Should I Redeem My Bank Loan with my CPF?

[Westerner 1]

If I have an outstanding housing loan of $500K and I am able to redeem it with my CPF, is it advisable for me to do so or should I continue servicing it through my bank loan, so that I can earn CPF’s 2.5% interest while I pay less than 2% of bank interest?  Your advice, please.  Thanks.

[leechaorui 2]

continue with servicing the loan until such time when the bank interest is higher.

[Shan Lim 0]

CPF have higher interest rate and also with HPS - Housing Protection Scheme which is like an alternative insurance to cover your whole family. Thus I don't recommend paying up in full. 

The Home Protection Scheme (HPS) protects CPF members and their families from losing their HDB flat in the event of death, terminal illness or total permanent disability.

[Westerner 1]

On 21/08/2017 at 3:27 PM, leechaorui said:

continue with servicing the loan until such time when the bank interest is higher.

Thx

[Westerner 1]

9 hours ago, Shan Lim said:

CPF have higher interest rate and also with HPS - Housing Protection Scheme which is like an alternative insurance to cover your whole family. Thus I don't recommend paying up in full. 

The Home Protection Scheme (HPS) protects CPF members and their families from losing their HDB flat in the event of death, terminal illness or total permanent disability.

Thx 4 e advice, shan.  

The hps is not free, have to pay. Same 4 e insurance tat is mandatory if signed up wif banks.

Anyway, hav re-financed wif bank.  Thx again

 

[bepgof 20]

This is a typical financing decision making case which requires the capital budget knowledges...(common 3 models are NPV, IRR and payback). However, these models are pretty tangible-approach (dead approach) with many assumptions that ignore many real-life factors that need consideration, examples: cashflow, liquidity.....

You must know the interest compounding issues for comparing 2 or more loans, as well as HPS & HPY calculations. Daily, monthly, quarterly, yearly...make a lot of different and the 'problems' are lenders often lock these 'realities' within kitchen and present the 'presentable' in the restaurant. Unless you ask for key to access kitchen.....

I made a related-decision in 2009 (now till in effect) :  Use both CPF OAs for loan financing while collecting CASH from renting out the unit. Made partial lump sum payment till OA has about 24 months instalment. I turn the cpf money into pocket money, why?

Edited August 25, 2017 by bepgof

[Brian888 0]

I found this cpf calculator quite detail and profound. It breakdown your contribution rate https://www.creatifwerks.com/cpf-calculator/