facebookCan I or should I put some of my cpf oa to some investment instead of allowing HDB to clear all (except $20k) of my OA when I take my keys to bto? - Seedly

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Joseph Lim

Joseph Lim

07 Oct 2020

βˆ™

Property

Can I or should I put some of my cpf oa to some investment instead of allowing HDB to clear all (except $20k) of my OA when I take my keys to bto?

AMA MoneyOwl

Discussion (1)

What are your thoughts?

Chuin Ting Weber

Chuin Ting Weber

07 Oct 2020

CEO and CIO at MoneyOwl

Hi Joseph,

Some pointers for your consideration, please:

  1. Downpayment. You can loan up to 90% of the valuation price of your property when you use HDB loan. As such, you should first make sure that you are able to pay the 10% downpayment which can be made up of both cash and CPF OA.

  2. Buffer/Emergency Funds. It is wise to request HDB not touch the first $20k in your OA so that you can earn the extra 1% interest on it (up to 3.5% which is higher than the HDB concessionary rate of 2.6%) and also to set aside as an emergency fund in the event of job loss etc, you will still have some funds to continue making the loan repayments. This is especially relevant during these times of economic uncertainty.

  3. Opportunity Cost. If you are not using your CPF OA to reduce your loan but instead investing it, you should make sure that you can potentially get a return of 2.6% p.a. and higher. Otherwise you might be better off reducing your interest burden upfront.

  4. Need for Liquidity. Do your maths and planning ahead on whether you might be needing to use your CPF in future to fund your next home purchase or pay for your child's education needs. To get potentially higher returns than the risk free 2.5% p.a. that CPF OA gives you, you will need an investment horizon of at least 5 years or more to ride through the short term market volatility. If you were to end up liquidating your investments prematurely, you might end up worse off than not investing.

Thanks for your question!

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