Loans

CPF

Payments

Tony Yang

Asked on 13 Jan 2020

I have a 15 Yr loan with HDB. I have paid off 10yrs and discussing with my wife if we can do partial lump sum since CPF got extra money in OA. How do we calculate how much to partial lump sum and how many yrs will the remaining repayment take?

Is there any formula or ready calculator out there to compute this?

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Eileen Khoo

Level 3. Wonderkid

Updated on 17 Jan 2020

Https://www.dbs.com.sg/personal/calculators/homeloans-calculators-repayment-schedule.page

The above is an example of a loan repayment calculator obtained online via the dbs website.

With the variables

1) loan amount

2) tenure

3) interest rate (hdb 2.6%)

One can use this to calculate the monthly instalment figure; and generate a monthly repayment schedule. Using the Original figures, original full loan amount and full term will generate a repayment schedule that should give you your current situation.

(This whole paragraph is a bit side tracked;

Notice that the schedule uses a monthly reducing balance interest estimate; as in

It uses the

Opening monthly outstanding balance

X interest rate (2.6%/12; interest rate chargeable per month)

Then it adds this interests to the opening outstanding and minuses off whatever payment that one makes for the month (lump sum or partial principal or monthly instalment etc) to arrive at the closing outstanding balance. This closing outstanding balance then acts as the new opening outstanding and goes through the same process until the loan is settled. I will come to this “monthly reducing balance” later.)

#I believe you also know that the are TWO ways in which one can reprice the current outstanding; which are

*1) shortening the tenure (you are asking this) ; this means maintaining the same monthly instalment amount and paying in shorter time

2) reducing the monthly instalment amount. (Maintaining the tenure and reducing the amount paid monthly)

There are a few ways to find out how many years will be shortened, one simply takes a look at the original repayment schedule (from the website for example), to see which part of the schedule one is currently at; by matching the “current outstanding of the actual loan to the current outstanding in the schedule” This means, find out

1) current outstanding amount with hdb

2) look into the repayment schedule to see where the outstanding amount is.

This would be somewhere into the 10th year to follow that you have paid up 10 years. Find out which particular month (or between two months) the outstanding balance matches.

Mark this spot-let’s just say “A”.

Then take this current outstanding loan and minus the amount of lump sum you are looking to pay off to get a new lower current outstanding balance. Let’s just say this is “B”

Now look for where “B” is in the repayment schedule. The period between A and B is the period you have managed to cut off the repayment schedule (in months) and the balance of tenure is the period from B to the end of the tenure (*)

That’s about it.

There are other ways to calculate, using excel etc.

Some prefer to go by looking at the “principal” column; one can see how much principal is being used to knock off the outstanding balance each month. I.e.

Outstanding $100,000

Monthly installment $1779.15

Interest paid $216.67

“Principal paid $1562.48”

If one pays$1779.15 and knocks off $1562.48 in principal from the outstanding, in this example, one knocks off one month period (*)

Just add up the principals monthly to reach the amount of lump sum you are looking to pay off and match that with the number of months shortened.

If for example one intends to pay off $50,000;

From the matching current outstanding, just take the $50,000 and minus the next month’s principal paid back amount and the next’s and the next’s and next’s until the $50,000 finishes. Etc.

On actually “how much lump sum to pay”, the minimum allowed is SGD5000 and from then onwards increases in multiples off $1000. So, do add the sums to match the interests saved or the periods you want to save to get an idea.

Hope this helps.

P/s not involving the questions posed;

I) Are you opting to keep sgd20k in the CPF OA due to the extra 1% given (totalling 3.5% or “an extra 0.6% over the loan”)? I am assuming this. The other option could to transfer the funds to the Special Account to attract the 4%.

Point- CPF could be better if this is available.

II) On the monthly reducing balance mentioned; the effective rate would be lesser than 2.6% a year and the difference increases more if the outstanding reduces more (more principal is being paid). Take the total interests to be paid for the year and divide it by the outstanding balance at the beginning of the year to get the effective rate.

Point- Chances are that these last 5 years could get much lower effective rates (and therefore cost less than the 3.5% to be gained from the first $20k in the CPF OA or the 4% if the same is transferred into the Special Account).

III) the term is shorter towards the end of the loan, so the lump sum paid (say $50k) will have a “shorter” tenure to be effective. So the Lump sum used would only be used for saving interest for term of the tenure (5 years max) n none thereafter. Left in CPF this same sums would generate 2.5%?3.5%? 4%? Etc. compounded yearly, until taken out (with many scenarios allowing for this to be more than 5 years)

Point- Leaving it in CPF May be an option to consider.

Comparison is made on interest rate and tenure and not on other factors like availability of funds etc.

What these means is that there could be very little to be saved if this is done after 2/3s of the loan being paid as both the effective rates and tenure have reduced.

I could be wrong but do consider looking at the numbers. These are the main reasons why there are people using Other People’s Money (loans, credit card etc) to pay off home during the first 30%-60% of the home loan. And stretch the home loan once the effective rates are Low- aka to prolong settling the loan after clearing 70% of principal outstanding for example. The money used to settle the loan could be used to generate a better rate of income than the actual savings from settling the loan. (Stress issues aside)

Cheers.

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Pang Zhe Liang, Senior Financial Services Consultant at AIA Singapore Private Limited

Level 10. Unicorn

Answered on 14 Jan 2020

Not that I know of. Personally, I created an excel sheet to help me with the tracking and input of variables like this.

Here is everything about me and what I do best.

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