11 Oct 2020
Similarly my dad,51 yo is a taxi driver as this are his CPF values: OA: 0 (emptied to pay for house) SA: 43k MA: 59k. Brings home around 3k per month after rental, petrol deduction with 12-15hr shift...
Should we convert the hdb loan to bank loan considering the low interest rate? We have 110k balance left.
Any strategy to maximise my mum's cpf usage since she wont hit minimum sum anytime soon and we are not rich enough to do top up?
Any other strategy to adopt?
11 Oct 2020
Salaryman at some company
Disclaimer: I'm not a financial advisor. Just a normal human being. So I may not know best.
Mortgage loans with banks should be having a low interest now (like 1.5% p.a?) but they may not stay low for 15 years.
Banks don't refinance mortgage loans with < $100,000 balance, which means once you do the switch, you cannot refinance to get a lower interest rate.
In a couple of years, when the pandemic dies down, interest rates are likely to rise, and may even rise unpredictably.
On the other hand, while the HDB loan has a higher interest rate, it guarantees one thing: Stability. So, you have to ask your parents if they are able to withstand less predictable interest rates.
As for CPF, I advise against topping up unless there is really some spare cash lying around after saving up x months of emergency savings. In this current situation, x may need to be a higher number, like, 12.
If you do have that spare cash and you are fine with not touching it at all, feel free to top up OA to $20,000 (but this is via the 3-account top-up, which means every dollar into CPF = x cents into OA where x is less than a dollar).
Schemes like Medisave top-up and RSTU are tax-deductible but your mother's income tax should be close to zero, so there is little incentive to do them... Also, RSTU monies are "reserved" and will never see the light of day unless in the form of CPF LIFE annuities which will not happen at least in the next 16 years for your mother.
Last but not least, rushing to pay off mortgage loans is dangerous because you don't ever want to be in a situation where you have a paid home (i.e. illiquid) but with no spare cash to pay emergency bills.
All the best!
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