should I use my cpf to service my bank loan for private property? Just brought a condominium and wondering if I should use all CPF or a mix of both CPF and cash. I’m in early 40s now. - Seedly

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Asked by Anonymous

Asked on 03 Jan 2019

should I use my cpf to service my bank loan for private property? Just brought a condominium and wondering if I should use all CPF or a mix of both CPF and cash. I’m in early 40s now.

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I think it is a better ideal to pay through the bank loan.

using CPF incurrs the accrual interest and you lose out on the int given by CPF. You can argue that CPF and the int is your own but it is better to pay just one set of interest(bank)

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There are more questions we will need first.

1) How much loan are you taking? How confident are you able to service it pass 55?

2) Are you looking at selling the condo or not? The accrued interest may be something you might want to take a look since this may affect your BRS and FRS (especially if your CPF SA is unable to hit FRS).

3) Are you doing other investment which will give you returns better than 2.5%? If not, it's prudent to use cash to service.

Do let us know more to help you.

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Question Poster

04 Jan 2019

Thank you for your advice Tat Tian. My reply as follows: 1) appx $800k 2) yes we intend to sell the condo 6 to 10 years from now 3) mostly fixed deposit and equities in addition, I am already using my monthly OA contribution to service the loan however the balance amount is abit tricky as to how much I should continue to use from my OA or the remaining should be purely cash to service.
Loh Tat Tian
Loh Tat Tian

04 Jan 2019

Then in this case, you have to balance the opportunity cost of the money. 1) If you use CPF-OA, the the money would have gained 2.5% interest 2) If you used cash, the money would have gained XX% due to your investment. This is the critical issue. What sort of returns would you expect it to give? If it is going to be more than 2.5%, it will be wise to use CPF. If you are just putting in fixed deposit and not gaining much interest, then using cash to service would be good. 3) The trickyness will disappoear once you are able to answer which is likely to have a higher opportunity cost in this case. If cash has higher opporunity cost, then use OA, if not use cash so that OA can compound itself. I failed to mention that OA can also be transferred to SA provided you have not met the Full retirement Sum. (FRS) There is a seperate hack whereby you can use the interest earned from SA (4%) once you hit FRS and BHS (basic healthcare sum, 4% too), which will be thrown into OA ( and you can use this amount to pay the housing loan). Higher interest.