This is my only property. Wife is owning the HDB, which is rented out at 7% yield. Always wanted to keep the HDB for as long as we could afford for passive income.
CPF Accounts Value thread
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This is my only property. Wife is owning the HDB, which is rented out at 7% yield. Always wanted to keep the HDB for as long as we could afford for passive income.
OngHuatHuat
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OngHuatHuat
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ocs_woodlands
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cal3135
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this is not what i meant.
what i meant was eg
20 year loan 3000 per month
30 year loan 2200 per month
i will chose a 30 year loan.
i will pay 2200 back to the bank. 800 will go into cpf
rather than
3000 to bank, 0 to cpf
Bro likely u able to afford. Question is
•do u want to retire early or work till 70s or even 65
•u have other savings for retirement plan apart from your 1M property
•during your retirement, do u want to continue staying 1M condo or unlock the $$$ from the property
why cant i retire at 65 and take a loan that last till i am 75?
must my loan end when i retire?
Taking a loan till 75 years means that you are at the mercy of a rising interest rate (which is a real possibility). When you are retired, finding the extra money for the loan repayment may be an issue.
However if you have ready fund to pay down the loan without sacrificing much of your retirement lifestyle, then taking a long loan has less impact.
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BBCWatcher
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The banks and government are hesitant to lend beyond a “reasonable” working career because the credit risks are higher, that’s all.
taking a loan till 75 now does not mean that i cannot change my plan along the way.
i mentioned the example that i managed to reduce the loan amount from 3k to 2.2k. the 800 extra is not for you to have a time of your life. it belongs to the home loan. it is to be stored at the cpf oa.
when interest rises, all the accumulated 800s will be dumped into the home to redeem it.
i agree. for my case, i showed my rental income on my income tax. because of this passive income, the bank was willing to lend it till i am 75.
Like I said, if you have the option to pay down your loan, then taking a long loan is not much of an issue.
For people who would have a hard time finding the extra money to pay for increased interest rate, then I would caution taking a long loan which extend beyond retirement.
the idea is this
eg i need a loan of 500k to buy a home at 2% for 20 years. i will need to pay 2.5k a month.
i take take a 500k loan at 2% for 300 years. i need to pay 1.8k per month
it means i have 700 a month extra for my cpf oa. if interest remains the same. at 65, i will have a tidy sum in the oa. this oa can be used to clear of my loan when i am 65.
isnt that the same time as paying 2.5k a month for 20 years?
but because i can afford to pay 2.5k month. i backside itchy go and take 680k loan. like that i may be asking for it. i will have to maintain my income till i am 75.
eg i need a loan of 500k to buy a home at 2% for 20 years. i will need to pay 2.5k a month.
i take take a 500k loan at 2% for 300 years. i need to pay 1.8k per month
it means i have 700 a month extra for my cpf oa. if interest remains the same. at 65, i will have a tidy sum in the oa. this oa can be used to clear of my loan when i am 65.
isnt that the same time as paying 2.5k a month for 20 years?
but because i can afford to pay 2.5k month. i backside itchy go and take 680k loan. like that i may be asking for it. i will have to maintain my income till i am 75.
BBCWatcher
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No, I disagree.
Let’s assume you’re trying to decide between two mortgages, and let’s assume both mortgages have 2.0% fixed interest rates for 3 years, no prepayment penalty after 3 years, and otherwise identical terms and conditions except that one mortgage term is 20 years and the other is 30 years. Which should you take? Easy: Take the 30 years....
....Assuming you have the discipline to save and prudently invest. If you have that much discipline, then you’ll come out ahead, and you have less risk with the longer loan term.
If interest rates increase, you can always accelerate repayment of the loan. With a longer loan term, and if you can reliably beat 2.0% (as in this example), you have that much more wealth available to accelerate repayment.
You obviously did not read my post before answering.
Furthermore you stated many assumptions to support your narrow case.
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HDB price did not appreciate much. 7% is valid based on current price.
BBCWatcher
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No, you haven’t got this right, SKenny. I read what you wrote, and it’s not correct.
As Dork32 has pointed out, you generate more wealth when you have more OA dollars earning 2.5% and running 50 basis points ahead of a 2.0% mortgage. You want that deal to run as long as possible, because it’s a money machine, a wealth creator. So no, you don’t want to take a shorter term loan in these circumstances, even if you think you would have problems making loan payments while you’re retired.(*) You can always accelerate repayment of a longer term mortgage, but it’s either impossible or darn near impossible to lengthen a shorter term loan. (What happens if interest rates fall? Oh boy will you be happy that you have the longer term loan.)
Cheap loans should be as long as the lender will grant, assuming merely that you’re a responsible borrower (not borrowing too much principal) and saver. Your retirement date and situation doesn’t actually matter for these purposes.
There’s also the remote possibility of some huge national crisis that is (oddly) personally beneficial. During the Global Financial Crisis there were many U.S. borrowers who simply walked away from their mortgages and their houses. And that was the smart thing to do financially. True, they wrecked their credit scores for 7 years, but property valuations collapsed, and these particular borrowers owed far more than their properties were worth. In the U.S. there’s no full recourse. The banks can take the houses (and did), and you get a bad credit score for 7 years, but that’s as far as it goes. So the smart play for the borrowers was to walk away, and the sooner the better, and preferably with the longest term mortgages possible. Those that did the best were the ones that had paid as little as possible back to the mortgage lender.
That’s not so common in Singapore, but that sort of thing could happen if the borrower dies. The bank takes the house, and the borrower’s CPF nominated heirs get more OA dollars than otherwise. Good for the heirs, less good for the bank, but it’s a small/possible benefit to a longer rather than shorter term mortgage.
(*) And you can always sell the home when the time comes.
As Dork32 has pointed out, you generate more wealth when you have more OA dollars earning 2.5% and running 50 basis points ahead of a 2.0% mortgage. You want that deal to run as long as possible, because it’s a money machine, a wealth creator. So no, you don’t want to take a shorter term loan in these circumstances, even if you think you would have problems making loan payments while you’re retired.(*) You can always accelerate repayment of a longer term mortgage, but it’s either impossible or darn near impossible to lengthen a shorter term loan. (What happens if interest rates fall? Oh boy will you be happy that you have the longer term loan.)
Cheap loans should be as long as the lender will grant, assuming merely that you’re a responsible borrower (not borrowing too much principal) and saver. Your retirement date and situation doesn’t actually matter for these purposes.
There’s also the remote possibility of some huge national crisis that is (oddly) personally beneficial. During the Global Financial Crisis there were many U.S. borrowers who simply walked away from their mortgages and their houses. And that was the smart thing to do financially. True, they wrecked their credit scores for 7 years, but property valuations collapsed, and these particular borrowers owed far more than their properties were worth. In the U.S. there’s no full recourse. The banks can take the houses (and did), and you get a bad credit score for 7 years, but that’s as far as it goes. So the smart play for the borrowers was to walk away, and the sooner the better, and preferably with the longest term mortgages possible. Those that did the best were the ones that had paid as little as possible back to the mortgage lender.
That’s not so common in Singapore, but that sort of thing could happen if the borrower dies. The bank takes the house, and the borrower’s CPF nominated heirs get more OA dollars than otherwise. Good for the heirs, less good for the bank, but it’s a small/possible benefit to a longer rather than shorter term mortgage.
(*) And you can always sell the home when the time comes.
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Please read again what I posted, which you replied to.
I agree with what you said about Dork's position to a certain extent. However his assumption of a fixed 2% loan for 20 years doesn't exist in the real world.
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