Paying down HDB loan using CPF?

[punkster]

Chill guys. All inputs are greatly appreciated.

I understand the argument for SA but I’m personally not into it at the moment. I’m fully maximizing my 35% of OA for shares which I believe can give me more than SA (rightly or wrongly, let’s leave that discussion aside for now) and gives me some flexibility for payment of current loan or 2nd Pty if I choose to without the lock in of SA.

So for every 100k I now have in my OA, 35k will go into shares, 20k in OA for 3.5% and in case of unforeseen circumstances that I may stop working. So I’m sitting on 45k that I don’t know what to do with. Thus the thought of just paying down the loan came to mind.

 

[windwaver]

just for your info,
i have a old 3 bedder condo which i am staying
i have a 4-room hdb which i am renting out.
i have a terrace in bukit indah jb which i am renting out.

my plan is to give son the condo, daughter the hdb, we retire in the terrace.

i am still working towards to that next property.

I have to agree SG is not exactly a relaxing place to retire in.

 

[BBCWatcher]

So I’m sitting on 45k that I don’t know what to do with. Thus the thought of just paying down the loan came to mind.

Yes, I understood you: you've got the happy problem of having funds you "don't know what to do with." I've got the same even happier problem, as it happens.

So what the heck is wrong with 4% SA as your "next best" choice after maxing out your CPFIS-OA, at least to some degree and in your situation? It surely beats accelerating repayment on 2.6% (which is rather well anchored by the way), hugely. You're already flush with funds and well defended on your housing, as you've pointed out.

If you're not saving anything toward retirement outside CPF, OK, maybe grabbing the 4% on a lock to age 55 is worth debating some more. But surely that's not true, right? Surely you have some retirement savings flow going on. So just nudge the OA to SA transfer flow up, and nudge the non-CPF retirement savings flow down (if you wish), then you win. That's a basic form of savings arbitrage. You're immensely well compensated on the age 55 lock with 140 basis points/year (4.0% versus 2.6%), and for something that you surely plan to do anyway (have age 55+ retirement wealth and income).

What's not to like here? What are we still missing? Even for one dollar you wouldn't do this arbitrage? And with this happy problem getting happier every month, as OA funds continue to pile up?

Are you married, by the way? That's a lifelong commitment, and clearly you can commit to something that endures, or should. A few dollars on an age 55 lock is nothing compared to that commitment you already made. A bigger SA balance growing faster is also terrific life insurance, by the way.

Also, the $20K of OA you mention is not required to earn 3.5%, so I wouldn't even use the number 3.5% in association with OA. Grabbing the maximum bonus interest ($600/year below age 55) doesn't require even one dollar of OA. OA only ever helps generate bonus interest if your combined MA+SA balance is below $60,000. If your combined MA+SA is below the $60K figure, then any bonus interest calculated based on your OA is still paid into your SA. (Quoting CPF: "Extra interest received on monies in the OA will go into the member’s SA or RA to enhance his or her retirement savings.")

 

[punkster]

Eh. What’s not to like about SA is that the transfer is one way, and that I’ll rather have the funds in somewhere I can utilize if I wanna get another property

 

[dork32]

Eh. What’s not to like about SA is that the transfer is one way, and that I’ll rather have the funds in somewhere I can utilize if I wanna get another property

very smart. this is what i meant. you probably need 150k for the downpayment for your next property.

45k can buy you nothing. but to get to 150k, you need to pass thru 45k first. if you continue to transfer to sa, you will never get to the 150k.

i myself never do any rstu or oa to sa transfer. but i understood that cpf does give decent interest. instead of letting my excess cash rot in posb savings, i put quite a lot into my oa. like you, i intend to use my oa for my next property

 

[BBCWatcher]

Eh. What’s not to like about SA is that the transfer is one way, and that I’ll rather have the funds in somewhere I can utilize if I wanna get another property

Yeah, OK, got it, understood. Do you NEED every single OA dollar as OA to accomplish that goal? (Because you're not saving anything outside of CPF for retirement?)

We've already established that your penalty for hanging onto OA dollars as OA is 140 basis points per year, compounded annually, because you haven't identified anything better than accelerating repayment on a 2.6% mortgage. The floor is still open for nominations -- anybody got any? -- but that's your best alternative to SA so far.

This doesn't seem like wealth building thinking to me. It tells me you're currently saving nothing outside of CPF for retirement, because if you were, you should be trading those dollars you're saving for OA-to-SA dollars, one for one. So I don't think you're at all serious about saving for retirement, and only the government is requiring you to save the minimum toward your own retirement (the compulsory contribution flow into SA).

So what am I missing? Are you actually saving anything for your own retirement besides the extremely low amount the government requires you to save to your own SA? Am I wrong about that?

 

[punkster]

I’m simply not comfortable with the notion of one way lock in at even a ‘guaranteed’ 4%. I would rather go for ETFs.

For example, my main portfolio for cash is mainly made up of 3 ETFs. STI, MSCI World and S&P500. Monthly RSP and lump sum whenever I have bonus/extra cash. Just this 3 ETF alone over the past 5 years or so even with fluctuations has returned me an average of 8+%pa with flexiblity for me to withdraw anytime

 

[dork32]

Yeah, OK, got it, understood. Do you NEED every single OA dollar as OA to accomplish that goal? (Because you're not saving anything outside of CPF for retirement?)

We've already established that your penalty for hanging onto OA dollars as OA is 140 basis points per year, compounded annually, because you haven't identified anything better than accelerating repayment on a 2.6% mortgage. The floor is still open for nominations -- anybody got any? -- but that's your best alternative to SA so far.

This doesn't seem like wealth building thinking to me. It tells me you're currently saving nothing outside of CPF for retirement, because if you were, you should be trading those dollars you're saving for OA-to-SA dollars, one for one. So I don't think you're at all serious about saving for retirement, and only the government is requiring you to save the minimum toward your own retirement (the compulsory contribution flow into SA).

So what am I missing? Are you actually saving anything for your own retirement besides the extremely low amount the government requires you to save to your own SA? Am I wrong about that?

this is wat i meant by every thing has its price. punker just do not want to pay the price for the higher sa interest, ie for his money to be jammed in the sa. there is nothing wrong with that.

even if his investment does not give him 4%, his reasons for not transferring is valid.

there is something wrong with you. you simply insist that everyone should save up for retirement through the cpf sa.

for many of us, wealth building does not mean having a lot of money in the sa.

 

[havetheveryfun]

this is wat i meant by every thing has its price. punker just do not want to pay the price for the higher sa interest, ie for his money to be jammed in the sa. there is nothing wrong with that.

even if his investment does not give him 4%, his reasons for not transferring is valid.

there is something wrong with you. you simply insist that everyone should save up for retirement through the cpf sa.

for many of us, wealth building does not mean having a lot of money in the sa.

he loves CPF deep deep...

he wishes that the country he originally came from would also start something like the CPF....

but just like the CPF system isn't suited for every country, transferring OA to SA isn't suitable for everyone either...

nowhere did the TS ask for advice on how to save up for retirement but he keeps go on and on about retirement....

 

[havetheveryfun]

So what am I missing? Are you actually saving anything for your own retirement besides the extremely low amount the government requires you to save to your own SA? Am I wrong about that?

what you are missing is the government has hordes of scholars who have done the maths and deemed that "extremely low amount" forced to save into the SA is enough for 99% of the people, if not they would have raised the amount. And they could like, just keep the total contribution limits the same, but just make you contribute less to OA and more to SA, but do they ? no, as this ratio is what they have researched , tested, and feel that it is the right ratio and way to go.

so no, OA to SA is not the holy grail of all to saving up for retirement.

 

[mummy1234]

just for your info,
i have a old 3 bedder condo which i am staying
i have a 4-room hdb which i am renting out.
i have a terrace in bukit indah jb which i am renting out.

my plan is to give son the condo, daughter the hdb, we retire in the terrace.

i am still working towards to that next property.

That is very nice of u as a dad...I am thinking I would have to work much harder to do that. This year worked less and took a mini break, maybe next year can work normal hrs for higher pay.

 

[BBCWatcher]

I’m simply not comfortable with the notion of one way lock in at even a ‘guaranteed’ 4%. I would rather go for ETFs.

Yes, OK, but you're not allowed to do that with these particular OA dollars, as you correctly pointed out.

....So you're going to accelerate repayment on a 2.6% mortgage, and pay the 140 basis point/year compounded penalty? Is that your decision?

 

[punkster]

Have not really decided, but I wouldn’t see it as a 140 bps penalty even if I were to do it, but instead a 10 bps gain/compounded should I do so

Yes, OK, but you're not allowed to do that with these particular OA dollars, as you correctly pointed out.

....So you're going to accelerate repayment on a 2.6% mortgage, and pay the 140 basis point/year compounded penalty? Is that your decision?

 

[Prof. Utonium]

I don't believe in paying HHB loan in full ever by lump sum payments.

Very safe debt to have. They won't chase you out or repossess your flat forcefully.

If I'm in your situation, I will continue the loan, transfer the OA to SA to hit minimum 40k and let it grow in OA for next property purchase.

But then again, this is what I am doing. YMMV.

 

[culture_counter]

I don't believe in paying HDB loan in full ever by lump sum payments.

Very safe debt to have. They won't chase you out or repossess your flat forcefully.

Yes, agree with this point of view. Leverage on this advantage. HDB is not like the bank. It's pointless for HDB to repossess your flat even if you can't afford to continue servicing your loan due to some crisis. HDB would probably work out a deferred instalment plan for you instead of evicting you and leaving you on the streets. It doesn't work this way, unlike the banks.

As most of the forumers here would agree, HDB mortgage loan is a good debt. There is really no need to pay up too quickly.

 

[henrylbh]

I don't believe in paying HHB loan in full ever by lump sum payments.

Very safe debt to have. They won't chase you out or repossess your flat forcefully.

If I'm in your situation, I will continue the loan, transfer the OA to SA to hit minimum 40k and let it grow in OA for next property purchase.

But then again, this is what I am doing. YMMV.

He still in two minds with respect to repayment and he has other issues in mind as well and prefer to leave his options open for the time being. He is concerned that transferring OA to SA is irreversible. You are not like him or in the same position as him. So your choice is no-brianer. And there are people like you like you

 

[dork32]

That is very nice of u as a dad...I am thinking I would have to work much harder to do that. This year worked less and took a mini break, maybe next year can work normal hrs for higher pay.

your pay is very high. you can afford to work 1 year, rest 1 year.

it is natural that we parents want to provide as much as possible for our kids.

 

[mummy1234]

your pay is very high. you can afford to work 1 year, rest 1 year.

it is natural that we parents want to provide as much as possible for our kids.

Not that high cause I cannot work long hrs...

Anyway, my investment small condo buyer just exercised their option. Hopefully can get back ABSD soon.

Will get lump sum back in my OA. I am also thinking of whether to use it to pay off all mortgage or invest in or transfer some into SA.

But my hubby says Basic retirement sum with property pledge is better cause if we die early, the residual money from FRS or ERS goes into public pool and not our beneficiaries?

 

[yoongf]

See point 3.

https://www.areyouready.sg/YourInfo...ngs-you-need-to-know-about-CPF-LIFE-CPFB.aspx

But my hubby says Basic retirement sum with property pledge is better cause if we die early, the residual money from FRS or ERS goes into public pool and not our beneficiaries?

 

[BBCWatcher]

But my hubby says Basic retirement sum with property pledge is better cause if we die early, the residual money from FRS or ERS goes into public pool and not our beneficiaries?

So you're planning to die early? Which method of suicide are you planning?

By the way, a CPF member can die any time on or before her 70th birthday, and, assuming the member takes no action to start CPF LIFE payouts, the full RA balance (with accrued interest) ends up in the hands of the member's nominated heir(s). Does that mean you're planning your suicide(s) on your 70th birthdays? That's one heck of a birthday party!