Is it better to pay our HDB monthly installments with cash or using CPF? - Seedly
 

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Asked by Anonymous

Asked on 18 Jun 2019

Is it better to pay our HDB monthly installments with cash or using CPF?

We are a young couple here, both of us are in our 30s. Our combined income is $5500/month. We are looking for a 4 Room flat around $300k.

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Gerard Ong
Gerard Ong, Tax consultant at Ernst & Young
Level 4. Prodigy
Answered on 18 Jun 2019

The best way to approach this decision is to think of it this way - if you use CPF to pay your monthly installments, will you be able to dilligently set aside the extra cash-on-hand and earn a return equivalent to or higher than CPF OA (2.5% - 3.5%). If yes, then go ahead and pay with CPF. If no, you might be better off paying with cash so you don't forego the lost interest in CPF.

Assumption: this thought experiment assumes that your monthly cashflow has enough buffer to pay the monthly mortgage in cash. If your cash is insufficient, then there's no need for dilemna, just pay with CPF.

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Cedric Jamie Soh
Cedric Jamie Soh, Director at Seniorcare.com.sg
Level 8. Wizard
Updated on 01 Aug 2019

I always max out my CPF.

If i have a good opportunity or crisis, can I take out my CPF that I have not touched for that emergency or opportunity?

then whats the use of 2.5%?

CPF is not your own money until you can spend it =)

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Shieleen

01 Jul 2019

I have the same question. Since CPF is not ‘withdrawal-able’ or ‘lock up’ until decades later in my scenario (mid 20s), what if I need extra cash for emergency that CPF can’t settle due to regulations and restrictions etc. A mixture is a good adoption to pay mortgage but any suggestion on the ratio or amount?
Cedric Jamie Soh
Cedric Jamie Soh

01 Aug 2019

No matter what emergency, the government won't allow you to use CPF. ironically its easier to get the CPF if u migrate out.
Eleanor Ng Lai Hong
Eleanor Ng Lai Hong
Level 2. Rookie
Answered on 19 Jun 2019

I would suggest both. Cpfoa earns a risk free interest rate of 2.5%pa. Currently, HDB loan is 2.6% but if loan is taken from bank, you can still probably get a low 2%. So by using cpfoa, on top of losing the interest rate cpfoa earns you, you are using a higher yield instrumt to service a lower cost of debt. But having said that, you may need liquidity when the kids come etc. So having a mix of both you the option to adjust the ratio of cash / cpf mix.

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Fan ZD
Fan ZD
Level 4. Prodigy
Updated on 18 Jun 2019

Typically most people in your situation would choose to pay via CPF. You can always pay off lump sum in cash (when you have spare) to reduce the loan amount and thus loan interest you pay HDB.

Only scenario I can think of where people pay off totally in cash is when they have more money they can spare and would like to strike this debt off their list.

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Glenn Toh
Glenn Toh, Founder at Whatcard.sg
Level 4. Prodigy
Answered on 21 Jun 2019

If you are able to manage your cash responsibly (save the excess, invest it), using CPF is probably the better option because it allows you to hold your excess cash on hand and invest it to earn returns 2.5% - which is not exceptionally difficult. Having this liquidity will also help protect against unexpected expenses (e.g. medical bills) as opposed to keeping everything in CPF which has very limited use.

Another way to think about this is that if you decide that you have too much cash on hand and are not confident with investing (after paying your loan through CPFOA), you could always still make a voluntary top up of your CPF, which has added benefit of income tax savings that can be pretty significant as your income (and hence tax) goes up.

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Zen Rogue Xuan
Zen Rogue Xuan
Level 6. Master
Updated on 26 Jun 2019

This question is one of the most frequently asked on Seedly. As I have mentioned before, it depends on your outlook towards CPF: how do you view it?

https://seedly.sg/questions/is-it-possible-to-pay-for-bto-with-cash-and-cpf-also-what-are-the-pros-and-cons-with-using-cash-or-cpf If you are disgruntled with the system and have no confidence in the system, then I would say use CPF to pay off the loans. However, do be aware that on top of mortage interest, any sum withdrawn for housing would have accrued interest.Essentially, whoever that used their CPF for housing would penalized with a double whammy - you will be paying interest twice: 2.6% to HDB, and 2.5% to yourself. This was the situation that many Singaporeans found themselves in as they speculated on the housing market, which resulted in them being "asset-rich, cash poor"!

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Siow Nan
Siow Nan
Level 6. Master
Answered on 25 Jun 2019

For that price, A 20 year loan will require about less than 800 per month for each of you.

If you can handle this cash expenditure, and is planning to upgrade to a bigger home in the future, then paying by cash would be good so that you can get it back when you sell the flat to put it into the next house down-payment. You get to accrue your cpf at 2.5% plus 1% more if your cpf balances are below 60k. In this case you can grow your cpf savings better and faster in a more secured and safe way then taking on more risk yourself with cash investments.

It will be tough for you at first but as you and your wife grow in your careers then things will get easier for both of you.

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Luke Ho
Luke Ho
Level 7. Grand Master
Answered on 25 Jun 2019

Of course it depends if youre selling it, and if you do anything with the CPF monies or cash.

You can invest (and should invest either). Cash has more versatility, so I could probably help you achieve a higher return on it than OA investments.

But if you intend to sell your property, then the accrued interest is a huge factor.

Ultimately it depends. But Id lean towards CPF..

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Once asked this question to my financial advisor and the short answer is, only pay the HDB monthly instalments with cash if the money to be used is not for any other purposes.

Otherwise, CPF payment might be better, so that liquidity is there for cash funds to do other investments, which may yield more than HDB Concessionary Housing Loan of 2.6%.

If not, can do partial payment of the HDB loan with cash, reduce the loan amount partially with this method.

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KH Puah
KH Puah
Level 3. Wonderkid
Answered on 24 Jun 2019

If both of you have already aside at least 18 months or more of your income (more than $100,000), and is only going for basic home reno, could suggest to go for $50,000 cash and and the balance cpf. Bear in mind that it is only another 20 yrs and both of you can withdraw your cpf (in excess of the cpf Life amount). With lesser cash on hand will motivate you to spend less, earn more and save more.

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Rave Ong Ci De
Rave Ong Ci De
Level 6. Master
Answered on 24 Jun 2019

Personally, I feel that it is better to use CPF to pay for HDB monthly installment. Reason being, CPF funds have limited usage, as compared to cash. If you need to pay for your mobile bills, grocery, etc, you can use cash, but not CPF.

The downside to this is that you would have a higher loan and accrued interest to repay if you ever decide to upgrade/downgrade your house. If you sell your house at market rate, but this market rate is lower than your purchase price, you do not have to pay back the accrued interest. The drawback of this situation is that you would have lesser CPF to set aside for your Retirement Sums.

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