My gf and I are both earning about $3.5k a month ($2.8k after CPF deductions). Should we use cash to finance our BTO loan or should we use CPF? - Seedly
 

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Asked by Anonymous

Asked on 19 Oct 2018

My gf and I are both earning about $3.5k a month ($2.8k after CPF deductions). Should we use cash to finance our BTO loan or should we use CPF?

I am more financially savvy and my returns from investments are ~5% annually, whereas she prefers to keep her money inside DBS multiplier and have returns of ~2% annually.

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Teo See Hwa
Teo See Hwa, MArketing Associate at Propnex
Level 3. Wonderkid
Updated on 07 Jun 2019

When one is young leverage, when old de-leverage.

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Phyo Myat Thu
Phyo Myat Thu

on 01 Jan 2019

Thanks for sharing
Kai Xin
Kai Xin
Level 3. Wonderkid
Answered on 08 Jan 2019

When you put cash into your BTO, it is still a form of savings as it will continue to appreciate in value,albeit a form of forced savings.

I believe the BTO would not be the final place of residence and you may look to upgrade in future when your family grows in number. CPF put into financing the flat would incur accured interest that you can't see now at this point of time. You will feel the effects when you find that the cash proceeds from your future sale of flat is less than what you expected because part of it goes into paying the accured interest.

I would recommend working out your budget carefully. Work out a cash amount that you and your future wife are comfortable with putting into the mortgage for BTO, and use CPF to pay the remaining amount. Since you are financially savvy,continue to set aside that money to invest, at some point of time, use the returns to lower your outstanding loan. Savings in the house and your own investments are separate baskets of investments. This is also considered diversification. Most importantly consider the expenses that you might incur as a young family before arriving at the amount of cash/CPF to use

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cash flow might be tight if you do not use the CPF to fund the payment. I think a mix of both CPF and cash would be a good balance.

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Dawn Fiona
Dawn Fiona
Level 5. Genius
Answered on 21 Oct 2018

Depends on whether you favour liquidity or retirement savings (and accrued interest).

http://www.sgbudgetbabe.com/2018/01/why-i-wont-be-using-my-cpf-to-pay-for.html

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I would think for BTO, you are in a very safe position! Your house value would definitely appreciate in value whether you sell within 5 years or if you decide to hold longer.

On average, people make between $100K to $200K in cash proceeds (after deducting outstanding loans and CPF utilized and accrued interest) even if they utilize CPF to pay for the mortgage.

If you are not thinking of selling your BTO, you can consider using CPF to finance and your girlfriend to use cash to finance the mortgage. In this case, you can make your money work harder to reap the 5% interest while she can enjoy the CPF interest (which is higher than 2%)

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Teo See Hwa
Teo See Hwa

on 02 Jan 2019

Please be aware not all BTO are the same.
Vicky Faith
Vicky Faith
Level 5. Genius
Answered on 19 Oct 2018

I ever had this conversation with my friends before. I used to be pretty fixated at using cpf because I felt that it is "money I can't see anyway!". But I kind of changed my mind after reading up more about CPF.

Basically, I will decide on the type on payment based on the short term and long term plan on the house. Also, I would look at the URA 5 years plan to kind of "predict" if the value of the house will increase over time.

In general, I'm looking at either 1) short term - intends to sell the house after 5 years due to considerations like planning for a family.. etc. Depending on the 5 year plan for the estate im buying, highly likely I would use cash for me to gain the revenue from selling it in 5 years. 2) long term - intends to stay for really long and even for life - probably using cash cause it's "money I can't see anyway!". But even for this option, I would try to plan to ensure that the house I buy would be of value that I can rely on pure cpf to pay.

Some may not agree to my way of looking at house buying using cash/cpf because mine is really based on basic understanding about money and cpf... And I have this idea all on my own cause I don't have a partner yet to even discuss about this hahahaha.

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Png Cheng Xi Damien
Png Cheng Xi Damien, Happy Life Seeker at Home
Level 4. Prodigy
Updated on 07 Jun 2019

For now, Cpf is the best choice. 2.6% fixed is good, and any interest paid actually goes back to your OA when you sell your house. Technically you don't even lose anything. If you have cash, you can choose to do cash top up to your cpf to finance your mortgage. Gives you tax exemptions too.

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As Df
As Df

on 20 Oct 2018

2.6% is the HDB loan rate not the CPF OA rate. There's no tax incentives for cash top ups via voluntary contributions (which is what you would need to be able to use the cash for housing) either.