Housing loan delimma

[Sweet Potato]

Hi,

Have just bought a resale hdb flat for $730k.

We are in mid 40's and have a CPF combination of $580k with stable job.

Bank is offering 3.75% rate for a 500k loan.

Should we take up above offer or

pay 500k upfront with CPF OA and loan 200k instead?

Thanks in advance for your advice.

 

[item2sell]

why not get HDB loan.

 

[Sweet Potato]

why not get HDB loan.

Not eligible.

 

[DevilPlate]

Hi,

Have just bought a resale hdb flat for $730k.

We are in mid 40's and have a CPF combination of $580k with stable job.

Bank is offering 3.75% rate for a 500k loan.

Should we take up above offer or

pay 500k upfront with CPF OA and loan 200k instead?

Thanks in advance for your advice.

At already mid 40s, don't think you want to upgrade to condo later on (after 5 yrs MOP you will be 50yo liao)

So, I will use up all my OA (perhaps leave a small amount of 50k to service loan in case both got retrenched)

 

[iceblendedchoc]

Hi,

Have just bought a resale hdb flat for $730k.

We are in mid 40's and have a CPF combination of $580k with stable job.

Bank is offering 3.75% rate for a 500k loan.

Should we take up above offer or

pay 500k upfront with CPF OA and loan 200k instead?

Thanks in advance for your advice.

park the 500k with t bills/ sgs bond as long higher than 3.75% instead and take the 500k loan.

 

[dork32]

yeah tiblls for 6 months.. home loan 3 years. if tbills rates fall after 6 months. you suffer for another 2.5 year

 

[BBCWatcher]

park the 500k with t bills/ sgs bond as long higher than 3.75% instead and take the 500k loan.

yeah tiblls for 6 months.. home loan 3 years. if tbills rates fall after 6 months. you suffer for another 2.5 year

Dork32 spotted the potential problem.

I think you can borrow 75% of the assessed value or the actual purchase price, whichever is lower. I'm going to assume $540K since I think it's likely to be a bit higher than $500K. I'm also going to assume a couple in their mid 40s can get a 20 year mortgage term (to the income weighted average age of 65). And I'm going to assume 3.80% fixed interest (3 years) just to be a little conservative (and since I don't see 3.75% on offer at this instant). I'm not necessarily recommending a 3 year fixed rate 3.80% mortgage (it's an interesting decision right now), but let's just start with that.

With these assumptions the monthly mortgage payment would be $3,215.67. Since Sweet Potato has indicated that they have at least $500K of OA available (beyond a down payment) that could be used in lieu of a mortgage then I should point out that even without OA interest or further OA contributions the $500K would support 155 months — almost 13 years! — of mortgage payments at $3,215.67 per month.

I would take this bet, all of it, because I don't think it's at all a risky bet. 3.80% money is still cheap money, especially nowadays. If the interest rate falls when the fixed rate period ends then you'll be laughing and loving all the free money you're making. If on the other hand the interest rate spikes to (say) 6.5% then you'd probably pay off the mortgage then. In the meantime your OA dollars can/should chase whatever investments make sense, ideally long-term investments. Even 6 month T-bills are yielding more than 3.80% currently, and that's the most conservative investment available really. I think OCBC is still offering 3.88% on a 12 month fixed deposit using CPF OA dollars, also very conservative (too conservative probably). But these reference points are all indicating that 3.80% is pretty darn cheap.

You're in absolutely no danger of losing the house with this sort of situation. You've got tons of backing for the mortgage, and the mortgage seems fairly attractive. Yeah, I'd take it, all of it. (If the lender is offering $540K instead of $500K, I'd take the higher number. And take the longest term on offer. You can always convert a longer term mortgage into a shorter one: just pay it off faster once you're past any prepayment penalties. You cannot necessarily do the reverse, not as easily.) I'm assuming the house is not overly lavish in the circumstances and that you're not going to do something foolish like go buy a bunch of expensive whiskey (and drink it) with whatever additional wealth you're likely going to accumulate.

 

[LexusIS]

It is very hard to advice you without knowing the full information

1) What's your income level?; What kind of expenditure / savings you are deriving from it?; How comfortable you are able to service the monthly installment now and in the event of a retrenchment?

My assumption
- My guess is that you are SG and combine income >S$14k.
- Depending on the loan tenor, you and your wife's CPF should be able to service the monthly installment for S$500k loan

2) Cash Savings / Liquid assets (investments)

My assumption:
- You should have quite a bit of Liquid cash and investment as you seem to be financially prudent and pick HDB even with your combine income.
- Basically at mid-40s, good to have at least 12-24 months of standby for housing loan installment, which can be in terms of your liquid investments. If not, useful to have it in CPF OA and to find higher bearing instruments for it.

3) Terms & Conditions of the Housing loan
- Are rates fixed?; Able to prepay anytime or up to certain percent?

4) What's your intention for the remaining S$300k CPF If you take a S$500k loan?
- Is the bulk of your cash invested? or getting better returns than CPF OA?
- What is your risk and investment appetite? (e.g. current investment/cash portfolio and returns you are getting)
*Do also take note that if you intend to use CPF OA for T-Bills or FDs, the effective rate is lower and you lose 1 month of CPF OA rates
https://financialhorse.com/t-bills-...y-than-singapore-savings-bonds-fixed-deposit/
For me, i will probably prepay a bigger loan amount given my target return for CPF OA is around 4%. At 3.75% it is rather close to my required return. Higher return is possible but will also depend on market condition which is currently rather volatile.

 

[dork32]

For me, i will probably prepay a bigger loan amount given my target return for CPF OA is around 4%. At 3.75% it is rather close to my required return. Higher return is possible but will also depend on market condition which is currently rather volatile.

i am like peace of mind people. when i borrow money to play, i want sure win.

last time interest 1.xx%, cpf 2.5%. sure win. i borrowed like crazy

now your 4% is probably based on tbills rate. this is not a confirmed number. there are risk involved. i will not borrow to gamble.

 

[LexusIS]

i am like peace of mind people. when i borrow money to play, i want sure win.

last time interest 1.xx%, cpf 2.5%. sure win. i borrowed like crazy

now your 4% is probably based on tbills rate. this is not a confirmed number. there are risk involved. i will not borrow to gamble.

Yes, fully agree to prepay more CPF and take smaller loan. (mistake on my sentencing above, should be take smaller loan)

Like you mention 4% is not guaranteed and there is also a 1 month interest lost in CPF OA due to CPF computation method: 4% Tbills rate will work out to effective interest of only ~3.8%

Also Tbills & CPF FD has a mismatch tenor 6-8 months vs 3 years lock in. If Tbills or FD rates drop subsequently, it may not cover the 3.75% loan interest.

One of the issue with using most of the CPF is that you can't withdraw it subsequently, if & when interest rate drop, unless you sell the house.