Hdb Loan & Cpf Interest

[adam72 0]

it struck me recently: if one is using CPF to pay off HDB loan, one is really paying 5.1% interest! HDB loan is 2.6% interest + whatever you took out of CPF to pay the loan earns accrued interest of 2.5%!

i just realised this and i think the best is pay the monthly instalment by cash, leave the money in CPF to earn 2.5% interest and collect this sum of $ by 55!

Edited May 18, 2011 by adam72

[sugardaddy 0]

well .. just this just boils down to whether you prefer to have cash on hand versus cash when you are 55yrs old

unless you are just keep the cash in bank or fixed deposits instead of investing .. maybe still works out better to use cpf instead

to each their own .. just make sure you do your numbers properly first ..

[bepgof 20]

Do not get mixed up with 1+1 = 2. If loan % go up as high as 5.1%, I'm sure MBT would have been remained as the minister for MND. Next, I supposed you are young, either don't feel the cpf issues at doorstep or completely not aware of cpf's various rules

- Valuation Limit

- Minimum sum scheme

- Retirement account "created automatically" when one reaches 55.

- Age 55

- Age 65

etc, etc

I feel these issues already right in front of my "doorstep" thought I'm only 47 this year.

Assuming you have outstanding loan of 200K(say loan tenture 10yr @ 2.6%)and yr OA has 200K & you also have 200K on hand. What will you do? All are welcome to take part.

it struck me recently: if one is using CPF to pay off HDB loan, one is really paying 5.1% interest! HDB loan is 2.6% interest + whatever you took out of CPF to pay the loan earns accrued interest of 2.5%!

i just realised this and i think the best is pay the monthly instalment by cash, leave the money in CPF to earn 2.5% interest and collect this sum of $ by 55!

[cacabi111 0]

With CPF money OA earning 2.5% and HDB loan at 2.6%, actually it seems there is not much difference.

Cos now my CPF OA has accumulated some cash, i was considering using this cash to prepay some of the HDB loan, but since the interest earned and paid are similar there is no substantial advantage to make a prepayment.

Do correct me if i am wrong, thanks.

[bepgof 20]

2.6% is charged toward "outstanding loan principal". Wise to use OA to reduce this "outstanding loan principal" as less as possible.

With CPF money OA earning 2.5% and HDB loan at 2.6%, actually it seems there is not much difference.

Cos now my CPF OA has accumulated some cash, i was considering using this cash to prepay some of the HDB loan, but since the interest earned and paid are similar there is no substantial advantage to make a prepayment.

Do correct me if i am wrong, thanks.

[cacabi111 0]

Hi,

cos eample if i have excess $20K in OA, if used for prepayment, it will reduce principal by $20K, thus interest saved is 2.6% of $20K.

but if i leave $20K in CPF OA, it collects 2.5% in interest.

Like not much difference isn't it?

Cos i thought that since hdb got insurance, anything happens, the remaining loan may be covered partially.

So no need to clear off the loan so quickly.

Pls correct me if my understanding is wrong, thanks.

[random_username 0]

Do not get mixed up with 1+1 = 2. If loan % go up as high as 5.1%, I'm sure MBT would have been remained as the minister for MND. Next, I supposed you are young, either don't feel the cpf issues at doorstep or completely not aware of cpf's various rules

- Valuation Limit

- Minimum sum scheme

- Retirement account "created automatically" when one reaches 55.

- Age 55

- Age 65

etc, etc

I feel these issues already right in front of my "doorstep" thought I'm only 47 this year.

Assuming you have outstanding loan of 200K(say loan tenture 10yr @ 2.6%)and yr OA has 200K & you also have 200K on hand. What will you do? All are welcome to take part.

wahahahaha, we started planning for retirement at mid 30's and already felt we should've started mapping out earlier, and even now at nearly 40, many of our peers still don't have a concrete retirement plan and think we worry too much, so sometimes i feel a bit torn and confused .

anyway, to your poser of : 200K(say loan tenture 10yr @ 2.6%)and yr OA has 200K & you also have 200K on hand. What will you do? All are welcome to take part.

since we like the rates we are getting on our mortgage and because it is lower than the returns we are getting on our investments, we have not paid it down/reduced it. at the same time, we always keep an eye on liquidity. i think there's been lots of discussion and illustration (with worksheet and numbers) on this topic and related ones in many various threads, but it's always nice to see more input and learn new things that pop up along the way

[bepgof 20]

There are quite a few variables to be considered in the cal, so I fixed some for easy cal:

1. OA: 20K, 2.5% interest

2. OS loan 1: 80K, 2.6% interest

3. OS loan 2: 100K, 2.6% interest

4. Loan tenure: 1 yr

5. Loan tenure: 4 yr

Assume u have left 1 yr to clear the loan:

- OA would earn you $272 for 12 months

- 80K loan(1yr)would incur $1131 interest for same period

- 100K loan(1yr)would incur $1414 for 12 months

Conclusion: If you keep 20k remains in OA, you would loss (1414-1131)-272 = $11 over 1yr.

Assume u have left 4 yr to clear the loan:

- OA would earn you $1037 for 4yr

- 80K loan(4yr)would incur $4319 interest for 4 yr

- 100K loan(4yr)would incur $5398 for 4 yr

Conclusion: If you keep 20k remains in OA, you would loss (5398-4319)-1037 = $42 over 4yr.

Follow above's "format", u can work out the real situations for comparison

http://www.cpf.gov.sg/cpfhsg/Hsg_totInt_calc.asp?src=#results

Note: CPF OA's interest is calculated based on monthly rest (principal + interest) each month and repeat, whereas those banks' FD is yearly rest.

Hi,

cos eample if i have excess $20K in OA, if used for prepayment, it will reduce principal by $20K, thus interest saved is 2.6% of $20K.

but if i leave $20K in CPF OA, it collects 2.5% in interest.

Like not much difference isn't it?

Cos i thought that since hdb got insurance, anything happens, the remaining loan may be covered partially.

So no need to clear off the loan so quickly.

Pls correct me if my understanding is wrong, thanks.

[adam72 0]

Do not get mixed up with 1+1 = 2. If loan % go up as high as 5.1%, I'm sure MBT would have been remained as the minister for MND. Next, I supposed you are young, either don't feel the cpf issues at doorstep or completely not aware of cpf's various rules

- Valuation Limit

- Minimum sum scheme

- Retirement account "created automatically" when one reaches 55.

- Age 55

- Age 65

etc, etc

I feel these issues already right in front of my "doorstep" thought I'm only 47 this year.

Assuming you have outstanding loan of 200K(say loan tenture 10yr @ 2.6%)and yr OA has 200K & you also have 200K on hand. What will you do? All are welcome to take part.

nope i'm not young, only 8 yrs younger than you as my nick is my birth year

cos when i sold my 1st resale flat i had to 'return' my accrued interest to CPF from my sale proceeds. it's the same as attracting interest isn't it? only then the net proceeds are calculated, which i had to put 50% of it for my next HDB purchase...

[yoongf 11]

CPF Accrued interest is $ that goes back to your personal OA account. It is not interest earned by CPF.

Therefore, I don't see why this topic is such a big issue.

[adam72 0]

CPF Accrued interest is $ that goes back to your personal OA account. It is not interest earned by CPF.

Therefore, I don't see why this topic is such a big issue.

it's the interest that supposedly earned by you had you keep the money in CPF. now that one took it out for housing loan, one has to 'repay' it back to CPF with your own $, ie. from the sale proceeds, which means less cash in the pocket at the end of the day!

that's why it struck me that i had to repay the accrued interest back into CPF and my net sale proceeds were definitely lesser.

Edited May 31, 2011 by adam72

[gimz63251073 0]

1. Given $200k in OA and $200k loan. What will you do?

For me, i still have a long way in life to go, so i will repay and get myself out of debt.

Out of mind, out of sight. Should i need to change house, its easier as i need not repay the "accrued interest". (Please correct me if im wrong)

Without the housing loan burden, we need not "drag ourselves to work for money". How often do you hear people saying they drag themselves to work?

If i am nearing retirement age, e.g. around 50, then i might not want to redeem. The chances of me dying is much higher and i would possibly want to leave some money behind and use insurance to cover the outstanding loan.

2. Early repayment of loan would not yield very much returns in the form of money. But it gives you much more freedom to choose, i.e. get a lower pay job, but in return spend more time with family or on your hobbies.

3. i see the accrued interest as a "necessary evil". To prevent people from selling a big house, change to a small house and splurge the profits away. The topic of govt controlling cpf monies is always sensitive but i think its a good thing that they are doing so. Most people i know spend whatever they have, be it they earn $3k or $7k monthly.

[bepgof 20]

All these are "life style choice". Choices made today bear "fruits" tomorrow.

CPF OA, whether used or not, all time subject to "interest". The only "difference" is:

- If CPF $ with CPF board, cpf board will pay you interest, so you will have more $.

- If CPF $ used in property, when property sold, you need to pay back this interest to your own account. Longer the loan tenure, will use more cpf $, therefore "more" interest(amount)to be paid.

The "indifference" is: ALL still your money, so can close 2 eyes to this stupid issue. Real issue is, I see no chance to withdraw this "hard-earned" money when I need it.

1. Given $200k in OA and $200k loan. What will you do?

For me, i still have a long way in life to go, so i will repay and get myself out of debt.

Out of mind, out of sight. Should i need to change house, its easier as i need not repay the "accrued interest". (Please correct me if im wrong)

Without the housing loan burden, we need not "drag ourselves to work for money". How often do you hear people saying they drag themselves to work?

If i am nearing retirement age, e.g. around 50, then i might not want to redeem. The chances of me dying is much higher and i would possibly want to leave some money behind and use insurance to cover the outstanding loan.

2. Early repayment of loan would not yield very much returns in the form of money. But it gives you much more freedom to choose, i.e. get a lower pay job, but in return spend more time with family or on your hobbies.

3. i see the accrued interest as a "necessary evil". To prevent people from selling a big house, change to a small house and splurge the profits away. The topic of govt controlling cpf monies is always sensitive but i think its a good thing that they are doing so. Most people i know spend whatever they have, be it they earn $3k or $7k monthly.

[marshmallow 0]

Real issue is, I see no chance to withdraw this "hard-earned" money when I need it.

that's why many pple try to buy a 2nd property and rent it out - a way to "withdraw" your CPF money earlier.......