My wife and I currently have 30k each in our ordinary account. Should we use it to pay off our hdb loan? - Seedly

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Asked by Anonymous

Asked on 27 Mar 2019

My wife and I currently have 30k each in our ordinary account. Should we use it to pay off our hdb loan?

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Zen Rogue Xuan
Zen Rogue Xuan
Level 4. Prodigy
Updated on 03 Apr 2019

The answer is no, especially if it is the "first" 30k in your OA. This is because the first 60k of your CPF monies earns an additional interest on top of prevailing rates so you enjoy an "inversion"- in which your CPF monies would be working harder than that of the loan. HDB loan is 2.5-2.6% interest loan but your 20K in OA will yield you 3.5% so you get more money each time- $180 a year to be exact. In fact, I would suggest a 10k OA to SA transfer so that it can be compounded at 5% yearly, which will x4 in 30 years time!

Also, the sum that is withdrawn for paying your HDB will have interest accrued, which means that if you choose to instead of CPF paying you interest, you will "own" yourself interest if you utilise CPF monies for your home loan! If you sell your property, not only will you have to pay back the principal(30k), you also need to pay back the interest accruded as if it was sitting in your CPF OA.

Lastly, your 20k in CPF OA can also act as a back-up plan if you lose your job(touch wood)- it can probably ride you 1-2 years of HDB payment while you look for a job. This safety net will given you a much needed sense of security- imagine trying to secure a job, and worrying about your loan at the same time.

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Teo See Hwa
Teo See Hwa, MArketing Associate at Propnex
Level 3. Wonderkid
Answered on 17 Apr 2019

Why pay HDB loan in full when you buy HPS.

HPS is a mortgage-reducing insurance scheme which helps insured members and their families pay off their outstanding housing loans up to the insured sum in the event of the insured members' permanent incapacity or premature death before age 65.

Notice many did not take advantage of what they are given as a SC and start to reduce all their advantage such as fully paid HDB loan etc.

Talk to someone who know and who have been there.

This is what I will do, buy BTO only or private condo.

Loan as much as I can.

Buy as many as I can.

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No. As others has shared, the extra interest inside makes more sense to keep.

Instead, of your other extra cash such as bonuses etc, consider below options:

1) If you know how to invest, then use it to invest, Otherwise

2) Deposit some to OA then transfer to SA (up to 7k yearly to reduce tax and earn the extra interest)

3) balance from #2 use it to repay the HDB loan as lessor debts is still consider a savings on interest.

All the best ! :)

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Bryant Tan
Bryant Tan, Director at Starbuyproperty.co
Level 3. Wonderkid
Answered on 30 Mar 2019

To add on, another scenerio, if you are planning to buy your 2nd property in near future. 2nd loan would be on 50%

so if you were to settle your hdb loan, means no more residential loan, your next housing purchasing you can max up your loan to 75%.

All the best :)

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K
Khriz
Level 2. Rookie
Answered on 27 Mar 2019

Unless your hdb loan interest charges are higher than CPF OA interest income, you should not pay it off.

However, if you are using cash to pay the loan every month, then you should pay off the hdb loan (despite the lower interest charges) and free up your monthly cashflow and open up to cash investment opportunities.

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