View Full Version : Redeem the bank loan earlier or...?
We have fully paid up our first property and looking around for the 2nd for home-stay much nearer to our parents. We are thinking of renting the first property to help pay off the loan for our 2nd property..
1) Should we redeem the 30 year bank loan earlier (i.e. in order to reduce the interest incurred) for 2nd property with both CPF and the rental $? or just let the rental instead of CPF to pay off the bank loan?
2) If we sell the 2nd property after 15 years, how will the bank charge the interest cost? i.e. do they charge for the first 15 years i.e. point of sale or the entire 30 years loan tenure?
Your advise please.
For simple analysis just calculate how much loan interest versus interest you can get by leaving the funds in cpf or other savings.
I believe cpf earns more interest.
If property is HDB always always try not to fully pay and leave money in cpf, so that in the case one partner dies, the HPS kicks in.
To me only fully pay, is to qualify for TDSR evaluation purposes.
Londonproperty123
27-04-14, 19:28
CPF earns higher interest than bank loans, for now.
For simple analysis just calculate how much loan interest versus interest you can get by leaving the funds in cpf or other savings.
I believe cpf earns more interest.
If property is HDB always always try not to fully pay and leave money in cpf, so that in the case one partner dies, the HPS kicks in.
To me only fully pay, is to qualify for TDSR evaluation purposes.
Thanks so much.
Yes fully pay so as to qualify for the TDSR. Can get higher loan I believe?
Yes, for now CPF earns higher interest. But I calculate by the time we purchase from developer sales this year, and upon TOP the interest would have risen.
The resale units are still very expensive. I think even if wait until end of this year, lesser units will be on sale and not much or not choice units left also. :doh:
CPF earns higher interest than bank loans, for now.
In that case do we only use the CPF to pay when the bank loan interest exceeds 2.5%? and look for elsewhere to park the rental money with returns higher than 2.5%?
And we noted that if use CPF account, upon sale of the property need to pay back the incurred interest. in other words, longer we use CPF to pay, lesser balance of sales proceeds in future. :(
What i did was, pay off my HDB loan with cash and CPF first.
Then buy private property and stay in it. Rental from HDB flat and Work/Business Income to service the 2nd loan. Excess pay back CPF.
Anyway, take note that if you are buying 2nd property without selling your HDB. Individually, you can only use the excess of your SA+OA - 1/2 minimum sum of current $148,000 which is $74,000 for your 2nd property purchase.
Thermofisher
28-04-14, 09:56
What i did was, pay off my HDB loan with cash and CPF first.
Then buy private property and stay in it. Rental from HDB flat and Work/Business Income to service the 2nd loan. Excess pay back CPF.
Anyway, take note that if you are buying 2nd property without selling your HDB. Individually, you can only use the excess of your SA+OA - 1/2 minimum sum of current $148,000 which is $74,000 for your 2nd property purchase.
Can we rent out HDB fully and stays in condo? HDB website says otherwise?
Can we rent out HDB fully and stays in condo? HDB website says otherwise?
Can.. Why not... But need to fillful MOP first and need to apply to srr if can rent to foreigners anot
In that case do we only use the CPF to pay when the bank loan interest exceeds 2.5%? and look for elsewhere to park the rental money with returns higher than 2.5%?
And we noted that if use CPF account, upon sale of the property need to pay back the incurred interest. in other words, longer we use CPF to pay, lesser balance of sales proceeds in future. :(
Do note that while servicing loan using CPF, you also collect rental in cash.
We can either manage lump sum fund or cash flow or both depending on preference or strategy.
2) If we sell the 2nd property after 15 years, how will the bank charge the interest cost? i.e. do they charge for the first 15 years i.e. point of sale or the entire 30 years loan tenure?
Your advise please.
For housing loan, it's effective rate....means you pay the interest based on the principal loan amount outstanding, on a monthly basis.
EVERY month, the instalments that you pay, part of it goes to repay the principal loan and part of it is for the interest for the bank.
The "part" for principal loan repayment will increase in amount, whereas the "part" for interest will reduce as your principal amount is reducing every month.
At any point you decide to sell off or redeem the loan, you pay the outstanding principal amount.... + any lock in period penalties.
Example:-
Month Interest Rate (%) Outstanding Principal Monthly Instalment Payment twds Interest Payment twds Principal Principal at end of month
1 2.000 $320,000.00 $1,182.78 $533.33 $649.45 $319,350.55
2 2.000 $319,350.55 $1,182.78 $532.25 $650.53 $318,700.02
3 2.000 $318,700.02 $1,182.78 $531.17 $651.62 $318,048.40
4 2.000 $318,048.40 $1,182.78 $530.08 $652.70 $317,395.70
ideally is to keep the $ in CPF collect high interest. and use rental to cover the mthly bank repayment.
Only in event bank lending interest goes up then use CPF to do repayment. you do ur sums if u balance it right you can achieve near nett zero interest. i.e. CPF interest paid you u covers your loan interest paid to bank.
but thats with the assumption u have a equitable sum sitting in CPF.
This will be idea. coz even if u do a repayment now. u cannot 100% repay. so still need to pay the bank loan plus interest. while there is nothing left in CPF to collect interest.
Is this provided u don't refinance? If halfway refinance (say no lock in), then 1st year payment mostly go to pay off interest :)
For housing loan, it's effective rate....means you pay the interest based on the principal loan amount outstanding, on a monthly basis.
EVERY month, the instalments that you pay, part of it goes to repay the principal loan and part of it is for the interest for the bank.
The "part" for principal loan repayment will increase in amount, whereas the "part" for interest will reduce as your principal amount is reducing every month.
At any point you decide to sell off or redeem the loan, you pay the outstanding principal amount.... + any lock in period penalties.
Example:-
Month Interest Rate (%) Outstanding Principal Monthly Instalment Payment twds Interest Payment twds Principal Principal at end of month
1 2.000 $320,000.00 $1,182.78 $533.33 $649.45 $319,350.55
2 2.000 $319,350.55 $1,182.78 $532.25 $650.53 $318,700.02
3 2.000 $318,700.02 $1,182.78 $531.17 $651.62 $318,048.40
4 2.000 $318,048.40 $1,182.78 $530.08 $652.70 $317,395.70
Is this provided u don't refinance? If halfway refinance (say no lock in), then 1st year payment mostly go to pay off interest :)
Sorry not sure if I understand your question.....
During re-financing....the outstanding principal amount from Bank A will be redeemed......and now you owe Bank B for the same or similar amount.
Wat I mean is say for a 30 year mortgage, 1st few years normally is to pay off interest, only the later years then pay off more principal.
But in reality if every 3 year refinance, or 2 year start refinance, actually principal reduction will be lesser?
Wat I mean is say for a 30 year mortgage, 1st few years normally is to pay off interest, only the later years then pay off more principal.
But in reality if every 3 year refinance, or 2 year start refinance, actually principal reduction will be lesser?
This understanding is wrong......please see the example I gave which is "real life" calculation.
Your Principal Loan amount is lowered from the 1st month onwards of your loan period. The example I gave was based on 30yrs, 2%, $320K loan amount.
The picture you see will be very different if the interest rate is changed to 3.75% for example.
Month Interest Rate (%) Outstanding Principal Monthly Instalment Payment twds Interest Payment twds Principal Principal at end of month
1 3.750 $320,000.00 $1,481.97 $1,000.00 $481.97 $319,518.03
2 3.750 $319,518.03 $1,481.97 $998.49 $483.48 $319,034.55
3 3.750 $319,034.55 $1,481.97 $996.98 $484.99 $318,549.57
4 3.750 $318,549.57 $1,481.97 $995.47 $486.50 $318,063.06
1) Your monthly instalment would have increased by about $300.
2) higher amount is needed to pay for the interest (naturally as interest has gone up)
3) Just take the 1st month, interest payable is 3.75% x 320K divided by 12 (mths) = $1,000! And this is the exact interest that you will be paying. $481.97 will be left to pay off your principal amount.
4) 2nd month interest will be 3.75% x $319,518.03 divided by 12........
Re-financing is to change bank....nothing to do with what you have paid in the past. Calculation is done in the same way...that is based on interest rate & principal amount!
We have fully paid up our first property and looking around for the 2nd for home-stay much nearer to our parents. We are thinking of renting the first property to help pay off the loan for our 2nd property..
1) Should we redeem the 30 year bank loan earlier (i.e. in order to reduce the interest incurred) for 2nd property with both CPF and the rental $? or just let the rental instead of CPF to pay off the bank loan?
2) If we sell the 2nd property after 15 years, how will the bank charge the interest cost? i.e. do they charge for the first 15 years i.e. point of sale or the entire 30 years loan tenure?
Your advise please.
There is no Rule 78 for mortgage loan, unless you take interest payment only mortgage which I dont think is available in Singapore.
You can always use the bank mortgage calculator to calculate how much interest you are paying per year vs principle payment. My guess is that based on current interest rate only around 30-35% of what you pay every month will go to interest payment.
There is no Rule 78 for mortgage loan, unless you take interest payment only mortgage which I dont think is available in Singapore.
You can always use the bank mortgage calculator to calculate how much interest you are paying per year vs principle payment. My guess is that based on current interest rate only around 30-35% of what you pay every month will go to interest payment.
Based on 30yr loan:-
Interest rate.........% of instalment to pay for interest from the 1st month onwards
1.25%.................31.26%
1.75%.................40.82%
2.00%.................45.09%
3.75%.................67.48%
Based on 30yr loan:-
Interest rate.........% of instalment to pay for interest from the 1st month onwards
1.25%.................31.26%
1.75%.................40.82%
2.00%.................45.09%
3.75%.................67.48%
3rd and 4th year is irrelevant because most people will reprice their loan after 2 years lock in.
Repricing / refinancing after lock-in period may be worst off moing forward. There is no reason for those who are enjoying less than 0.7% spread to refinance/reprice.
ideally is to keep the $ in CPF collect high interest. and use rental to cover the mthly bank repayment.
Only in event bank lending interest goes up then use CPF to do repayment. you do ur sums if u balance it right you can achieve near nett zero interest. i.e. CPF interest paid you u covers your loan interest paid to bank.
but thats with the assumption u have a equitable sum sitting in CPF.
This will be idea. coz even if u do a repayment now. u cannot 100% repay. so still need to pay the bank loan plus interest. while there is nothing left in CPF to collect interest.
I don't have a lot in the CPF...ideally if CPF there is a big sum...can compound to get more interest to pay off the loan.
So ultimately I should be comparing the bank interest rates vs the returns i can get from the cash that I have at hand?
I am thinking to also pay with CPF plus the rental so that I can fast fast pay off the loan and pay lesser interest...
But is this approach a good one? Seems silly to pay off the loan with CPF + cash right?:o
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