I want to buy a HDB that is about 600K and I have 500k on hand. Should I pay all in cash & loan the rest? Or will my CPF be automatically wiped out first before I can pay in cash? is it worth to pay cash? - Seedly
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Anonymous

Asked on 26 Jun 2020

I want to buy a HDB that is about 600K and I have 500k on hand. Should I pay all in cash & loan the rest? Or will my CPF be automatically wiped out first before I can pay in cash? is it worth to pay cash?

Am wondering should I invest the 500k instead and loan the rest for 25yrs?

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Tay WenHao
Tay WenHao
Level 7. Grand Master
Answered on 27 Jun 2020

My personal opinion:

  1. Take bank loan max amount, down payment pay in cash.

  2. Monthly instalments pay via CPF OA. Leverage on the difference between bank loan and OA interest.

  3. If you are able to confidently invest the amount and get more than 2.5% p.a. safely with minimum risk, go ahead. Else, consider bonds, high interest savings accounts, fixed deposit or even short term endowment plans (<3 years). Returns on investment should be higher than your bank loan for HDB. If not it defeats the purpose of getting bank loan.

3.1. If you are unable to get a safe investment that generates higher returns than 2.5% p.a, topup your spare cash into CPF VC3A. Subjected to the annual limit of 37k including your mandatory contributions. Since you using CPF OA to pay for your monthly instalments, by topping up your CPF, you are paying for your housing loan indirectly and earning the difference in the interest rate. (Leveraging on HDB Loan)

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Tay WenHao
Tay WenHao

27 Jun 2020

Its a misconception on the accrued interest. It has been covered many times. . Using your OA doesnt require you to "pay back 2.5%". In the event that you sell your house, the full amount and interest goes back to your OA. You dont pay a single cent to CPF for the accrued interest. . If you are using point 3.1 suggestion, you are using OA as a 'interim account' to earn 2.5% p.a. before the amount gets deducted for monthly housing instalments. . Let me give you an example. *For simplicity in calculations, lets ignore the Annual Limit for CPF Voluntary Contributions. . Assuming CPF OA = $0 HDB Cost 600k Cash on Hand 500k Downpayment 25%, $150k by cash. Max loan $450k, max duration 30 years, bank interest 1.5% p.a. Monthly installments = 450k/30/12 = $1.25k. Top up the remaining cash $350k to CPF. . The amount in OA will generate 2.5% p.a. while the bank loan is only 1.5% p.a. . To be continued.
Question Poster

02 Jul 2020

I see. I get what you mean now. The example makes it very clear. Thank you so much.
Thank You!
Can you clarify
I wonder if
This is so helpful 👍
What about
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