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Anonymous

30 Nov 2021

General Investing

CPF-OA Investment for CPF housing loan?

Hello Seedly friends,

I am currently at the stage of planning to look into BTO / resale in the next 2 years.

I'm thinking to take the housing loan from CPF instead of bank because i think the cash can be used for other purpose (investment or repay other loans). If there is really spare cash, then use cash to top up CPF and repay the loan to cut short the duration.

With the rising housing prices, I'm thinking of investing my CPF-OA. I'm not really confident in my research and stock pick skills, so wondering if Endowus is a better choice than having the money in CPF and earn the annual interest?

Discussion (2)

What are your thoughts?

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Hi there,

  • Housing loan can be from HDB (not CPF la...) or banks. Banks w lower loan interest now (compared to HDB), but of course HDB (govt) more lenient if u lose job and can't pay for a while compare to banks (less merciful - I'm sure they will go right for the HDB once you can't pay for X mths).
  • Spare cash - Yes, after factoring renovations, furniture/appliances other cash outlay (from getting the HDB) - surely balance good to invest (if can earn more than HDB loan interest), if not, shld just use to pay house, less loan, less loan interest (+accrued interest on CPF), quicker debt-free.
  • Investing CPF-OA - if you can get 2.5%, I remember an article wrote about how a high %age of ppl investing their CPF-OA and did not earn as high at 2.5% (i.e they made the wrong move compared to those who did simply nothing.). Many who invest probably just didn't want the CPF-OA to go to HDB upon purchase and transfer back after the purchase (i.e. higher than 20K safety net). Some alternatives to consider: After factoring for your house, transfer balance OA (comfortable amt) to SA for 4% interest? Ppl usually choose to keep $20K (max allowable to keep) in CPF-OA after buying house (just in case - can still pay for several mths if out of job).
    If resale, you should start the research now - 2 years is a good time. If few mths left to purchase can go viewings.

Hope this is of help.

Albert Tan

Albert Tan

Edited 01 Dec 2021

Solutions & Financial Literacy at MoneyOwl

Hi Anon,

Good to hear of your plans and I'm excited for you too!

Housing loan is taken from HDB (2.6% interest with 10% downpayment) or banks (from ~1.4% up with 25% downpayment). Both allows for usage of CPF for repayment and downpayment. For bank loan, you will need 5% cash downpayment, for HDB loan you can use full CPF.

The question of whether or not to invest your CPF-OA funds is down to your planned usage for housing or education. Think of it as borrowing your retirement funds for these purposes now. Also bear in mind the risk-free interest rate of 2.5% (which is not hard to beat with low cost diversified investments) vs potentially higher returns.

If you are intending to invest your CPF-OA in a hope to build up your funds for housing within the next 2 years, I would discourage you from doing so as your investment horizon is too short and there is a real risk of losing capital. Although markets have rallied in the past 2 years, it remains pretty volatile and uncertain with COVID and other geopolitical risks.

Some people may choose to invest part of their CPF-OA when considering a HDB loan because the manner in which they "empty" all available funds before granting a loan. This will allow ypu to earmark an amount which will not be locked into housing and can be divested at a later date (anytime more than 5 years later) for other purposes.

You can also choose to inform CPFB to set aside $20k in your CPF-OA when settling the downpayment. This $20k is shared if you have 2 buyers. (the first $20k in your OA gets 3.5% interest) This serves as a good emergency buffer for your mortgage liabilities in future.

I'll suggest keeping your funds in CPF-OA and maybe consider cash top ups instead (Voluntary Contribution - 3 Accounts which will be split according to your working contribution rates). 2 years is too short to take the risk for any potentially higher returns.

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