Zen Rogue Xuan
Level 3. Wonderkid
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  • Asked by Anonymous

    Zen Rogue Xuan
    Zen Rogue Xuan
    Level 3. Wonderkid
    Updated on 09 Apr 2019
    Hi OP, you can refer to the answer I have posted here: https://seedly.sg/questions/my-wife-and-i-currently-have-30k-each-in-our-ordinary-account-should-we-use-it-to-pay-off-our-hdb-loan To add on, there is two school of thoughts. Are you conservative or aggressive? The first school of thought is to pay off your housing loan as soon as possible , which is "Work for Money" as you dedicate a significant portion of your salary to the repayment of your mortgage loan, while leaving your CPF monies untouched. This, although painful, gives you purpose and you feel good as every month, as slowly but surely, the debt lessens as you work towards the freedom of not having the burden of housing debt weighing on your shoulders while you see the CPF amount accumulate in your account. This potent combination gives you the freedom to change jobs, take a sabbatical, start a business, retire early, etc, without having to worry about the thorny issue of paying off your mortgage loan and knowing that there is a sizeable nest egg-your very own pot of gold at the end of the road. The joy this duo brings cannot be underestimated, particularly when you're late in life and extremely tired of working. This is the traditional, conservative approach that a majority of Singaporeans are doing as they no idea how to better use their monies and that the government approves of wholeheartedly. The second school of thought is to t ake as long as you can to pay off your mortgage and borrowing as much financing as you can get. Why, you ask? To "Make money work for you" as you deploy the savings from a much smaller monthly payment into investment and getting a potentially higher return relative to that of 2.6% p.a. This is the aggressive approach that a minority of people use as they, unlike the majority, believe they can better use their monies . The only problem is that investment returns are not guaranteed but mortgage interest is, and more importantly that most people who think themselves "above average" investors are actually not as good as they think - they have the tendency to follow the crowd in buying high and selling low. Investment is not about slamming fund into stocks or funds and expecting returns based on the hot tip your friend gave you- it means putting in the time and effort into doing your due diligence and homework, be it technical(Volume, trend reversals!) or fundamental (new product line, higher productivity!) - finding out WHY . And when your investments under perform below your expectations and are bleeding red in the markets, you will need lots of confidence - did you make the right trade or were you wrong all along from the start? Essentially, you find yourself in a bigger headache, compounded by a large looming mortgage over you which would mean many sleepless nights. By utilising CPF for your monthly repayments, you are essentially, trading CPF for cash - Your CPF attracts at least 2.5% p.a. interest risk-free but your cash doesn't. How can you make the best use of this situation? JFK put it succintly- In the Chinese language, the word "crisis" is composed of two characters, one representing danger and the other, opportunity. A conservative person would view it as "danger" -yet another problem in adulthood- that they simply do not have the time and energy to think how to better use this cash. They would see the downsides, emphasis costs and be afraid of the unknowns. They would prefer the slow and steady approach. An aggressive person views it as "opportunity" and see the upsides and emphasis the benefits, embrace the challenge by dedicating time and energy into exploring unknowns to find how they can better use this cash. They must be prepared for bumps along the way. Are you an conservative or aggressive person? Do you want to take the road less travelled - spend time, effort and money in making mistakes that can be costly? At best, your investment surpasses your wildest dreams, and you can retire early to pursue your passion. At worst, you are sacrificing your retirement money and have doomed yourself to work into your golden ages. Or would you rather go the easy way out - the low effort, no brainer approach, in which you dedicate the time and energy into your job and hope for the best as a salaried worker. Regardless of which school of thought, it all boils down to the identity of CPF- what do you view it as? Ultimately, CPF is meant for retirement. I personally feel that it would be better to use your cash to pay for your mortgage and reserve your CPF for retirement, as per its intended purpose. TLDR; Using cash Pros - Clear Mortage fast - Build up nest egg for CPF - "No Brainer" low effort Cons - Need to work longer - CPF monies subjected to legislative changes Using CPF Pros - More money for investement - Potentially higher returns/faster time horizon - Retirement not affected by legislative changes to CPF Cons - High effort with much time and energy needed - Potential to lose everything
  • Asked by Anonymous

    Zen Rogue Xuan
    Zen Rogue Xuan
    Level 3. Wonderkid
    Answered on 09 Apr 2019
    Since you are young(the perks of youth), you might consider some risker investments(Higher risk higher rewards) such as putting 5-10% into cryptocurrencies and p2p lending.
  • Asked by Anonymous

    Zen Rogue Xuan
    Zen Rogue Xuan
    Level 3. Wonderkid
    Answered on 03 Apr 2019
    Yes you can. 1) Go to HDB's website to apply for HDB's approval before you rent out your flat. Application fee will be $20 2) Source for tenants on Gumtree/Facebook for the DIY route, or go through a property agent 3)Secure your tenants and sign the tenancy agreement contract 4) Register your tenants with HDB Read more about the procedure her: https://www.hdb.gov.sg/cs/infoweb/residential/renting-out-a-flat-room/renting-out-your-flat/apply-for-approval
  • Asked by Anonymous

    Zen Rogue Xuan
    Zen Rogue Xuan
    Level 3. Wonderkid
    Updated on 03 Apr 2019
    The answer is no, especially if it is the "first" 30k in your OA. This is because the first 60k of your CPF monies earns an additional interest on top of prevailing rates so you enjoy an "inversion"- in which your CPF monies would be working harder than that of the loan . HDB loan is 2.5-2.6% interest loan but your 20K in OA will yield you 3.5% so you get more money each time- $180 a year to be exact. In fact, I would suggest a 10k OA to SA transfer so that it can be compounded at 5% yearly, which will x4 in 30 years time! Also, the sum that is withdrawn for paying your HDB will have interest accrued, which means that if you choose to instead of CPF paying you interest , you will "own" yourself interest if you utilise CPF monies for your home loan ! If you sell your property, not only will you have to pay back the principal(30k), you also need to pay back the interest accruded as if it was sitting in your CPF OA. Lastly, your 20k in CPF OA can also act as a back-up plan if you lose your job(touch wood) - it can probably ride you 1-2 years of HDB payment while you look for a job. This safety net will given you a much needed sense of security- imagine trying to secure a job, and worrying about your loan at the same time.
  • Asked by Anonymous

    Zen Rogue Xuan
    Zen Rogue Xuan
    Level 3. Wonderkid
    Answered on 21 Mar 2019
    An annual premium of $810 works out to about $67.50 a month, which is pretty affordable. Assuming you are a poly diploma holder that earns about 2.8k, that works to about 2% of your pay! As you have mentioned, the guaranteed amount(50k) is much lesser than that of the bonus amount(140k). While social media is rife of horror stories about non-guaranteed amount, what you can do is to better understand your policy. The Good: the Terminal Bonus(TB) and Revisionary Bonus(RB) components. Many are unaware of the calculation of the Revisionary Bonuses ("bonus" annual bonuses added to your policy) and the Terminal Bonus ("final" last bonus received when you surrender, claim upon or matured, usually as a percentage of the final sum). This will affect the calculation of the returns if you are just using surrender value to estimate your maturing value as TB is a percentage of your accumulated and compounded RB(Estimated 50%-400% of compounded RB depending on surrender type and date) which can make up a big sum, especially over a long time period of 50 years! The Bad: "Effect of Deduction" (EOD) - think of it as a fee for protection and maintaince includes the cost of insurance, distribution cost, expenses and surrender charge. The EOD can eat away at your gains, particularly management fees. Policyholders' net return is usually (substantially) lower after taking into account management expenses, distribution and other costs such as mortality. What I would do is to call up the company and ask about EOD and past history of TB & RB. If the TB and RB are pretty decent, you can then take steps to reduce to EOD such as switching to a fund that charges a lower management fee. Since your mum have paid faithfully for you for close to two decade, it would be a shame for you to give it up! Regards, Zen