What is your opinion on using only cash every month to pay for hdb loan repayment instead of using full OA CPF to pay hdb loan every month? - Seedly
 

Resale HDB

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AMA 1M65

Asked by Anonymous

Asked on 07 Nov 2018

What is your opinion on using only cash every month to pay for hdb loan repayment instead of using full OA CPF to pay hdb loan every month?

So that can Transfer what is above 20k in OA to SA every month to reach the FRS in shorter time?

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Loo Cheng Chuan
Loo Cheng Chuan, Founder at 1M65 Movement
Level 6. Master
Answered on 07 Nov 2018

It is a good idea because cash carries a lower opportunity cost compared to the CPF OA. With the CPF SA, you actually get up to 6% returns where the HDB Housing Loan is currently at 2.6% interest rate. Hence, I would suggest you to use cash every month to pay for the HDB housing loan.

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Good Day Every Day
Good Day Every Day
Level 6. Master
Updated on 21 Jun 2019

Yes, it is a good idea. The interest of your fixed deposit is lower than the interest of your CPF OA. Hence it makes sense to use cash instead of CPF OA to repay your hdb loan.

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Ching Li Chew
Ching Li Chew

on 21 Jun 2019

If you have triggered your OA to pay your mortgage, you’re liable to repay your OA whether or not your sell your property, in fact with interest on the OA amount you utilised. OA is a good utility to give your flexibility in your resources, whether to earn a higher return or to build up your retirement. U just have to make the best of it to your convenience. Good luck
Good Day Every Day
Good Day Every Day

on 21 Jun 2019

That is why it is better to use cash instead of CPF OA!
Zen Rogue Xuan
Zen Rogue Xuan
Level 5. Genius
Updated on 26 Jun 2019

Hi OP,

Using cash to pay for your HDB loan is a wise choice. In essence, you are leaving CPF monies to compound in your OA at a generous rate of 3.5% while your HDB loan is only at 2.6%. In this manner, you get to enjoy an "inversion", in which your CPF monies will be working harder than the cash in HDB loan.

Also, the money in your CPF OA can act as a a security net to cover about 1-2 years of HDB loan mortage payment if you or your spouse face financial difficulties due to retrenchment or illness of a loved one.

Lastly, if you are even more bold and care less about liquidity(CPF OA can be used to pay for education and housing), you can do an OA to SA transfer and let the amount compound at a staggering 5% risk free interest, which will bring out the power of compounding- the sum will grow to 4 times the principal in 30 years time! Do note that this transfer is irreversible though.

All the best in reaching FRS!

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Takingstock @
Takingstock @
Level 5. Genius
Updated on 23 Jun 2019

If you can, I would say pay cash instead of cpf like Cheng Chuan said.

But on your question, I wont transfer all of OA (above 20k) to SA. I would suggest you leave 6x (or maybe even up to 12x) monthly loan payment amounts in OA, so that in event you lose your job or main income, you can activate the OA to pay the loan and tide over the tough times while you look for the next job. This is my plan B.

My plan A is to redeem some of the SSBs that I buy to offset against the loan payments.

Something for you to think about. I always put keeping the house as a priority and to never default on the loan. Peace of mind.

You dont have to do this in one go, I started my plans with one-three mths reserve in oa / ssb, and then budget to increase by one mth each year to steady and fortify these buffers until well I get at least 6+6 mth buffer.

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

Will share a slightly different perspective from the others - 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%/4.0%, 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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