Home loan rate hiked - should we continue using CPF or pay excess by cash?

Hello,

Need some financial advice concerning home loan instalment payment.

My wife and I use our respective CPF-OA accounts to pay our home loan instalment.

Our bank just informed us that their home loan rate will be hiked and new instalment will kick in from Sep 2022.

We cannot decide if we should pay the excess amount in cash or continue using CPF.

Currently our entire CPF-OA monthly contribution (self+employer) goes toward paying the instalment. If we choose CPF to continue paying, we have surplus funds in OA account to cover the excess for a few years.

If we choose cash for the excess, our monthly budget will have lower cash savings.

What's the financially smart thing to do in this situation?

Some numbers for example (not actual amounts) ->

Existing CPF-OA balance:

me: 500

wife: 500

Monthly CPF-OA contribution:

me: +10

wife: +10

Current home loan instalment: 20 per month

me: -10 cpf

wife: -10 cpf

New home loan instalment: 30 per month

Question: pay additional instalment using cash or use CPF OA surplus balance?

The crux is whether your new mortgage loan rate is fixed or floating and the balance service term. If floating rate, the bank will inform you on a periodic basis of another interest rate hike based on today's climate.

Should you wish to service with cash, you have to answer these questions yourself:

a. How much more can you fork out?

b. Balance service term more than 2 years?

c. Do you have other more value added uses for the excess cash (let's not dwell into whether the excess could generate at least 2.5% returns for you as there are other more meaningful matters in life than the numbers)?

If you wish to service with CPF, the subsequent "claw-back" upon sale of your current house should not matter much. The monies go back to YOUR CPF anyway.