Asked by Anonymous
Asked on 10 Apr 2019
Yes I recommend to use more cash to pay for your loan, unless they are generating more than 2.5%. Keep a 3-6 months emergency buffer and you should be fine. Overall, it's all about asset allocation and you want to make sure you are not over allocated or too concentrated on certain asset class.
Typically the asset classes are stocks, bonds, long term bonds, cash, commodities, home equity. Just make sure that by partial repayment you are not overly allocating your capital on home equity.
Just giving a brief answer here. Your interest rate does not change, though the accrued interest on your cpf will reduce.
Good to do partial repayment if your cash or cpf OA investment is giving less than 2.6%p.a. returns.
Assuming you are taking hdb loan @2.6% interest. And you use your OA to pay partly. You will forgo 2.5% of interest from cpf to you. Net savings is only 0.1%. assuming that your OA+SA is less than $60k (with up to $20k in OA), you are forgoing another extra 1% of interest that cpf is giving away now. Then scenario becomes a net loss of 0.9%.
in any case, any amount used from cpf OA for property will start to have an “accrued interest” component to be returned back to cpf if you sell your hdb later on. The earlier you use, the more “accrued interest’ there will be.
if You are not planning to stay in this hdb for Long and want to minimize the “accrued interest“ component, then I would recommend you to do partial repayment in cash rather than in cpf, unless you have a sure way with minimal risks to generate more than the 2.5%/3.5% that cpf is giving you already for OA. Of course make sure your cash flows are healthy when you do this, it will pay off in the Long run with the extra savings of interests. by saving more, you have lesser tendencies to spend the extra money on unnecessary items too since your “budget“ will be tighter
Need to know your age.
your loan tenure
Do you know about Time value of Money.
The time value of money (TVM) is the concept that money available at the present time is worth more than the identical sum in the future due to its potential earning capacity. This core principle of finance holds that, provided money can earn interest, any amount of money is _worth_more the sooner it is received.