facebookAny downsides with using OA to pay housing mortgage and using the cash saved to voluntary top up SA? - Seedly

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          Anonymous

          25 Jul 2020

          Property

          Any downsides with using OA to pay housing mortgage and using the cash saved to voluntary top up SA?

          Doing so has 2 key benefits:
          (i) increasing interest by moving monies from OA (2.5/3.5%) to SA (4/5%) and;
          (ii) tax relief up to $7k

          Any downsides to this besides not using the cash saved to infest in higher returning assets (riskier)?

          2

              Discussion (2)

              What are your thoughts?

              Loh Tat Tian

              Loh Tat Tian

              04 Jan 2019

              Level 11·Founder at PolicyWoke (We Buy Insurance Policies)

              You might want to read heartland boy explanation. https://heartlandboy.com/money-withdraw-from-yo...

              Too long, do not wish to read,

              If you can do CPF Voluntary contribution as a self-employed, you still enjoy tax relief and also, you have a choice to include the amount for BRS (basic retirement sum) in the event you do not have enough money for FRS (full retirement sum).

              Any SA money done for RSTU (top up SA for tax relief) is "reserved for RA account" when you hit 55 for FRS. So it depends on whether you will be able to hit FRS.

              If you use OA to pay for housing, the only issue is you have
              1) accrued interest (which can be waived off at age 55, if you have enough for FRS)
              2) Your OA money is not earning 2.5% interest (but since you did top up, you are earning additional 1.5% interest, not sure. If you think this is a bad thing).

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                  I was planning to topup SA, refund OA property (reduce accrued interest) and use cash for mortgage. It is good for building retirement nest but bad for cash flow. Need to take note that the accrued interest will compounding over time. Voluntary contribution to MA should be the first priority if you haven’t reach 60k BHS and the 37.74k annual contribution cap. Second topup SA, depends on your tax bracket and some rather pay more tax and keep the cash for investment. I regretted that I transferred from OA to SA, now I treat OA as backup fund and use it to pay mortgage when I need cash for investment and refund back the amount when disinvested. OA 2.5% interest is higher than current mortgage rate around 1.5%, it’s wiser to cashout from mortgage and use it to refund OA property. But I just found out recently that bank use the formula (Valuation x 60%) - OA property - existing loan = cashout amount. For example if the property appreciate from 500k to 700k, 120k OA used for downpayment/mortgage, 300k outstanding loan. Total cashout amount = 0. If have cash to refund OA property 120k (2.5%), then can cashout 120k (1.5%). It’s weird formula but it is how it works and keep it mind that banks don’t care how much SA and they care how much OA used for property. Hope it answers your question.

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