Advice needed on optimally financing HDB flat

[fly_natalie]

Hello, appreciate some advice on financing HDB. My partner and I will be getting our keys to our mature estate 3rm flat next year. The cost of the flat is 420k.

I am hoping to get some advice on how to optimally finance the flat based on our circumstances.

My Financial Snapshot

Age: late 20s
Annual income: ~100-130k
Debts: 0
Cash and liquid investments: ~250k
CPF OA: ~75k

My Partner's Financial Snapshot

Age: late 20s
Annual income: ~100-130k
Debts: 0
Cash and liquid investments: ~100k
+Illiquid assets and investments which is not relevant
CPF OA: 0 (negligible-he runs his own business)

Our Personal Circumstances
I intend to take a sabbatical/start working part-time in my early 30s (around 31-32) with about 400-500k (in cash and liquid investments and 3/4 of FRS) [Hello "FIRE/Semi-ER" people!]
My partner will keep working.
My partner will be paying for the lion's share of the flat.
We may rent or sell the flat after 5 years MOP.

Some Financing Options I’ve thought of

1. Take a HDB loan (2.6%) and stretch out loan repayment period to 25 years. I will transfer all OA amount above 20k to CPFIS to avoid wipeout. I will pay for my share in CPF and partner will pay his share in cash.

2. Take a HDB loan and stretch out loan repayment period to 25 years. I will transfer all OA amount above 20k to CPFIS to avoid wipeout. We will service the loan using my CPF while partner gives me his share of the mortgage in cash.

3. Take a bank loan (if bank loan interest rates is less than 2.6%) and stretch out repayment period for so long as bank interest rates are lower than HDB interest rates. I will pay for my share in CPF and partner will pay his share in cash.

4. Take a bank loan (if bank loan interest rates is less than 2.6%) and stretch out repayment period for so long as bank interest rates are lower than HDB interest rates. We will service the loan using my CPF while partner gives me his share of the mortgage in cash.

My Considerations

- Long repayment period or short repayment period (Flexibility to arbitrage vs. lower aggregate interest paid)

- HDB loan or bank loan

- Service mortgage fully via CPF or part-cash/part-CPF (Max out my liquidity or allow CPF to compound?)

- Should I be bothered by accrued interests? If I intend to rent, should I not be bothered by accrued interests?

I personally value cash/liquid investments more than CPF, yet also wish to quickly let CPF compound and hit FRS so that I can semi-retire/take a sabbatical in peace (I’ve already exceeded BRS and using CPF to service mortgage will bring me under BRS). That said, I’m hesitant to lock up monies in Special Account as above all, I value flexibility and unrestricted options to use the money as I see fit.

So… what will you do if you were me, and why?

Hopefully there are others who can also benefit from replies.

Thanks in advance! ☺

 

[JuniorLion]

I would just pay off the loan as soon as I can. And this is indeed what I will do.

Some would advocate stretch your loan to max, and use spare cash to invest. Hopefully, returns > 2.6%.

 

[foozgarden]

Looking at your combine b income.
You should be able to pay off hdb easily in 5 yrs.
By then MOP is up. And you get a fully paid roof.
One burden is off.
You can then decide if rent/sell/ next venture.

 

[mummy1234]

How do u plan to semiretire? Kids may come along too. Need to plan for them unless u don't want kids.
With high income, better to continue working and invest in second property. If not where r u gonna stay if u rent out yr hdb?

 

[SBC]

Clear loans within the next 5 years and get a condo for investment.

 

[starfish.starfish]

If start with bank loan, you won't be able to convert to HDB loan subsequently.

 

[BBCWatcher]

I intend to take a sabbatical/start working part-time in my early 30s (around 31-32) with about 400-500k (in cash and liquid investments and 3/4 of FRS) [Hello "FIRE/Semi-ER" people!]

I don’t see how that math works, but I have a suggestion that’ll help a little....

I will transfer all OA amount above 20k to CPFIS to avoid wipeout.

You can transfer any amount of OA funds to SA until your SA reaches the Full Retirement Sum. Especially if you’re going to attempt to retire at age 31 or 32 then it’d be prudent to do that now, as a matter of fact.

That said, I’m hesitant to lock up monies in Special Account as above all, I value flexibility and unrestricted options to use the money as I see fit.

Don’t we all, but there’s a heavy price to pay if you don’t make a long-term commitment, whether to a family or to your retirement goals.

 

[tangent314]

'Optimal' will usually mean taking a bank loan at less than 2.5%, pay off the loan with cash, and pushing all your CPF OA into SA+MA. A full $420k loan at 2.5% for 25 years, will be serviced at $1900/year so your actual will be less than that, which is very manageable on just your husband's income.

Do make sure your husband has $60k in CPF (max $20k of that in OA) to enjoy the 1% bonus interest.

 

[ceciltan]

If you can afford it. Dun use cpf for your home.

 

[BBCWatcher]

'Optimal' will usually mean taking a bank loan at less than 2.5%, pay off the loan with cash, and pushing all your CPF OA into SA+MA.

To clarify, paying off the loan with cash with no late payment and no pre-payment penalty. If a refinancing deal comes along that looks attractive, it's worth considering.

CPF OA funds cannot be pushed into MA, but they can be transferred into SA, up to the Full Retirement Sum. On the other hand, voluntary MA and SA top-ups with tax relief can be quite helpful.

The original poster appears to have plenty of cash and cash-likes on hand to service a mortgage in any emergency situation, even a long one.

A full $420k loan at 2.5% for 25 years, will be serviced at $1900/year so your actual will be less than that, which is very manageable on just your husband's income.

Yes, although there's no particular requirement to take a 25 year loan. It could be a shorter term if desired.

Do make sure your husband has $60k in CPF (max $20k of that in OA) to enjoy the 1% bonus interest.

That's a very good point. And there are likely some tax reliefs available, too.

 

[EagleToThesSky]

Can you elaborate on the 1% bonus interest please? What is the criteria? Thank you.

'Optimal' will usually mean taking a bank loan at less than 2.5%, pay off the loan with cash, and pushing all your CPF OA into SA+MA. A full $420k loan at 2.5% for 25 years, will be serviced at $1900/year so your actual will be less than that, which is very manageable on just your husband's income.

Do make sure your husband has $60k in CPF (max $20k of that in OA) to enjoy the 1% bonus interest.

 

[FrostWurm]

Don’t we all, but there’s a heavy price to pay if you don’t make a long-term commitment, whether to a family or to your retirement goals.

Why don't you explain how it is 'a heavy price'?

 

[Buzy_bee]

Can you elaborate on the 1% bonus interest please? What is the criteria? Thank you.

https://heartlandboy.com/how-to-optimise-singapore-cpf-transfer-savings-in-your-ordinary-account-into-special-account-early/

Can read up here. Quite descriptive.