CPF Accrued Interest

[aKaGiz]

Hi when you use OA for property then there will be accrued interest. Does this accrued interest really matter?

When you sell your house, you pay back the accrued interest but then you use the $ to pay the next property. So it doesn't really matter right?

What is the best way to maximise the usage of OA? Should I pay cpf to stop the increasing accrued interest?

 

[Parka]

Hi when you use OA for property then there will be accrued interest. Does this accrued interest really matter?

When you sell your house, you pay back the accrued interest but then you use the $ to pay the next property. So it doesn't really matter right?

What is the best way to maximise the usage of OA? Should I pay cpf to stop the increasing accrued interest?

In my opinion, the accrued interest is to make it less enticing to sell your property in the future.

The interest is quite significant. At 2.5% each year, after 10 years, you have to pay back 25% of the OA you took out as interested. So if you took out 200K, you have to pay back 250K. If I remember correctly, you have to pay back the principal first before you can pay the interest.

Whether or not you want to pay back the OA + Accrued Interest depends on what you want to do with your property in the future.

If you have no intention of selling the property, you can just let the interest accrue forever.

Personally for me, I will want to pay back OA + Accrued Interest ASAP because when I have the option to sell my property in the future (10 years), I don't want to have to find that extra 50K in order to pay back 250K.

 

[BBCWatcher]

At 2.5% each year, after 10 years, you have to pay back 25% of the OA you took out as interested. So if you took out 200K, you have to pay back 250K.

It's more than that since the interest is compounded annually. It would be a bit over $256K in your example.

 

[havetheveryfun]

Personally for me, I will want to pay back OA + Accrued Interest ASAP because when I have the option to sell my property in the future (10 years), I don't want to have to find that extra 50K in order to pay back 250K.

But the point is usually people would only sell their current property to buy another one - be it upgrading or downgrading.

So even if you pay back the accrued interest, you're still going to use the money you pay back to buy the new property.. then whats the issue ?

 

[chopra]

Sorry hijack ur thread.

Right now we can only contribute lump sum into SA or apportion equally amongst oa/sa/ma. Besides selling the house, Is there an avenue to pay accured interest via cash?

 

[star2008]

Sorry hijack ur thread.

Right now we can only contribute lump sum into SA or apportion equally amongst oa/sa/ma. Besides selling the house, Is there an avenue to pay accured interest via cash?

Download the form "Application to Make Cash Refund of CPF Savings Used for Property" from below CPF website:

https://www.cpf.gov.sg/Members/Services/forms-and-e-app/schemes/housing/public-housing-scheme

 

[chopra]

Wow for the fast reply!

 

[starfish.starfish]

Hi when you use OA for property then there will be accrued interest. Does this accrued interest really matter?

When you sell your house, you pay back the accrued interest but then you use the $ to pay the next property. So it doesn't really matter right?

What is the best way to maximise the usage of OA? Should I pay cpf to stop the increasing accrued interest?

That's what I thought too, using the accrued interest for the next property anyway.

 

[aKaGiz]

But what happens when you turn 55?

 

[BBCWatcher]

Right now we can only contribute lump sum into SA or apportion equally amongst oa/sa/ma.

If your MA is below the BHS ($52,000 in 2017), and if you aren't going to hit the CPF Annual Limit ($37,740, which does not include Retirement Sum Top Ups), then you can also top up MA specifically.

Besides selling the house, Is there an avenue to pay accured interest via cash?

Star2008 provided the correct answer, but you should think carefully whether it makes sense to do that. In particular, you can get tax relief for RSTUs and MA top-ups, but there's no tax relief for OA refunds. SA/RA and MA also earn higher interest. Another option is to pay off your housing loan earlier, and that's probably the smarter move if the loan interest rate is higher than 2.5%.

 

[starfish.starfish]

But what happens when you turn 55?

What willl happen? My SA will move into RA?

 

[RoLanTo]

2 days ago, wife and i decided we stop paying mortgages via CPF.. will use cash to pay.. also made some partial capital payment to the money took out from cpf for mortgage..

i think dun quite make sense for me to pay myself 2.5% interest instead of govt pay me..

 

[hwmook]

2 days ago, wife and i decided we stop paying mortgages via CPF.. will use cash to pay.. also made some partial capital payment to the money took out from cpf for mortgage..

i think dun quite make sense for me to pay myself 2.5% interest instead of govt pay me..

If you cannot earn 2.5% from the money then of course does not make sense. If you are investment savvy then it shouldn't be a problem to earn 2.5% PA.

 

[BBCWatcher]

So even if you pay back the accrued interest, you're still going to use the money you pay back to buy the new property.. then whats the issue ?

So let's assume all that. Let's also assume the property falls in value, and you sell. What happens then? Well, I think the sequence is as follows:

(a) Remaining mortgage is paid off first (of course);
(b) Anything left gets directed next to CPF OA (and with accrued interest);
(c) Anything left gets paid to you in cash.

Remember also there are transaction costs even before step (a). Depending on how much the property fell in value and on the transaction costs, you may not even get past step (a). Or you may only get partial recovery in step (b). In other words, there are no guarantees that you can recover even your OA monies. It's property, and it's a gamble. No, property doesn't go straight up in value forever. A decade of declining property values is quite possible. It has happened before. It has never happened with CPF, which has 2.5+ or 4+ percent interest. That always goes up.

Anyway, this is still real money, yours, and it's still a gamble. It's quite possible you'll have to come up with some more cash when you're selling then buying property in the future.

 

[badsector]

2 days ago, wife and i decided we stop paying mortgages via CPF.. will use cash to pay.. also made some partial capital payment to the money took out from cpf for mortgage..

i think dun quite make sense for me to pay myself 2.5% interest instead of govt pay me..

i won't use cash to clear HDB loan.
use excess CPF OA to clear if u have plans to buy a second home.
else transfer the excess CPF OA to SA if you have no intention of upgrading.

so long by age 55, u able to hit FRS. accrued interest shouldn't matter

 

[RoLanTo]

If you cannot earn 2.5% from the money then of course does not make sense. If you are investment savvy then it shouldn't be a problem to earn 2.5% PA.

ya. but i make some changes on my invest-able funds. i break into 2 portion.. some goes back to CPF which i use for retirement.. the others all goes to stocks..

 

[RoLanTo]

i won't use cash to clear HDB loan.
use excess CPF OA to clear if u have plans to buy a second home.
else transfer the excess CPF OA to SA if you have no intention of upgrading.

so long by age 55, u able to hit FRS. accrued interest shouldn't matter

still thinking whether to xfer my OA to SA.. it will limit how much i can grow my total CPF and also prevent me for future 7k top-up tax relief.

probably i just leave it in OA to earn 2.5% then see if i use them to pay off my house or 2nd property

 

[hwmook]

ya. but i make some changes on my invest-able funds. i break into 2 portion.. some goes back to CPF which i use for retirement.. the others all goes to stocks..

As long as you have a investment plan and decide to pay off the mortgage in excess cash then I think it's fine.

For me, I would never pay anything in cash if I can avoid it. I intend to take my time paying off mortgage with CPF and invest my cash.

 

[Nofear40]

still thinking whether to xfer my OA to SA.. it will limit how much i can grow my total CPF and also prevent me for future 7k top-up tax relief.

probably i just leave it in OA to earn 2.5% then see if i use them to pay off my house or 2nd property

One of the 2 properties will be for investment, right?
I am thinking if one should use cash instead of CPF to pay for the investment property due to accrued interest as the property will be sold one day? Assuming you cannot find anywhere to park your cash to earn above 2.5% p.a interest

 

[RoLanTo]

As long as you have a investment plan and decide to pay off the mortgage in excess cash then I think it's fine.

For me, I would never pay anything in cash if I can avoid it. I intend to take my time paying off mortgage with CPF and invest my cash.

unfortunately, my investment return always not so good.. haahaa. so now i put more funds into something with more predictable returns (cpf)..

e.g i bought sph 3-4yrs ago @ 4.x range.. now already 3.5x... the dividends collected minus capital loss.. if i avg out.. the return only ~1% per year .. hmm. so i think i just forget it and choose cpf instead