HDB housing loan question

[reddevil0728]

Most likely no, but hard to predict what happen in future?

Then is a judgement call.

do you need the HDB loan now more or do you potentially need the HDB loan in future more?

 

[sgboy85]

Hi all, I just got a flat but I am self employed so I don't have CPF. But hdb said will deduct monthly repayment from my cpf. Can I pay in cash instead? And if I pay cash and when I sell the flat will the cash portion goes back to cpf?

 

[BBCWatcher]

Hi all, I just got a flat but I am self employed so I don't have CPF.

Well, you should have at least CPF MediSave. And you could have Ordinary Account and Special Account dollars, with tax relief. That’s a choice available to you.

But hdb said will deduct monthly repayment from my cpf. Can I pay in cash instead?

Yes, and you’ll have to if you don’t have enough OA dollars. But see above about the option of voluntarily contributing to CPF. You’ll get tax relief that way (if you otherwise qualify) AND be able to pay your mortgage. Some of your voluntary contributions will land in your Special Account and be reserved for retirement, but you might end up earning as much as 5.01% on those dollars depending on your current CPF balances.

And if I pay cash and when I sell the flat will the cash portion goes back to cpf?

No.

 

[sgboy85]

Well, you should have at least CPF MediSave. And you could have Ordinary Account and Special Account dollars, with tax relief. That’s a choice available to you.

Yes, and you’ll have to if you don’t have enough OA dollars. But see above about the option of voluntarily contributing to CPF. You’ll get tax relief that way (if you otherwise qualify) AND be able to pay your mortgage. Some of your voluntary contributions will land in your Special Account and be reserved for retirement, but you might end up earning as much as 5.01% on those dollars depending on your current CPF balances.

No.

Understood. Thank u for ur message.
My housing loan is 1.5k, i need contribute $2.6k a month.

Ordinary Account​

$1,476.02 <----​

Special Account​

$491.66​

MediSave Account​

$632.32​

And those i contribue $1.5k x 12months x MOP 5 years = $90k
So that means i have to return back 2.5% of 90k (5 yrs) will be $11k of interests.

A bit not worth... for now i have to contribute $500 a month to medisave.

Understand the special account is for retirement but u have my own other retirement plans

 

[BBCWatcher]

My housing loan is 1.5k, i need contribute $2.6k a month.

Ordinary Account​

$1,476.02 <----​

Special Account​

$491.66​

MediSave Account​

$632.32​

And those i contribue $1.5k x 12months x MOP 5 years = $90k
So that means i have to return back 2.5% of 90k (5 yrs) will be $11k of interests.
A bit not worth... for now i have to contribute $500 a month to medisave.

There's a bit more to it.

I believe you're in the 7% tax bracket, so your Voluntary Contributions (VCs) to CPF should be eligible for 7% tax relief. But let's assume you "only" net 5% of income tax savings on the additional VCs (above your existing $6,000/year to MediSave). That means you'd cut your income tax bill by about $1,200. If your income increases then you could be pushed into a higher tax bracket and save more on your income tax bill.

Then there's the fact your Special Account contributions will earn at least 4%, possibly 5.01% if you're still in bonus interest territory. That's a very good deal!

The accumulated interest (2.5%) on your Ordinary Account is simply paying yourself back. You don't lose that money. It goes back into your OA where you can use it again for housing. (And wouldn't you need money for housing if you sell your HDB flat? Or do you plan to rent or live overseas after the MOP?) Also, once you're age 55+ you may have the option of taking the full sales proceeds from the home as cash if you wish. (If you've adequately funded your Retirement Account you would have that option.)

Understand the special account is for retirement but u have my own other retirement plans

So do I, but this is a deal I'd take. The attractive interest, tax relief, and asset protection aspects of CPF are hard to beat. (Self-employed individuals tend to run greater risks in terms of liabilities and asset depleting calamities. CPF assets are well protected against such unfortunate events.)

The "real" math is that you have to contribute $500/month into MediSave anyway. That would be about $2,056 per month if you make VCs consistent with your obligatory MA, of which about $389 lands in your Special Account. So can you come up with $389/month more per month (beyond your mortgage payment) that goes into an attractive account for your retirement, and with tax relief and asset protection? Your mortgage payment can be any blend of cash and OA you wish. The additional tax relief (5% assumed) would be about $934 per year — equivalent to about 2.4 of those $389/month SA contributions. Not bad!

 

[BBCWatcher]

And those i contribue $1.5k x 12months x MOP 5 years = $90k
So that means i have to return back 2.5% of 90k (5 yrs) will be $11k of interests.

Actually, after 60 months paying all $1,500 from your Ordinary Account (if you do that much) the accrued interest would be only about $5,761. I think you may have applied 2.5% interest (compounded annually) to the full $90,000 for 5 years (60 months). But that's not how it works. You're paying the $1,500 monthly across the 60 months. Only the first $1,500 payment accrues 59 months of interest. Each successive payment accrues progressively less interest.

 

[sgboy85]

Actually, after 60 months paying all $1,500 from your Ordinary Account (if you do that much) the accrued interest would be only about $5,761. I think you may have applied 2.5% interest (compounded annually) to the full $90,000 for 5 years (60 months). But that's not how it works. You're paying the $1,500 monthly across the 60 months. Only the first $1,500 payment accrues 59 months of interest. Each successive payment accrues progressively less interest.

Oh stupid me. U r right. My math fail
Really thank u for ur time.
Will have to reconsider what works for me.

 

[sgboy85]

There's a bit more to it.

I believe you're in the 7% tax bracket, so your Voluntary Contributions (VCs) to CPF should be eligible for 7% tax relief. But let's assume you "only" net 5% of income tax savings on the additional VCs (above your existing $6,000/year to MediSave). That means you'd cut your income tax bill by about $1,200. If your income increases then you could be pushed into a higher tax bracket and save more on your income tax bill.

Then there's the fact your Special Account contributions will earn at least 4%, possibly 5.01% if you're still in bonus interest territory. That's a very good deal!

The accumulated interest (2.5%) on your Ordinary Account is simply paying yourself back. You don't lose that money. It goes back into your OA where you can use it again for housing. (And wouldn't you need money for housing if you sell your HDB flat? Or do you plan to rent or live overseas after the MOP?) Also, once you're age 55+ you may have the option of taking the full sales proceeds from the home as cash if you wish. (If you've adequately funded your Retirement Account you would have that option.)

So do I, but this is a deal I'd take. The attractive interest, tax relief, and asset protection aspects of CPF are hard to beat. (Self-employed individuals tend to run greater risks in terms of liabilities and asset depleting calamities. CPF assets are well protected against such unfortunate events.)

The "real" math is that you have to contribute $500/month into MediSave anyway. That would be about $2,056 per month if you make VCs consistent with your obligatory MA, of which about $389 lands in your Special Account. So can you come up with $389/month more per month (beyond your mortgage payment) that goes into an attractive account for your retirement, and with tax relief and asset protection? Your mortgage payment can be any blend of cash and OA you wish. The additional tax relief (5% assumed) would be about $934 per year — equivalent to about 2.4 of those $389/month SA contributions. Not bad!

Really appreciate all of ur time. Very great explanation. Sounds good and i have a clearer pic now.