Pay back CPF or HDB first?

[MarcoPolo]

like to get some comments/advise from the crowd on which debt to repay first.

We have a HDB outstanding loan of say ~$200K.
We also withdraw ~$240K from CPF (inclusive of accured interest).
We have excess fund of $200K and toying with clearing off the HDB loan.

1. A clear cut approach we initially though: pay off HDB loan $200K.
Why?: save on the 2.6% interest (~$5.2K annually)

2. Then again exploring: repay CPF $240K
Why?:
2a. 2.5% interest on $240K is $6k - feels like a time bomb
2b. after paying off CPF: the compounding accured interest to HDB is "reset".
2c. yes. the CPF compounded interest will come back to haunt us, but we also have the next few years to save up and clear the debt, or when we sell the flat, we supposedly will have less to repay CPF from our proceeds.

Any guru can advise if #2 in our mind make any sense at all.

 

[JuniorLion]

Easy.

Hdb first.

 

[BBCWatcher]

Agreed. 2.6 is greater than 2.5, so the HDB loan wins that comparison.

If your CPF OA funds would pay more than 2.5% — for example, if you’re not qualifying for all the bonus interest you could qualify for, i.e. if repaying OA would boost your bonus interest — then that’d alter the comparison for your first dollars. If your OA balance is already $20,000 or more, there’s no way an OA repayment would help you collect more bonus interest.

 

[TheSavvyBuddy]

Sounds like paying of HDB loan is a better plan. Another option is to refinance and secure a good housing loan from bank that has a lower interest rate than HDB housing loan. In that case, you can repay CPF instead.

 

[01asdf]

Sounds like paying of HDB loan is a better plan. Another option is to refinance and secure a good housing loan from bank that has a lower interest rate than HDB housing loan. In that case, you can repay CPF instead.

With interest rates moving up that's a riskier venture than previous years.

 

[Thoreldan]

Neither.

Use the 200k invest in a global etf (iwda) + local etf (es3)

Profit and go to the pub.

 

[chopra]

neither.

difference of 0.1% is v insignificant.

advise on be cash rich

 

[Verbatin]

This is what I did.

Switch from HDB loan to POSB home loan in Jan 2018 this year at 1.8% fixed for 4 year.

POSB give u free gift for switching over. At the same time u “make” 0.8% (2.6-1.8%)

Enrol for POSB bonus savers programe where the bank will pay u $30 per month for both wife and myself (instalment must be at $1k a month)

4 year later than decide whether to pay off everything or not

 

[BBCWatcher]

I agree with the other posters that, if you can do better than a guaranteed 2.6 percent benefit (what you get when accelerating repayment of your HDB loan), that'd be even better. You want your dollars working as hard as possible, consistent with your personal risk tolerance and lifecycle. If 2.6% money is still relatively cheap money compared to alternatives, then don't accelerate repayment.

What else would you/could you be doing with these "spare" dollars?

 

[Kixon9]

If pay to cpf, wouldn't the money split into various cpf accounts, oa, ma, sa?

 

[BBCWatcher]

If pay to cpf, wouldn't the money split into various cpf accounts, oa, ma, sa?

No, not for housing repayment. You would use CPF Form HSD/VR to make such repayments, and they are deposited into the CPF Ordinary Account, with a couple exceptions. One exception is if you're age 55 or older and your Retirement Account is not yet big enough. In that event, some or all of the repaid funds will be shunted into your Retirement Account.

 

[luei74]

This is what I did.

Switch from HDB loan to POSB home loan in Jan 2018 this year at 1.8% fixed for 4 year.

POSB give u free gift for switching over. At the same time u “make” 0.8% (2.6-1.8%)

Enrol for POSB bonus savers programe where the bank will pay u $30 per month for both wife and myself (instalment must be at $1k a month)

4 year later than decide whether to pay off everything or not

Is there charges from POSB (lawyer fees) for the changes?

Sent from Xiaomi MI MAX using GAGT

 

[eric3743]

Firstly are you comfortable in your current situation in monthly payment.
That is your original projected payment in long term is fine and good.

Don't forget any conversion will include additional cost added.
Interest rate and return may have to be re-calculated.

If you prefer other form of investment with better return, it may be better in the long term.

Keep some in saving for raining days while the rest for other investments with better gain..

 

[Verbatin]

no charges. POSB absorb lawyer fee. and they also give me a Dyson vacuum cleaner.

the best thing is mthly instalment no need to be $2k to receive home loan rebates of $30 for wife and myself. so long repayment is above $1k both will get $30 each per month from POSB bonus savers

Is there charges from POSB (lawyer fees) for the changes?

Sent from Xiaomi MI MAX using GAGT

 

[BBCWatcher]

no charges. POSB absorb lawyer fee. and they also give me a Dyson vacuum cleaner.

That's a rather good deal as long as there's no penalty for accelerating repayment (most important) and as long as you can accept the risk the interest rate (after the fixed rate period) might shoot up above the alternative HDB loan rate.

 

[luei74]

Yes sounds like a good deal, as my current monthly mortgage only about 500 plus, still got 21 years to go, current OA already accumulated for full payments, not sure if still worth for the switch...

 

[BBCWatcher]

....not sure if still worth for the switch...

I'll take the Dyson vacuum cleaner if you don't want it.

 

[coUguy]

no charges. POSB absorb lawyer fee. and they also give me a Dyson vacuum cleaner.

the best thing is mthly instalment no need to be $2k to receive home loan rebates of $30 for wife and myself. so long repayment is above $1k both will get $30 each per month from POSB bonus savers

Fyi POSB requires 3 months notice in advance if you wish to redeem your housing loan early.

At the end of the loan period, you'll need to engage your own lawyer to write in to POSB for the redemption of your loan in order to collect your title deed. Else POSB charges $300/year to safe-keep for you.

HDB stores title deed for you for free at the end of the loan period. And you don't need to engage a lawyer to do the paperwork.

Some pointers to consider before into POSB housing loan.

 

[Verbatin]

actually my main aim is to get the POSB bonus savers (worth $60 for wife and myself). and there is 0.8% additional savings as well

4 year later than decide what to do. if rates shoot up substantially will pay off everything

That's a rather good deal as long as there's no penalty for accelerating repayment (most important) and as long as you can accept the risk the interest rate (after the fixed rate period) might shoot up above the alternative HDB loan rate.

 

[bladez87]

no charges. POSB absorb lawyer fee. and they also give me a Dyson vacuum cleaner.

the best thing is mthly instalment no need to be $2k to receive home loan rebates of $30 for wife and myself. so long repayment is above $1k both will get $30 each per month from POSB bonus savers

200k loan can get dyson?