CPF Accounts Value thread

[SBC]

Haha.. sleep soundly bro.
Don’t worry too much

Posted with xsmax HardwareZone Forums app

Nice encouragement. Thanks bro.

 

[SBC]

You wife working?

Wife is still working. HDB is fully paid. Required for decoupled HDB.
But she may stop working any time soon.

 

[BBCWatcher]

Please read again what I posted, which you replied to.

I have, more than once. It’s just not correct, sorry.

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.

And nobody is arguing that it does. The question is whether it makes sense to take the 30 or 20 year mortgage when all other terms and conditions are the same, and when there’s no prepayment penalty. And the answer is, as long as you’re not taking too much principal and are a responsible saver, ALWAYS take the longer term on a cheap loan. No, it just doesn’t matter that the term extends into your retirement years when you won’t have income from which to make loan payments.

A 30 year mortgage can be instantly transformed into a 20 year mortgage, all on your own. All you have to do is to accelerate repayment, and that’s what happens. A 20 year mortgage cannot be transformed into a 30 year mortgage without refinancing, if that’s even possible.

See how this works yet? A 30 year mortage *IS* a 20 year mortgage if there’s no prepayment penalty — or a 15, or a 25, or a 28, or a 12. And if the rate is low (it is in Singapore right now), and if all other terms and conditions are identical, why wouldn’t you take the most flexible mortgage you can get? You should — Dork32 is correct. And no, it just doesn’t matter whether your retirement date is appoaching or not.

This goes with every type of loan. An automobile manufacturer offered me a low interest loan (1.9% I think it was) with my choice of 12, 24, 36, or 48 months of loan term and no prepayment penalty. Which did I pick? Of course I picked 48 months! If 60 or 72 months were on offer, I would have picked the longest available. As it turned out, 1.9% remained a very cheap loan for the entire term, and so I paid off the loan on schedule, no faster. Great deal! The car was less great, as it turned out, but it wasn’t a lemon.

 

[SKenny]

I have, more than once. It’s just not correct, sorry.


And nobody is arguing that it does. The question is whether it makes sense to take the 30 or 20 year mortgage when all other terms and conditions are the same, and when there’s no prepayment penalty. And the answer is, as long as you’re not taking too much principal and are a responsible saver, ALWAYS take the longer term on a cheap loan. No, it just doesn’t matter that the term extends into your retirement years when you won’t have income from which to make loan payments.

A 30 year mortgage can be instantly transformed into a 20 year mortgage, all on your own. All you have to do is to accelerate repayment, and that’s what happens. A 20 year mortgage cannot be transformed into a 30 year mortgage without refinancing, if that’s even possible.

See how this works yet? A 30 year mortage *IS* a 20 year mortgage if there’s no prepayment penalty — or a 15, or a 25, or a 28, or a 12. And if the rate is low (it is in Singapore right now), and if all other terms and conditions are identical, why wouldn’t you take the most flexible mortgage you can get? You should — Dork32 is correct. And no, it just doesn’t matter whether your retirement date is appoaching or not.

This goes with every type of loan. An automobile manufacturer offered me a low interest loan (1.9% I think it was) with my choice of 12, 24, 36, or 48 months of loan term and no prepayment penalty. Which did I pick? Of course I picked 48 months! If 60 or 72 months were on offer, I would have picked the longest available. As it turned out, 1.9% remained a very cheap loan for the entire term, and so I paid off the loan on schedule, no faster. Great deal! The car was less great, as it turned out, but it wasn’t a lemon.

I do not disagree with some of your points that taking a long loan make sense BUT IT IS ONLY FOR RETIREES WHO HAS THE MEANS TO PAY IT OFF WHEN NEEDED (which was my position and you completely ignore it).

In addition, you cannot justify your case with an assumption that does not exist in the real world.

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.

 

[SKenny]

This goes with every type of loan. An automobile manufacturer offered me a low interest loan (1.9% I think it was) with my choice of 12, 24, 36, or 48 months of loan term and no prepayment penalty. Which did I pick? Of course I picked 48 months! If 60 or 72 months were on offer, I would have picked the longest available. As it turned out, 1.9% remained a very cheap loan for the entire term, and so I paid off the loan on schedule, no faster. Great deal! The car was less great, as it turned out, but it wasn’t a lemon.

I noticed that you opted to have taken the longest possible loan for your car loan. For me, I opted for the shortest loan, ie zero. I paid cash for all my car purchases.

While 1.9% car loan is much cheaper than market rate, it is still an expensive loan (its effective rate is closer to 3.8%). I see this as one the best "investment" that I can made by paying off the car completely (assuming that there is cash available to do so).

 

[BBCWatcher]

I do not disagree with some of your points that taking a long loan make sense BUT IT IS ONLY FOR RETIREES WHO HAS THE MEANS TO PAY IT OFF WHEN NEEDED (which was my position and you completely ignore it).

No! That’s wrong!

Even when a retiree doesn’t have the means to pay off the mortgage, the longer term is better. That retiree, before he/she retires, has the unilateral power to transform that 30 year mortgage into a 20 year mortgage (for example) instantly: just pay it off faster. But that retiree also has the choice not to do that, to have more retirement savings available (because he/she didn’t have to pay higher monthly mortgage payments), and to sell the property, possibly into a depressed market (and then thank goodness he/she doesn’t have as much equity tied up in the home that has fallen in value).

There are tons of Americans that understand this. There are lots of Americans that take out 30 year fixed mortgages (the traditional standard mortgage product in that country), and some of those Americans retire before the 30 year term ends. Tons of Americans also accelerate repayment on their 30 year mortgages and shorten them to 22 or 20 or 18 years or whatever. No problem! The longer term is more flexible. It simply defines the minimum pace at which the lender demands repayment, not that maximum pace. And having more flexibility, more options, is always better (for the rational and disciplined borrower — that’s an important assumption), even if you don’t think you would or should take the full term to repay.

 

[SKenny]

No! That’s wrong!

Even when a retiree doesn’t have the means to pay off the mortgage, the longer term is better. That retiree, before he/she retires, has the unilateral power to transform that 30 year mortgage into a 20 year mortgage (for example) instantly: just pay it off faster. But that retiree also has the choice not to do that, to have more retirement savings available (because he/she didn’t have to pay higher monthly mortgage payments), and to sell the property, possibly into a depressed market (and then thank goodness he/she doesn’t have as much equity tied up in the home that has fallen in value).

Again you are not reading my post before replying.

How can a person pay off the loan when he doesn't have the means to do so?? Even if he put it all into his OA, much of the amount can be sucked into his RA depending on his situation. Some of them would not even put it into CPF but spend it all (YOLO).

No point discussing further.

And a 20 years 2% FIXED loan does not exist!

 

[BBCWatcher]

I noticed that you opted to have taken the longest possible loan for your car loan. For me, I opted for the shortest loan, ie zero. I paid cash for all my car purchases.

While 1.9% car loan is much cheaper than market rate, it is still an expensive loan (its effective rate is closer to 3.8%).

How do you figure that?

I see this as one the best "investment" that I can made by paying off the car completely (assuming that there is cash available to do so).

And that’s not at all smart when my money over the course of those 48 months was reliably earning much more than 1.9%. Had I taken your advice and paid cash for that car, I would be poorer today.

I have paid cash for other major purchases, including cars. But 1.9% for 48 months with no prepayment penalty in that particular market at that particular time — no brainer, great deal.

Would you have also paid cash for university tuition instead of taking the 0% interest loan for 7 years that I got, with deferred payments and zero interest accrual? Yes, that’s right, I borrowed X, then 7 years later I wrote a check for X, and the debt was paid in full. Mistake?

 

[SKenny]

There are tons of Americans that understand this. There are lots of Americans that take out 30 year fixed mortgages (the traditional standard mortgage product in that country), and some of those Americans retire before the 30 year term ends. Tons of Americans also accelerate repayment on their 30 year mortgages and shorten them to 22 or 20 or 18 years or whatever. No problem! The longer term is more flexible. It simply defines the minimum pace at which the lender demands repayment, not that maximum pace. And having more flexibility, more options, is always better (for the rational and disciplined borrower — that’s an important assumption), even if you don’t think you would or should take the full term to repay.

Using the Americans as a example of prudent financial choices, is taking the cake.

They are the world biggest debtor for a reason.

 

[SKenny]

How do you figure that?


And that’s not at all smart when my money over the course of those 48 months was reliably earning much more than 1.9%. Had I taken your advice and paid cash for that car, I would be poorer today.

I have paid cash for other major purchases, including cars. But 1.9% for 48 months with no prepayment penalty in that particular market at that particular time — no brainer, great deal.

Would you have also paid cash for university tuition instead of taking the 0% interest loan for 7 years that I got, with deferred payments and zero interest accrual?

You clearly thinks that you are paying 1.9% for your car loan when in reality you are paying closer to 3.8%.

Try figuring this out before replying.

 

[tangent314]

This goes with every type of loan. An automobile manufacturer offered me a low interest loan (1.9% I think it was) with my choice of 12, 24, 36, or 48 months of loan term and no prepayment penalty. Which did I pick? Of course I picked 48 months! If 60 or 72 months were on offer, I would have picked the longest available. As it turned out, 1.9% remained a very cheap loan for the entire term, and so I paid off the loan on schedule, no faster. Great deal! The car was less great, as it turned out, but it wasn’t a lemon.

I hope this wasn't an automobile in Singapore, where the car loan rates quoted are not amortizing but count against your principle for the entire duration of the loan.

 

[SKenny]

I hope this wasn't an automobile in Singapore, where the car loan rates quoted are not amortizing but count against your principle for the entire duration of the loan.

BINGO!!

 

[BBCWatcher]

And a 20 years 2% FIXED loan does not exist!

Good grief, nobody is arguing this!

Here are the two choices (scenario):

Mortgage A: 2.0% fixed for 3 years, 20 year term, no prepayment penalty
Mortgage B: 2.0% fixed for 3 years, 30 year term, no prepayment penalty

All terms and conditions are identical, but Mortgage B has a longer term than Mortgage A — that’s the only difference.

And you take Mortgage B! This is a no brainer! Mortgage B *IS ALSO* Mortgage A. All you have to do to make Mortgage B equal to Mortgage A is to pay of Mortgage B as if it were Mortgage A. But you don’t HAVE to do that, and you shouldn’t do that if you’re earning, say, 2.5% interest on your Ordinary Account dollars that you would be using to pay your mortgage. You can (and should) pocket those 50 basis points, get richer, and let that deal run as long as it possibly can — because you’re making a profit (50 basis points) every month.

Why would you pick Mortgage A and artificially constraint yourself? The bank is willing to offer your Mortgage B right along with Mortgage A, because Mortgage B is exactly the same as Mortgage A whenever you want. But Mortgage A can never be Mortgage B.

 

[SKenny]

Good grief, nobody is arguing this!

Here are the two choices (scenario):

Mortgage A: 2.0% fixed for 3 years, 20 year term, no prepayment penalty
Mortgage B: 2.0% fixed for 3 years, 30 year term, no prepayment penalty

All terms and conditions are identical, but Mortgage B has a longer term than Mortgage A.

And you take Mortgage B! This is a no brainer! Mortgage B *IS ALSO* Mortgage A. All you have to do to make Mortgage B equal to Mortgage A is to pay of Mortgage B as if it were Mortgage A. But you don’t HAVE to do that, and you shouldn’t do that if you’re earning, say, 2.5% interest on your Ordinary Account dollars that you would be using to pay your mortgage. You can (and should) pocket those 50 basis points, get richer, and let that deal run as long as it possibly can — because you’re making a profit (50 basis points) every month.

Why would you pick Mortgage A and artificially constraint yourself? The bank is willing to offer your Mortgage B right along with Mortgage A, because Mortgage B is exactly the same as Mortgage A whenever you want. But Mortgage A can never be Mortgage B.

No retirees should take a long loan if they cannot afford to pay it off when needed.

Enough said.

 

[BBCWatcher]

I hope this wasn't an automobile in Singapore, where the car loan rates quoted are not amortizing but count against your principle for the entire duration of the loan.

BINGO!!

Not bingo. Where did I ever mention the car and car loan were in Singapore?

There was a side benefit to taking the car loan, by the way. It helped build more credit history and improve my credit score.

 

[BBCWatcher]

No retirees should take a long loan if they cannot afford to pay it off when needed.

No, that’s just b.s. — flat out wrong. I completely disagree.

You shouldn’t take out a mortgage and buy a property beyond your means, including all factors including retirement plans. But that’s as far as it goes. You SHOULD take out the longest term your mortgage lender is offering, provided the rate is the same low rate, there is no prepayment penalty, and all other terms and conditions are equal. I am assuming you are rational and financially prudent.

 

[SKenny]

Not bingo. Where did I ever mention the car and car loan were in Singapore?

There was a side benefit to taking the car loan, by the way. It helped build more credit history and improve my credit score.

Where are you talking about then? Mars?? Where can you find an effective 1.9% car loan anywhere in the world? The BS is strong here.

BTW in this thread, we are talking about CPF in SINGAPORE.

You are using a wrong (and non existing) assumption to support your case AGAIN.

 

[SKenny]

No, that’s just b.s. — flat out wrong. I completely disagree.

You shouldn’t take out a mortgage and buy a property beyond your means, including all factors including retirement plans. But that’s as far as it goes. You SHOULD take out the longest term your mortgage lender is offering, provided the rate is the same low rate, there is no prepayment penalty, and all other terms and conditions are equal. I am assuming you are rational and financially prudent.

Good for you.

BTW, I am more financial prudent than most. This much is clear.

 

[BBCWatcher]

Where can you find an effective 1.9% car loan anywhere in the world?

It’s absolutely routine in many countries with larger automobile markets. Just as one example, Ford Motor Credit (Ford’s financing arm) in the United States was offering 0% APR — yes, that’s truly 0% — financing for 72 months on several 2018 model year new Ford vehicles plus the available cash rebates in full.

So, why does this happen from time to time? Well, it’s a combination of factors. First of all, the automobile manufacturers have their own credit arms with access to relatively low cost capital. Second, they can stimulate more car sales (to their vehicles) when they reduce the cash outlay, so they’re willing to share some of those higher profits with buyers. Third, some borrowers miss payments and incur penalties which are profitable. Fourth, the vehicle must be insured (to protect the lender), and the dealer also gets a commission if you buy automobile insurance from the dealer (but you don’t have to). The lender/car seller is willing to share some of that potential upside, too.

You don’t pay a higher price for the vehicle, though. If anything you pay a lower price for the car itself when you take 0% or low interest rate financing because of the kickbacks.

But let’s talk about Singapore. In Singapore we currently have low mortgage interest rates, still lower than CPF Ordinary Account interest. And I fully endorse enjoying that happy state of affairs for however long it lasts. And yes, that also means you should take the mortgage with the lowest possible monthly payment (i.e. longest term) that allows you to enjoy that free money however long it lasts, assuming you’re prudent, that there’s no prepayment penalty, and that the terms and conditions are otherwise identical. This is just simple interest rate arbitrage, and you become wealthier when you grab it. This happy state of affairs does NOT mean you should take out more principal than you otherwise would, or that you should borrow to buy a home beyond your means. But you should absolutely collect this bonus.

....What did I do with the cash that I didn’t use to pay for my 1.9% APR financed car? I directed it into my long-term savings according to standard, prudential, low cost investing principles. And that has proven to be a heck of a great deal. I am wealthier because of that sensible decisions and other decisions like it. I also made every payment on time, on schedule, using the equivalent of automatic monthly GIRO.

 

[lifeafter41]

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.

I see, you have “decoupled”......lol
Good move.