Redeeming Hdb Mortgage Loan

[TYM 0]

Thought of cancelling our CPFIS and redeeming our HDB loan with the CPF monies. Read thru what's wriiten on the HDB website, procedures seems simple. Some queries:

http://www.hdb.gov.sg/fi10/fi10207p.nsf/WP...an?OpenDocument

1. Is it wise to do so? Some say housing loan (especially HDB loan) should be the last loan to pay off but I thought if can clear fully, then no need to pay the additional interest.

2. Will using CPF to redeem the mortgage loan accumulate accrued interest also? Cos when we take the HDB loan, accrued interest starts counting. Tried to find out abt this accrued interest thing but not much info. Only know that when selling in resale market, got to pay this accrued interest back to CPF a/c. Right?

Not sure if above questions are valid or is there anything else that I should look out for?

Edited July 16, 2008 by TYM

[applefreak 1]

well if you are going to use your CPF funds for any investment that yields better returns, then you should not pay off your hdb loan

however, if you are risk averse you should just go ahead and pay off your hdb loan

for accrued interest, it's based on what you have withdrawn from your cpf account

it is basically about the interest that your cpf could have earned if left in the account

[TYM 0]

well if you are going to use your CPF funds for any investment that yields better returns, then you should not pay off your hdb loan

however, if you are risk averse you should just go ahead and pay off your hdb loan

for accrued interest, it's based on what you have withdrawn from your cpf account

it is basically about the interest that your cpf could have earned if left in the account

Not risk averse but just that after so many years of CPFIS, does not seems to be earning much also. Mayb partly also bcos I lazy, never monitor, just let it be, cannot see the money anyway. So now thinking mayb terminate and redeem my loan.

I know what is the definition accrued interest in this context. Just that must I pay back when I redeemed my loan? But a bit wierd also to pay using CPF? Wanted to clear some doubts first before I check with HDB.

[applefreak 1]

the accrued interest is for your cpf account

it has got nothing to do with your hdb loan

it's for the amount withdrawn from your cpf account

as long as you've withdrawn from your cpf account to pay for your housing loan, you will have to pay the principal amt + accrued interest back into your cpf account when you sell the property

as for your CPFIS, try to see if you are making a return of more than 2.6% annually

if the returns is more than 2.6%, then you are better off leaving the money in your investment

[Phantom 1]

In my humble view, markets are being wacked left right center at the moment. If you want to look at a longer term view, then i believe now till early next year is a good time frame for bottom fishing into equities.

[Ideasmiths 0]

Thought of cancelling our CPFIS and redeeming our HDB loan with the CPF monies. Read thru what's wriiten on the HDB website, procedures seems simple. Some queries:

http://www.hdb.gov.sg/fi10/fi10207p.nsf/WP...an?OpenDocument

1. Is it wise to do so? Some say housing loan (especially HDB loan) should be the last loan to pay off but I thought if can clear fully, then no need to pay the additional interest.

2. Will using CPF to redeem the mortgage loan accumulate accrued interest also? Cos when we take the HDB loan, accrued interest starts counting. Tried to find out abt this accrued interest thing but not much info. Only know that when selling in resale market, got to pay this accrued interest back to CPF a/c. Right?

Not sure if above questions are valid or is there anything else that I should look out for?

Short answer NO!

First about accured interest. This date back to the first intention of CPF which is for retirement purposes, so if people didn't buy any HDB/private, the CPF would accumulate at 2.5% interest (minimum). In 1994 - 1997, some people became smart and they 'withdraw' their CPF early by buying/selling/buying/selling properties. For example, A buys $50,000, sell to B at $70,000 ($20,000 CASH is taken out!!! Because A only needs to pay back $50K to CPF that time), B then sells to C at $100,000 (and he pocket $30,000!) and so on and so on....

So to stop this 'speculation' and 'early' artificial withdrawal of CPF monies, when you sell your HDB (irregardless if you buy anything else), you need to put back with interest of CPF+0.1% token (ie 2.6%). Its not a penalty, it's your money at CPF growing at the interest rate it supposed to enjoy (for your retirement).

Now about repaying your mortgage loan, ask yourself this simple question

a) HDB charges 2.6% interest, CPF gives 3.5% for first $20K, do you win here? Then remaining lets say at 2.5%, comparing lets say $100,000 (2.6% vs 2.5%), your 'insurance' cost is 0.1% or $100 per year. What this means is that the HDB interest is paid for by CPF! And you top up with $100 to enjoy leaving the money out of HDB.

b) Because you leave the monies out of HDB, ask your wife, if either of you dies. Would you like to have flat + cash (lets say $100,000) or you want to have flat only (paid up, now no more CPF)?

c) If you don't cash out your investment, have you considered swtiching the investment assets to 'safer' stuff like bonds? Anything above 2.6% return pa you can enjoy benefit of b)........DISCLAIMER: not an investment advice, just a concept sharing.

I have found that many people have no 'concepts' of financial matters. Many Singaporean are smart, because we all did 20+years of studies. But being smart in one area of knowledge is not equal to smart in another. So sometime we are advised by semi-smart people around us. For example, my mum also adopt the 'pay' less interest thinking when we are buying our Bedok Flat now.....but I know for sure that my 3.5% CPF interest beats HDB interest anytime of the day. so I max out my 90% loan for 30 years.

My commitment is lowest, my investment can fund my monthly repayment all the way even if I stop work for 20 years. Compared to one of my neighbour who took another advice of minimum loan of 10 years so that they can 'saved' on interest, this couple commitment is 5x of mine and they didn't have a buffer. You better hope neither of them get retrenched or they don't hit any of the CPF withdrawl limits soon.

For those who are keen, read a book called "The richest man in babylon", its a great ancient book of wisdom on money. Just concepts that worked through ages (not one of those hype like Rich dad poor dad).

Edited July 16, 2008 by Ideasmiths

[Phantom 1]

Just to interject, bonds imho are prolly not the best investments to be in now. Global inflation due to rising commodity prices will press many central banks to maintain strong currencies and higher interest rate policies.

99% of bond funds have lost money in the last 6 months. Up to -23% mind you..

[Ideasmiths 0]

Just to interject, bonds imho are prolly not the best investments to be in now. Global inflation due to rising commodity prices will press many central banks to maintain strong currencies and higher interest rate policies.

99% of bond funds have lost money in the last 6 months. Up to -23% mind you..

No choice, nothing is safe now.

But we are talking in the context of HDB loan interest vs his intention in the first place. For medium term purpose (lets say 10 to 15 years), a good bond fund will may (most likely) beat 2.6% anytime. If in the context for like his retirement fund, then of course other choices better.

But since he already now stuck with his investment, a switch to good grade asset class may be better. Worst come to worst, cash out, leave everything in CPF (3.5% and 2.5%) is still better (in my strongest humble opinioin) than capital repayment of his HDB loan.

IF he is using a bank loan then thats another story.

Edited July 16, 2008 by Ideasmiths

[Phantom 1]

Funds that trade on volatility will make money in such times.. commodity based funds shoul most likely continue the rally. Unfortunately CPF no approved. In the context of medium term. I agree that a decent bond fund should beat the 2.6%p.a..

If losing money already in investments. what for switch to bond fund. When markets rally, bonds aren't going to rally much either.

I'm more contrarian in thoughts and would buy more.. lol..

but thats me.

I rather use the CPF monies buy lotsa lotsa funds that have lost like 20% to 40% in the ensuing markets.. wait for a couple years.. even if ten years.. bound to at least make 50% or more on the depressed equities coming back to value. THEN redeem the loan. After that, sell the house, then upgrade to condo.

LOL...

Threadstarter,

There is no right or no wrong to your question. It's a matter of personal preference.

Some people prefer to live with debt and leverage off it.

Some people prefer to live life without debts.

Edited July 16, 2008 by Phantom

[applefreak 1]

a) HDB charges 2.6% interest, CPF gives 3.5% for first $20K, do you win here? Then remaining lets say at 2.5%, comparing lets say $100,000 (2.6% vs 2.5%), your 'insurance' cost is 0.1% or $100 per year. What this means is that the HDB interest is paid for by CPF! And you top up with $100 to enjoy leaving the money out of HDB.

do note that the 3.5% is applicable to the first $60k in your cpf a/c, with up to $20k from ordinary

to be able to redeem housing loan should mean they already have the $60k in special + medisave a/c

so ordinary should only be earning 2.5%

to some 0.1% is not a lot, but if investment is yielding less than 2.6%

then it's better that the housing loan is paid off imho

[TYM 0]

Tks for all the comments, will re-examine our options again.

[Sam Lee Poh Huat 0]

Thanks for sharing~! An gd exchange of informations from 2 different school of thoughts on investment

Well back to the capital redeemption, if let say i selected 1 BTO unit and got an HDB loan, say $300K. Few years later upon completion, i've sold off my present flat and with some sale proceeds+cpf with accured interests back my OA.

I decided to do a partial capital redeemption, say $300K-$100K=$200K, so that to keep my monthly instalment to an affordable level, maximum 30 years loan term (Personal preference; instalment substain by monthly OA contribution). Wld that incur as another loan taken?

Do note that there is a HDB restriction which do not allowed any one from applying another HDB loan 30 months from the date of its 1st loan disbursement. For my case after transfer of ownership last year, i hv prob with this restriction which is affecting my next purchase esp if it is on a NEW BTO's flat. So another question is, wld this redeemption be allow relating to the above scenario?

Edited July 17, 2008 by FD1976