Asked by Anonymous
Good question. I often get a this question or a similar one on should one pay up their home loan with their OA or use it to transfer to SA to get 1M65.
If I were in your situation, I would try to make sure that I have enough money in either cash or OA to pay for the deposit for the house. Then, the next question is reduce my loan with OA (or cash) or transfer OA to SA (thus incurring higher debt). I cannot tell you what you should do, but I will tell you what I have done. I transferred to SA more because the home loan interest rate is much lower than SA - one can arbitrage the difference. Usually between 4% minus 2.5% (or more). Not everyone likes to incur debt, but I think some debts are healthier than others. This is one of them.
I'm 34 and only maxed out my SA after the housing is settled.
Speaking from personal experience (got our resale in July last year), we did ours in this sequence:
Check housing budget and overall cash buffer combined with le-spouse/fiance
Decide on choice of housing (BTO/Resale/EC/Condo - these were the options we were exploring then)
Signed the OTP for resale with keys scheduled to be collected in 5 months (mutual agreement)
Got the HDB housing grants via CPF
THEN got both of us to transfer all the OA to SA.
One can argue the "opportunity cost" lost in not transferring OA to SA from as young as 25 but I didn't know what was our final housing choice then. So although I'm a proponent of maxing SA as young as possible, I think common sense must reign. A bird in hand is better than 2 in the bush. If you are getting married soon, please make sure you are not financially stressed and do it in the right sequence.
Liquidity is very important for a stress-free living. Good sleep is better than any returns.
Only if you're willing to pay your mortgage in cash, pay a higher monthly per month, and cm get the loan of 350k from HDB or the bank.
I would prefer cashflow over a slight bump in returns. So I personally wouldn't.
What I personally would do is to keep in OA. Becos I use my OA funds for my property purchases and loan instalments. SA funds cannot be used for such purposes.
Have u considered topping your special account with cash, as for your retirement planning?
You will earned a guaranteed rate of 4%. For the first $60k in your CPF combined balance (with only up to $20k max from OA), the monies will earn an extra 1%. Since you are still young, u will not be near the limit yet. Thus it is worthwhile to topup to earn effective 5% return. Risk-free, regardless of market conditions.
In additional u will receive tax relief for the topped up amount. Eg, your taxable income is $40k, for every dollar u earn above 40k is taxed at 7%. Therefore, if u topped up $1000 into your special account, u get $1000 tax relief, u saved 7% of $1000 = $70 tax money. Effectively have gotten 7% return on your money, in additional u will earn 4%-5% interest yearly guaranteed.
Chat with me if u want to discuss further.