Why use CPF now for home loans?

[leslens]

HI guys
care to explain why one should use CPF Now for home loans?

CPF OA gives 2.5% per annum
interest rates are much lower than 2.5%

Assuming one has enough for downpayment in cash
shouldnt one keep all his CPF till interest rates are higher than 2.5% (for example after a lock in period of 3 years), and then use all the CPF to pay down a chunk of the loan.

Im not a finance guy so im hoping for some replies to see if im grossly misinformed

[DC33_2008]

If your cash can give you better returns of more than 2.5%, you should not use your CPF OA. You can start by activating your CPF payment account for your mortgage now. Otherwise, you will have to engage a lawyer and pay a fee later. Your lawyer should be able to advice you.

[Squall8888]

Cash on hand is priceless. Assuming your monthly installment is 3k which is quite a lot, how much interest do you expect from 36k yearly? Around $500 based on 2.6% straight line repayment. For example, you can't use cpf to pay for medical bills (medisave is as good as useless in most cases), shares, opportunity to buy something for a quick gain etc. And many more. But if you have low risk appetite and don't think you will ever invest or fall sick or heavily insured, then you use your cpf to gain 2.5% returns.




HI guys
care to explain why one should use CPF Now for home loans?

CPF OA gives 2.5% per annum
interest rates are much lower than 2.5%

Assuming one has enough for downpayment in cash
shouldnt one keep all his CPF till interest rates are higher than 2.5% (for example after a lock in period of 3 years), and then use all the CPF to pay down a chunk of the loan.

Im not a finance guy so im hoping for some replies to see if im grossly misinformed

[DC33_2008]

You can still get quite good returns in this current climate especially if you are in private banking.
Cash on hand is priceless. Assuming your monthly installment is 3k which is quite a lot, how much interest do you expect from 36k yearly? Around $500 based on 2.6% straight line repayment. For example, you can't use cpf to pay for medical bills (medisave is as good as useless in most cases), shares, opportunity to buy something for a quick gain etc. And many more. But if you have low risk appetite and don't think you will ever invest or fall sick or heavily insured, then you use your cpf to gain 2.5% returns.

[gn108]

Actually, you're right if you're conservative and cash rich.
Currently CPF pays more than the bank packages - so you can take a higher loan quantum and shove in CPF funds when loan rate rise or just use cash rather than CPF to finance.

Alternatively, you can use your cash and buy (stable) high-yield instruments eg preference shares. This can give ard 4.5% yield.
So take (max) loan, keep CPF intact and invest cash to high-yield.
Some risk - but it can be managed.




HI guys
care to explain why one should use CPF Now for home loans?

CPF OA gives 2.5% per annum
interest rates are much lower than 2.5%

Assuming one has enough for downpayment in cash
shouldnt one keep all his CPF till interest rates are higher than 2.5% (for example after a lock in period of 3 years), and then use all the CPF to pay down a chunk of the loan.

Im not a finance guy so im hoping for some replies to see if im grossly misinformed

[OLY99]

aren't u continue to earn the CPF interest even if u use it to finance yr loan? u are actually "borrow" the CPF money to finance yr housing loan. when u sell yr home, u are suppose to return the sum borrowed plus the CPF interest that you suppose to earn.

[rattydrama]

that happens only if you sell at a profit which covers the interests earned.

Park your money in cpf is good as you can use it to cover yr installements during rainy days. Also, to earn interests enough to cover the interest charge by the bank for your outstanding home loan.

Investments in other instruments might carry risk if you cannot liquidate it during bad times.


aren't u continue to earn the CPF interest even if u use it to finance yr loan? u are actually "borrow" the CPF money to finance yr housing loan. when u sell yr home, u are suppose to return the sum borrowed plus the CPF interest that you suppose to earn.

[leslens]

that happens only if you sell at a profit which covers the interests earned.

Park your money in cpf is good as you can use it to cover yr installements during rainy days. Also, to earn interests enough to cover the interest charge by the bank for your outstanding home loan.

Investments in other instruments might carry risk if you cannot liquidate it during bad times.


very insightful thanks brothers

i can pay the downpayment with cash and am quite busy and not too savy with shares other instruments

as such i tot this would be a middle ground safe option for me.

But is it really true that i have to deposit back CPF + compound 2.5% when i sell the property if i use CPF?
only if profit ?
how about if i sell it at a loss?

but i guess it doesnt make a difference, since i will probably buy another house if i do sell this one and withdraw the CPF again anyway

am i missing something??

[leslens]

aren't u continue to earn the CPF interest even if u use it to finance yr loan? u are actually "borrow" the CPF money to finance yr housing loan. when u sell yr home, u are suppose to return the sum borrowed plus the CPF interest that you suppose to earn.

could someone clarify this ?

that means if i withdraw say 100k from CPF to pay for my condo
when i sell it 3 years later, i have to pay eg 108k back?

so tat means my condo must make 2.5% PA or it simply doesnt make sense to use CPF?

now why should one use CPF if he has enough cash

[spikey69]

could someone clarify this ?

that means if i withdraw say 100k from CPF to pay for my condo
when i sell it 3 years later, i have to pay eg 108k back?

so tat means my condo must make 2.5% PA or it simply doesnt make sense to use CPF?

now why should one use CPF if he has enough cash

Yup - just happened again to me...u 'owe' yourself what u used from CPF plus interest.

[leslens]

Yup - just happened again to me...u 'owe' yourself what u used from CPF plus interest.

so basically
if u earn from selling the condo, ur profits part of it goes into ur CPF ie u basically have less liquid profits

if u lose from selling the condo, u need not pay for accrued interest as piority goes to paying the housing loan then principle amount before accrued interest

[rattydrama]

very insightful thanks brothers

i can pay the downpayment with cash and am quite busy and not too savy with shares other instruments


downpayment is 10% cash and balance either cash or CPF. So you can do you sum. Do not use up all cash for downpayment even if you can afford. Cash is King. eg. if there is a price correction, u can jump in again.




as such i tot this would be a middle ground safe option for me.

But is it really true that i have to deposit back CPF + compound 2.5% when i sell the property if i use CPF?
only if profit ?
how about if i sell it at a loss?


If you sell at a profit, you need to refund back the interest earned to CPF. If after the principle amount + interest and still have balance $, u will get it back in cash. If you sell at a loss, you need not refund CPF.



but i guess it doesnt make a difference, since i will probably buy another house if i do sell this one and withdraw the CPF again anyway

am i missing something??

One thing I learnt about CPF is that when u pay your stamp duty and want to refund back your cash from your CPF account, u must ensure that there is sufficient money at the point of refund. IF you are waiting for the sale of your existing house and the fund is delayed, you cannot refund back the cash paid for the stamp duty of yr new house.

[rattydrama]

but over the last 2 years, property price went up 40% for some areas who 2.5% pa is nothing in comparision. The point is do you want to risk it? Some savvy investors feel that there is still upside to the ppty price so chiong and they win big time. But some may reserve CPF for child university education so its a personal decision.




could someone clarify this ?

that means if i withdraw say 100k from CPF to pay for my condo
when i sell it 3 years later, i have to pay eg 108k back?

so tat means my condo must make 2.5% PA or it simply doesnt make sense to use CPF?

now why should one use CPF if he has enough cash

[leslens]

but over the last 2 years, property price went up 40% for some areas who 2.5% pa is nothing in comparision. The point is do you want to risk it? Some savvy investors feel that there is still upside to the ppty price so chiong and they win big time. But some may reserve CPF for child university education so its a personal decision.

thanks v much brothers
its all a personal decision

i have decided to keep money in cpf and empty it once lock in is over.
can save a few k over 3 years in interests

[devilplate]

thanks v much brothers
its all a personal decision

i have decided to keep money in cpf and empty it once lock in is over.
can save a few k over 3 years in interests

i tink its impt to strike a balance....very hard to advice u without actual figures on hand....

let say u got 1mil cash and only nid 300k downpayment....can keep CPF and use all cash instead....whereas if u only have 300k cash, pls use ur CPF and keep at least 100-200k cash on hand for rainy days

[romeo]

so basically
if u earn from selling the condo, ur profits part of it goes into ur CPF ie u basically have less liquid profits

if u lose from selling the condo, u need not pay for accrued interest as piority goes to paying the housing loan then principle amount before accrued interest

huh.. im confused.. correct me if im wrong.. but no matter u profit or loss from a house sale.. u have to pay back the utilised cpf + 2.5%?

[kingkong1984]

Yes, that is correct. Some t review wrote about it. Borrow money from own savings account must pay interest to 'lock up' account. Anywhere else in the world?

But subject to first charge, cpf board or bank. If bank and sell at a lost, pay bank first and drop dead.

[mantrix]

But at least the interest you pay back is still yours...still your money what...just kena 'forced' to save more in cpf that's all...

[taggy]

But at least the interest you pay back is still yours...still your money what...just kena 'forced' to save more in cpf that's all...


actually this is what i think also... straight away use the cpf to buy another property, then the money is out of cpf again :D

[kingkong1984]

Use cpf money to buy house, rental can keep. Better than keeping in cpf.

[rattydrama]

Use cpf money to buy house, rental can keep. Better than keeping in cpf.

Hope no one will use up all their monies and chiong after reading your post.

Must keep some for raining days wor.... cannot use up all monies into ppty, especially so in time of uncertainty now, we dont know which direction it will move in the next few years. Its all dependent on government new rulings and sometimes government can make mistakes also. Having said that they are clever now, learnt from past mistakes but you never know right?

rental collection after paying installment may not have much left if you buy now.

[devilplate]

Hope no one will use up all their monies and chiong after reading your post.

Must keep some for raining days wor.... cannot use up all monies into ppty, especially so in time of uncertainty now, we dont know which direction it will move in the next few years. Its all dependent on government new rulings and sometimes government can make mistakes also. Having said that they are clever now, learnt from past mistakes but you never know right?

rental collection after paying installment may not have much left if you buy now.

we actually take things for granted....back to 2005-2007, very tough to have leftover after paying installment:p

[kingkong1984]

Ok, assume 250k in cpf, mm at 500k, still ok to use 150k and use rental to cover with buffer of about 100k. Go get it.

[rattydrama]

Ok, assume 250k in cpf, mm at 500k, still ok to use 150k and use rental to cover with buffer of about 100k. Go get it.

If buying MM it has to be in town, these days still got 500K?

[kingkong1984]

Oh, beats me..... Geylang ones are closer to that. Considered in town?