09 Jun 2020
Currently I'm paying for my flat with a HDB loan and if I have spare cash, would it be better to reduce the loan amount/duration or pay back my CPF used for the flat?
A little more background, currently 6 months into a 25Y loan of approx $170K and have used approx $16+K for the flat thus far.
Based on your question, I would assume you have paid for your downpayment/mortgage mostly using CPF for the past 6 months. Let us look at under what circumstances should you select each of the 2 options:
Reduce outstanding/duration of 25Y mortgage loan - This is known as repricing or refinancing depending on whether you switch banks. While most people do this to extend their loan tenure to reduce their monthly instalment, you're looking to do the opposite. Even so, you are also subjected to an admin fee. Do check how much that will amount to and if it is worth it.
Repay back CPF used for flat - this would be a sensible option if the accrued interest you can potentially save on the quantum of CPF to be repaid (from now till you sell the property in future) is MORE THAN the interest on the quantum to reduce outstanding HDB loan. Chances are CPF interest is higher than home loan interest.
Decision should be based on whether admin fee is LESS THAN the accrued interest you can potentially save from repaying CPF. Of course this takes on the assumption that you would be comfortable to take on a higher loan repayment each month all the way and no more adjustments will be made in future.
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