My parents are getting divorced and I am taking over the home ownership, because my mother is ineligible to do so. How to pay down the loan quickly, and how many years I should pay it within? - Seedly
 

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Asked by Anonymous

Asked on 29 Sep 2018

My parents are getting divorced and I am taking over the home ownership, because my mother is ineligible to do so. How to pay down the loan quickly, and how many years I should pay it within?

I have to refund him his CPF payment for the house thus far, which amounts to about $130,000. There is $25,000 remaining in the mortgage payment. Which means I will need to take a loan of about $150,000, which is daunting given my monthly fresh grad income of less than $3,000. Is it better to take a CPF loan, which has an interest of 2.6%, or one of those bank loans that has a fixed rate of about 1.6% for three years and a variable rate after?

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HC Tang
HC Tang, Financial Enthusiast, Budgeting at The Society
Level 8. Wizard
Updated on 29 Sep 2018

150k loan , at the current situation ,best to take CPF loan for HDB at 2.6%. Though bank lower interest at 1.6% but is scheduled to raise. True as Gabriel share , CPF allow some delay if cannot repay in time compare to bank. A safer choice.

For the duration with CPF loan, you can take 30 years and repayment will be lower monthly. Whatever extra $ you have can just take and reply the loan with no penalties.

Use CPF loan calculate for your 150k at 2.6%.

https://www.cpf.gov.sg/eSvc/Web/Schemes/MonthlyInstallment/MonthlyInstallmentCalculate

If repay for 30 years, monthly about $601.

Since you'll take over the house staying with mum. Rent out the extra room if you have or share the room with mum for the time being and rent out your room or mum's room. This will allow you to have an extra $650 to $800 extra income that you can use it to replay the loan faster together with your own monthly installments (eg. $601).

This way at most takes about 12 to repay the loan fully and you have no more loan and the HDB unit is yours fully repaid. Much faster than any HDB owner.

Once Your income increase and you're able to repay more monthly, you can take back the room and have own space and privacy.

Hope it helps. Work hard and plan wisely will allow you to get out of debts quickly.

Cheers

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Gabriel Tham
Gabriel Tham, Kenichi Tag Team Member at Tag Team
Level 9. God of Wisdom
Answered on 29 Sep 2018

For fresh grad, I suggest take CPF loan. Why take higher interest rate? Very simple, because CPF is stable and if you lost the job, CPF loan can give chance and allow you defer repayment awhile.

For bank variable loan rate, now is low but is already starting to rise. Many bank already sent out letter to inform the loan rate is increasing. Another reason is because bank really no give chance. If happen you lost job and cannot pay, you might lose the house.

And third reason is if you take CPF loan you can take bank loan in future. But if you start from bank loan. you cannot go back to CPF, can only change bank.

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Nicholas Chan
Nicholas Chan
Level 6. Master
Answered on 30 Sep 2018

I don't think there is fixed rate 1.6% for 3 years anymore. It's more like 1.9% now.

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Jonathan Chia Guangrong
Jonathan Chia Guangrong, Fund Manager at JCG Fund
Level 8. Wizard
Answered on 29 Sep 2018

Sorry to hear about your situation. Hope somehow things can be resolved peacefully at home. Hdb loan or bank loan. The former will be a wiser choice, even with the higher rate currently. True that bank loans may have lower rates for now but with the Fed in the US raising interest rates recently, with one more hike this year and a few more next year, it's gonna be very likely sibor will rise also. And bank loan rates in tandem. Calculate the likely repayment rate for CPF based on the maximum loan period you can take, then see if you can contribute a higher amount than the suggested monthly repayment. This will help to bring the loan quantum down quicker and reduce the repayment period as well. I just did the same for my hdb loan recently as well. Hope this helps

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