OCBC FD for CPF?

[dork32]

Let me explain myself
- all these while the $$$ is meant for HDB loan repayment.

Only ppl who think outside the box do understand me.

you keep money in cpf oa because of uncertainty, agree.

if you keep money in cpf oa because interest, it does not make sense if you are on a hdb loan. cpf gives you 2.5% and hdb charges you 2.6%. you lose out. what sort of out of box thinking is this? unless it is some out of box calculations that makes 2.5 greater than 2.6

if instead of keeping it in cpf, you invest in some instruments that gives you 4%. if makes sense also. but if you have these instruments, you will not be thinking about bank fd as well. this is called rationale thinking.

if you take a dbs home loan at 1.5% and cpf gives you 2.5%, it also makes sense. but if you are thinking of taking a bank loan, you wont be worrying about hdb wiping out your cpf. you can choose the amount you want to pay with your cpf.

 

[zzxxzzxx]

think 2.6% - 2.5% = 0.1%

You are paying only 0.1% for the interest?

 

[Keverus]

you are prob very young and not paying for your home.

some people worked in unstable jobs. high chance that they may lose their jobs anytime.

if their cpf is 0 and they lose the job, they cant repay the hdb loan. hdb will repo their home.

if their cpf is 20k and they lose the job, the cpf can help pay the loan for many months before you kena evicted. it is likely that they will find a job during that time and will not be kicked out at all.

it is normal that people will look after their lowest level needs first.

Maslow's hierarchy of needs.

 

[dork32]

think 2.6% - 2.5% = 0.1%

You are paying only 0.1% for the interest?

0.1% is what you lose every year for holding money in your cpf and not paying the hdb loan.

like i said many people are willing to hold this sum because it can help them with the installments should they lose their jobns

 

[Skypower]

Ok let me explain myself here

POSB housing loan for 8 years fixed@2.5% : $200k
- total repaid after 8 yrs $220k

CPF fixed@2.5% for 8 years : $200k
- total amt + interests after 8 yrs $240k

 

[dork32]

Ok let me explain myself here

POSB housing loan for 8 years fixed@2.5% : $200k
- total repaid after 8 yrs $220k

CPF fixed@2.5% for 8 years : $200k
- total amt + interests after 8 yrs $240k

what sort of maths is this?

yes you did some maths, which is good. but your argument is totally flawed.

your first part of the calculation is correct. a 200k loan at 2.5% will require a monthly installment of 2300. over 8 years or 96 months you would have made a total contribution of 2300 * 96 = 220 800

your second part of the calculation is also correct a 200k in the cpf in 8 years at 2.5% = 200k *1.025^8 = 243 680.

so what is wrong? you are not making an apple to apple comparison.

you should have this scenario:

at the start, you have 200k in cpf. you have just bought a hdb for 200k.

Option 1
you can choose to choose a 2.5% loan of 200k and keep your cpf in tack. you have a monthly contribution of 2300 into your oa which is used to service the loan. at the end of 8 years, you will have 200K * 1.00208*96 = 244 k because your initial 200k will earn you interest.

Option 2
you can choose to repay 200k at one go. you will have 0 in your cpf at the start. you have a monthly contribution of 2300 to your cpf oa. at the end 8 years you will have fv(0.0028,96,2300,0) = 244k

it is the same.

the reason why your calculation is wrong is because the monthly payment of 2300 into your cpf will also earn an interest of 2.5%

 

[dork32]

it is good that you mentioned posb loan. posb loan is the bank loan that i mentioned in the previous posting. it is possible to get a loan for less than 2.5% with bank loans. there is no requirement for you to wipe out your cpf when you are using the bank loan. you can choose how much down payment you want to make (min 20%).

also if i am not wrong, interest rate for posb was 1.8% a few months ago. it is capped 2.5%. it means that you will make some money afterall.

if you willing to take a bit more risk, there are also other floating packages that offer you even lower interest rates, down to 1.2%. you can earn even more with these loans

 

[dork32]

the nice thing about home loan interest vs cpf interest is this.

if the loan interest is less than 2.5% you should leave the money in the cpf
if the loan interest is more than 2.5% you should repay your loan with the cpf
if the loan interest is 2.5%, it does not matter.

it is good that you do not need a phd in mathematics or out of box thinking to do this comparison.

 

[djchris]

it is good that you mentioned posb loan. posb loan is the bank loan that i mentioned in the previous posting. it is possible to get a loan for less than 2.5% with bank loans. there is no requirement for you to wipe out your cpf when you are using the bank loan. you can choose how much down payment you want to make (min 20%).

also if i am not wrong, interest rate for posb was 1.8% a few months ago. it is capped 2.5%. it means that you will make some money afterall.

if you willing to take a bit more risk, there are also other floating packages that offer you even lower interest rates, down to 1.2%. you can earn even more with these loans

Just to share about POSB loan. If one does not want to take the riskier option of a floating package based on sibor to get down to 1.2% but want something lower than 2.5%, there's this package I signed up with POSB recently to re-finance my loan.

It's pegged to POSB fixed deposit rate + 0.xx percent. Works out to be between 1.5-1.9% per year thereabouts (I can't remember the exact rate off the top of my head now).

The best part which I like the most is there's no lock in period and penalty for early repayment. So I can save up and repay partial of the loan anytime I want (min. 10k).

 

[dork32]

Just to share about POSB loan. If one does not want to take the riskier option of a floating package based on sibor to get down to 1.2% but want something lower than 2.5%, there's this package I signed up with POSB recently to re-finance my loan.

It's pegged to POSB fixed deposit rate + 0.xx percent. Works out to be between 1.5-1.9% per year thereabouts (I can't remember the exact rate off the top of my head now).

The best part which I like the most is there's no lock in period and penalty for early repayment. So I can save up and repay partial of the loan anytime I want (min. 10k).

very good loan package you have.

you should plan for a minimum payment of your loan now by asking for a max repayment period, eg 40 year, 50 years, 100 years.

should the interest rise above 2.5%, use the cpf and do partial repayment of the loan. also reduce the repayment period to as short as possible where you can still afford the monthly installment.

 

[kazejin]

what sort of maths is this?

yes you did some maths, which is good. but your argument is totally flawed.

your first part of the calculation is correct. a 200k loan at 2.5% will require a monthly installment of 2300. over 8 years or 96 months you would have made a total contribution of 2300 * 96 = 220 800

your second part of the calculation is also correct a 200k in the cpf in 8 years at 2.5% = 200k *1.025^8 = 243 680.

so what is wrong? you are not making an apple to apple comparison.

you should have this scenario:

at the start, you have 200k in cpf. you have just bought a hdb for 200k.

Option 1
you can choose to choose a 2.5% loan of 200k and keep your cpf in tack. you have a monthly contribution of 2300 into your oa which is used to service the loan. at the end of 8 years, you will have 200K * 1.00208*96 = 244 k because your initial 200k will earn you interest.

Option 2
you can choose to repay 200k at one go. you will have 0 in your cpf at the start. you have a monthly contribution of 2300 to your cpf oa. at the end 8 years you will have fv(0.0028,96,2300,0) = 244k

it is the same.

the reason why your calculation is wrong is because the monthly payment of 2300 into your cpf will also earn an interest of 2.5%

I had to reread dork32 post twice and spent time thinking about it before i finally got it.

Cash flows at different times cannot be compared directly due to non zero interest rates.

Man, this is tricky stuff.

 

[djchris]

very good loan package you have.

you should plan for a minimum payment of your loan now by asking for a max repayment period, eg 40 year, 50 years, 100 years.

should the interest rise above 2.5%, use the cpf and do partial repayment of the loan. also reduce the repayment period to as short as possible where you can still afford the monthly installment.

The POSB RM showed me that for the past 10 years, POSB's fixed deposit has not increased by much (hint: don't use POSB fixed deposit).

I'm actually planning for a maximum payment of my loan now to reduce my repayment period from 26 years to 16 years (very aggressive, especially when I am paying the loan alone). I want to clear all my liabilities before age 55 when govt lock my CPF in Retirement Account.

The plan (as a Single now) is to finish the loan repayment before 55, and if nobody is staying with me by then (now my family is), I'll rent the unit out and go travel the world.

 

[dork32]

The POSB RM showed me that for the past 10 years, POSB's fixed deposit has not increased by much (hint: don't use POSB fixed deposit).

I'm actually planning for a maximum payment of my loan now to reduce my repayment period from 26 years to 16 years (very aggressive, especially when I am paying the loan alone). I want to clear all my liabilities before age 55 when govt lock my CPF in Retirement Account.

The plan (as a Single now) is to finish the loan repayment before 55, and if nobody is staying with me by then (now my family is), I'll rent the unit out and go travel the world.

agree, retirement account is sucky.

also agree posb fd cannot make it.

but still you should not be reducing the repayment period. you should keep as much money in your cpf as possible. if you do so, you would have accumulated quite a tidy sum in your cpf when you reached 54. it is then you do a partial/total repayment. it is worth it. you can trust my maths.

it is very common that people say that we must be debt free. this is wrong. it is ok to borrow money if you are able to repay it and you are able to earn more than the interest. you go tok to the polar bear guy. he is very good at it.

 

[Skypower]

what sort of maths is this?

yes you did some maths, which is good. but your argument is totally flawed.

your first part of the calculation is correct. a 200k loan at 2.5% will require a monthly installment of 2300. over 8 years or 96 months you would have made a total contribution of 2300 * 96 = 220 800

your second part of the calculation is also correct a 200k in the cpf in 8 years at 2.5% = 200k *1.025^8 = 243 680.

so what is wrong? you are not making an apple to apple comparison.

you should have this scenario:

at the start, you have 200k in cpf. you have just bought a hdb for 200k.

Option 1
you can choose to choose a 2.5% loan of 200k and keep your cpf in tack. you have a monthly contribution of 2300 into your oa which is used to service the loan. at the end of 8 years, you will have 200K * 1.00208*96 = 244 k because your initial 200k will earn you interest.

Option 2
you can choose to repay 200k at one go. you will have 0 in your cpf at the start. you have a monthly contribution of 2300 to your cpf oa. at the end 8 years you will have fv(0.0028,96,2300,0) = 244k

it is the same.

the reason why your calculation is wrong is because the monthly payment of 2300 into your cpf will also earn an interest of 2.5%

What if my monthly contribution to cpf oa is much lower at 1000/mth?

another qn, how much do i need to earn per month to contribute 2300/mth to cpf oa?

 

[dork32]

What if my monthly contribution to cpf oa is much lower at 1000/mth?

another qn, how much do i need to earn per month to contribute 2300/mth to cpf oa?

if you earn 5k and your wife earn 5k, your total monthly contribution is about 2300.

i am not the one that comes up with this number. you are the one that suggested this number. you suggested 200k loan at 2.5% repaid in 8 years. this amounts to 2300 a month. i thought you knew you knew your own calculations. i merely used the number you suggested in my calculations

it does not matter what your cpf monthly contribution is.

the moral of the story is that there is no point leaving the money in your cpf as long as you loan rate is higher than 2.5% if you are hoping to earn more. you do not have to go through the crab that i have done.

 

[djchris]

agree, retirement account is sucky.

also agree posb fd cannot make it.

but still you should not be reducing the repayment period. you should keep as much money in your cpf as possible. if you do so, you would have accumulated quite a tidy sum in your cpf when you reached 54. it is then you do a partial/total repayment. it is worth it. you can trust my maths.

it is very common that people say that we must be debt free. this is wrong. it is ok to borrow money if you are able to repay it and you are able to earn more than the interest. you go tok to the polar bear guy. he is very good at it.

In order for what you say to be accurate, do we assume that one works beyond 55 years old? What if I choose not to work from 50 years old onwards? Wouldn't it be better if I repay the debts better?

I must admit that I am not good with the calculation of loan interests. Would appreciate your insights.

 

[dork32]

In order for what you say to be accurate, do we assume that one works beyond 55 years old? What if I choose not to work from 50 years old onwards? Wouldn't it be better if I repay the debts better?

I must admit that I am not good with the calculation of loan interests. Would appreciate your insights.

like i said it does not matter when you retire. as long as the interest rate of the loan is lower than cpf. you should keep money in it and not repay the loan.

but i did mention 54 years old. the reason is i am not for the retirement account. this is one black box with very shady calculations. you should repay all your loans at 54. otherwise, one the money goes into the black box at 55, it is very difficult to take it out again.

even if you are not working at 50, you do not repay the loan. just keep in the cpf and pay installment every month using the cpf.

trust me. i can count.

 

[djchris]

Thanks for sharing. Unfortunately, I already signed the refinancing contract and can't change the repayment years. Maybe a few years later.

 

[archcherub]

the nice thing about home loan interest vs cpf interest is this.

if the loan interest is less than 2.5% you should leave the money in the cpf
if the loan interest is more than 2.5% you should repay your loan with the cpf
if the loan interest is 2.5%, it does not matter.

it is good that you do not need a phd in mathematics or out of box thinking to do this comparison.

thanks for sharing. =)

it doesnt matter how long is ur loan period, or when is ur planned retirement and how much is ur own CPF contribution... the above rules applied for all situation...

 

[henrylbh]

Thanks for sharing. Unfortunately, I already signed the refinancing contract and can't change the repayment years. Maybe a few years later.

What dork32 said is right. I have enough CPF to pay for my flat in full. Yet I took max bank loan and max repayment period. The interest I am paying is slightly above 1% pa (which is 3MSOR plus 0.85%) while the money in my OA is earning 2.5%.

In fact I could also settle my flat in full by cash, but I chose in invest my cash in dividend stocks that yield more than 2.5%.