for your HDB, or
(b) getting higher interest rate of your CPD OA balance by investing in stocks (which is not suitable for you since you said you are risk averse).

The other things to consider not to pay off your HDB loan is if you need your OA for the down payment for you future private property purchase.

If I were you, I will pay off the HDB loan. Assuming that I do not plan to purchase private property and knowing that I have reached FRS and am still working to add until ERS.

Hope this helps

 

[JuniorLion]

From financial stand point alone, I think it is reasonable to pay off your HDB loan since you are paying HDB loan interest 0.1% higher than what your CPF money earns. That is for the current scenarios only (HDB loan interest of 2.6% vs CPF OA interest of 2.5%).

The only two other things from financial stand point is when you can either:
(a) lower the HDB loan interest by taking bank loan for your HDB, or
(b) getting higher interest rate of your CPD OA balance by investing in stocks (which is not suitable for you since you said you are risk averse).

The other things to consider not to pay off your HDB loan is if you need your OA for the down payment for you future private property purchase.

If I were you, I will pay off the HDB loan. Assuming that I do not plan to purchase private property and knowing that I have reached FRS and am still working to add until ERS.

Hope this helps

I agree with 1nd3x1nv3stor. I don't recommend a future property purchase as a potential investment.

Instead:
1) Either pay off all your HDB loans now and enjoy the CPF payout from SA (would be less stressful this way); or
2) Don't pay off HDB loan. Use the extra to invest and hopefully can get 3-4 % returns

 

[BBCWatcher]

On your 55th birthday there is a CPF “sweep” to create your Retirement Account. CPF sweeps first from your Special Account, then from your Ordinary Account, to stock your Retirement Account with funds that’ll eventually go into CPF LIFE.

There is a “hack” you could try. It’d involve a few steps, something like this:

1. Repay your Ordinary Account, such that it has a balance of $171,000 a couple months before your 55th birthday. (The Full Retirement Sum is $171,000 in 2018.)

2. Using the CPF Investment Scheme, see if you can use your Special Account funds to buy a Singapore T-Bill that’s maturing just after your 55th birthday. Check with DBS/POSB, OCBC, or UOB to see what offers you can get. If they’re offering par or better (a T-Bill price below face value), all-in, I’d take that deal.

3. With your Special Account funds safely tucked away in a T-Bill, CPF sweeps your Ordinary Account funds into your Special Account.

4. The T-Bill matures, and the funds are returned to your Special Account.

So, what do you end up with? A lot of money sitting in an “on demand” savings account earning 4% interest, which you wouldn’t actually withdraw (even partially) unless and until you need some funds for immediate needs. Plus your fully stocked Retirement Account. That would all be nice.

This is all a *bit* speculative, but it appears viable.

 

[JuniorLion]

On your 55th birthday there is a CPF “sweep” to create your Retirement Account. CPF sweeps first from your Special Account, then from your Ordinary Account, to stock your Retirement Account with funds that’ll eventually go into CPF LIFE.

There is a “hack” you could try. It’d involve a few steps, something like this:

1. Repay your Ordinary Account, such that it has a balance of $171,000 a couple months before your 55th birthday. (The Full Retirement Sum is $171,000 in 2018.)

2. Using the CPF Investment Scheme, see if you can use your Special Account funds to buy a Singapore T-Bill that’s maturing just after your 55th birthday. Check with DBS/POSB, OCBC, or UOB to see what offers you can get. If they’re offering par or better (a T-Bill price below face value), all-in, I’d take that deal.

3. With your Special Account funds safely tucked away in a T-Bill, CPF sweeps your Ordinary Account funds into your Special Account.

4. The T-Bill matures, and the funds are returned to your Special Account.

So, what do you end up with? A lot of money sitting in an “on demand” savings account earning 4% interest, which you wouldn’t actually withdraw (even partially) unless and until you need some funds for immediate needs. Plus your fully stocked Retirement Account. That would all be nice.

This is all a *bit* speculative, but it appears viable.

For step 2, why not just use your entire SA + OA to buy a T-Bill. That way, you have nothing swept into your RA.

Then, you top up your RA to the current ERS using cash only. After that, when your T-Bill matures, you get back your OA/SA. Tada. Lots of your money is now tucked into 2.5%/4% interest rates!

 

[BBCWatcher]

For step 2, why not just use your entire SA + OA to buy a T-Bill. That way, you have nothing swept into your RA.
Then, you top up your RA to the current ERS using cash only. After that, when your T-Bill matures, you get back your OA/SA. Tada. Lots of your money is now tucked into 2.5%/4% interest rates!

I think you can do that (or boost the RA to the FRS if you wish), but the implicit assumption here is that 2.5% isn’t that attractive, that there are some reasonable, age-appropriate, better investment alternatives. The 4.0% stuff, on the other hand, is worth chasing.

If the 2.5% stuff is also attractive to you, and if you have the cash, great!

Check this carefully, though, to make sure it really would work. We’re speculating a bit.

 

[JuniorLion]

I think you can do that (or boost the RA to the FRS if you wish), but the implicit assumption here is that 2.5% isn’t that attractive, that there are some reasonable, age-appropriate, better investment alternatives. The 4.0% stuff, on the other hand, is worth chasing.

If the 2.5% stuff is also attractive to you, and if you have the cash, great!

Check this carefully, though, to make sure it really would work. We’re speculating a bit.

2.5% guaranteed is attractive.

Need some one who has tried it to let us know.

 

[cpuer]

Really appreciate all these ideas. I need to digest them all, but please keep them coming.

 

[SKenny]

On your 55th birthday there is a CPF “sweep” to create your Retirement Account. CPF sweeps first from your Special Account, then from your Ordinary Account, to stock your Retirement Account with funds that’ll eventually go into CPF LIFE.

There is a “hack” you could try. It’d involve a few steps, something like this:

1. Repay your Ordinary Account, such that it has a balance of $171,000 a couple months before your 55th birthday. (The Full Retirement Sum is $171,000 in 2018.)

2. Using the CPF Investment Scheme, see if you can use your Special Account funds to buy a Singapore T-Bill that’s maturing just after your 55th birthday. Check with DBS/POSB, OCBC, or UOB to see what offers you can get. If they’re offering par or better (a T-Bill price below face value), all-in, I’d take that deal.

3. With your Special Account funds safely tucked away in a T-Bill, CPF sweeps your Ordinary Account funds into your Special Account.

4. The T-Bill matures, and the funds are returned to your Special Account.

So, what do you end up with? A lot of money sitting in an “on demand” savings account earning 4% interest, which you wouldn’t actually withdraw (even partially) unless and until you need some funds for immediate needs. Plus your fully stocked Retirement Account. That would all be nice.

This is all a *bit* speculative, but it appears viable.

I tried this hack a few months ago for investing the SA just before I turned 55. Not so easy. I talked to a few banks and none of them actually know how to invest the SA account as it is "never done before". They passed me around a few of the banking officers without actually going anywhere.

In the end, I gave up.

 

[JuniorLion]

I tried this hack a few months ago for investing the SA just before I turned 55. Not so easy. I talked to a few banks and none of them actually know how to invest the SA account as it is "never done before". They passed me around a few of the banking officers without actually going anywhere.

In the end, I gave up.

This link shows you the possible means to invest: (1) CPFIS-OA, or (2) CPFIS-SA.

For CPFIS-OA
Open a CPF Investment Account with one of the following CPFIS agent banks with your CPF statement if you wish to invest your OA savings:

- DBS Bank Ltd (DBS)
- Overseas-Chinese Banking Corporation Ltd (OCBC)
- United Overseas Bank Ltd (UOB)

For CPFIS-SA

There is no need to open any CPF Investment Account if you wish to invest your SA savings.

Thereafter, you can approach the product providers (https://www.cpf.gov.sg/Assets/members/Documents/INV_AnnexC.pdf) directly to buy or sell your investments.

 

[hwmook]

Virtually you already have the reserve or you are safe.

1.Keep the money in CPF for rainy day use.

You are getting 2.5% interest

2.Convert to commercial Bank loan which is running lower than HDB loan rate.
Commercial interest around 2.0%

3. You have 0.5% of Interest earned on your 180K with offset from Pt (1) and Pt(2)


4. If you dont intend to sell your HDB , dont pay off so soon with CPF money.
The Accrued interest of annual 2.5% on your housing will be very substantial in future.


If you do a lump sum payment of 180K.., interest of this 180K will
start ticking till you sell your HDB. If you are doing progressive payment then your interest also progressive adding up but at slower pace.

Do a spreadsheet calculation of Accrued interest up to 5 years. . you will see the difference .
Pay 180K..what is the interest after 5 years versus

Pay Smaller monthly sum+ housing interest , what is the accrued interest.

Pay off now, you dont have investment opportunity, just psychologically feel more relief..

1. What can you use CPF OA for during rainy days? Nothing except to pay for property loan. Keeping in CPF serve no purpose except for being lazy in TS case since he already reach 55 and got enough to repay HDB loan.

2. With rate hike ongoing, it's not a great idea but worth a gamble that the overall interest + legal fees are worth the effort.

3. 2.5% is always less than 2.6%, no need spreadsheet to tell you that. Accrued interest also doesn't matter to him since he already reach 55 and have FRS, he can withdraw anytime he want and doesn't need to care about accrued interest.

 

[henrylbh]

Happy New Year Everyone!

Thanks so far for the advice.

Here's some more to fill you in with.

This year I am 55yo. Wife is 2 years younger.

Owe HDB for 185k.

With these additional information, anymore advice?

Thanks!

First step, max your SA by transferring from OA. This should have been done a few years before you reach 55 since you never thought of getting another property.

 

[BBCWatcher]

2.5% guaranteed is attractive.

“Eh.”

For “hot” money, sure. For other dollars, not so much. And, to get technical for a moment, it’s actually 2.5% floor (not strictly guaranteed), fixed deposit rates above.

Anyway, start with the 4.0% stuff — we can agree on that.

 

[BBCWatcher]

First step, max your SA by transferring from OA.

Not necessarily the best first move. Grabbing one more year of tax relief ($7,000 top-up) first might be a better move, followed by OA to SA conversion now, and definitely before the deadline (55th birthday).

OA to SA conversions are not possible if the SA has hit the Full Retirement Sum ($171,000 in 2018). They are also not possible on or after one’s 55th birthday.