First HDB, full loan or not?

[fluxos]

We are a young couple in our 20s and soon to receive the keys to our flat (bto).

From an investment point of view, we do plan to jump into 2nd property investment in about 5 years, should we maximise the HDB loan fully?

1) Take 30 years instead of 25, we are on the old scheme so this is possible.
2) Move as much excess funds from CPFOA to investments as possible so when HDB loans us, we get the max loan.

Any other tips? What are your thoughts? Or should we clear the first loan ASAP?

[byyboo]

We are a young couple in our 20s and soon to receive the keys to our flat (bto).

From an investment point of view, we do plan to jump into 2nd property investment in about 5 years, should we maximise the HDB loan fully?

1) Take 30 years instead of 25, we are on the old scheme so this is possible.
2) Move as much excess funds from CPFOA to investments as possible so when HDB loans us, we get the max loan.

Any other tips? What are your thoughts? Or should we clear the first loan ASAP?

Max out your loan repayment in CPF and save money for 2nd property. When MOP served after 5 years, you should have cash to decide what to do next. I don't think its a good idea to use excess cash on a HDB.:D

[richwang]

if you are using your CPF to pay your HDB, you will NEVER be able to "clear" your loan: the interests owed to CPF Board will just compound at 2.5% each year.
30 years later, you will find the interests you owe to CPF is as much as the principle you have drawn from CPF.

[propertyinvestor]

We are a young couple in our 20s and soon to receive the keys to our flat (bto).

From an investment point of view, we do plan to jump into 2nd property investment in about 5 years, should we maximise the HDB loan fully?

1) Take 30 years instead of 25, we are on the old scheme so this is possible.
2) Move as much excess funds from CPFOA to investments as possible so when HDB loans us, we get the max loan.

Any other tips? What are your thoughts? Or should we clear the first loan ASAP?

U should never clear your OA to minimize your loan. If possible, move out for some safe investment so that you will have enough OA to do your 2nd pty investment after your MOP. I did that about 20 years ago too so that I had enough OA for my first private pty about 10 years ago.

[richwang]

Assuming a HDB loan from your CPF for S$200K at rate 2.6% (monthly reduced).

For 30-year loan: monthly payment is: S$800
For 25-year loan: monthly payment is: S$907

So the difference for monthly payment is S$107 per month.
For 5 years, the difference is: S$6,420

But for 30-years, you will pay: S$800 x 12 x 30 = S$288,000
for 25-years, you will pay: S$907 x 12 x 25 = S$272,100
The difference is: S$15,900!

Just remember interests are compounded, so for longer term loans, a much bigger percentage of your money goes to pay interests rather than principle.

If your cash flow allows, you should try to get a loan of less than 20 years.
(S$1,070 monthly payment).

Thanks,
Richard

[fluxos]

Thank you byyboo, richwang, propertyinvestor for your valuable input.

What I've gathered from the above so far: take 25 years loan and maximise hdb loan amount (move out OA as much as possible). Save as much cash as possible for 2nd property.

Infact, i've moved my cpfoa 3 months ago and with some good luck and timing generated about 10% returns off that sum in Thai unit trust.

Any other advise is greatly appreciated.

[el loco]

If u r planning to sell yr hdb after 5 yrs, might as well take loan from Posb hdb loan...the interest us cfm lower than cpf for 8 years...I believe it is 1.88% now but better to check from posb again..

[Allthepies]

If 5 years sell, u can consider bank floating, there high chance bank floating gg to be lower than 2.6% for the next few years...

[Arcachon]

Assuming a HDB loan from your CPF for S$200K at rate 2.6% (monthly reduced).

For 30-year loan: monthly payment is: S$800
For 25-year loan: monthly payment is: S$907

So the difference for monthly payment is S$107 per month.
For 5 years, the difference is: S$6,420

But for 30-years, you will pay: S$800 x 12 x 30 = S$288,000
for 25-years, you will pay: S$907 x 12 x 25 = S$272,100
The difference is: S$15,900!

Just remember interests are compounded, so for longer term loans, a much bigger percentage of your money goes to pay interests rather than principle.

If your cash flow allows, you should try to get a loan of less than 20 years.
(S$1,070 monthly payment).

Thanks,
Richard

1988 brought 4 room HDB for SGD 83,000, max loan 25 years.

1995 sold for SGD 280,000 took a cheque from HDB SGD 180,000 after returning HDB & CPF(still your money).

1994 brought 5 room HDB for SGD 250,000 (levy 10% of purchase price) max loan 25 years.
Valuation after staying for 20 years SGD 640,000.

Always max loan from HDB don't think about the interest rate, inflation will take care of it, DPS will take care of the loan when either party visit the lord.

"Ask and it will be given to you; seek and you will find; knock and the door will be opened to you." Matthew 7:7

My father brought 3 room HDB for SGD 6,600 in 1969, pay full now he is broke.

[Allthepies]

If 50% LTV for 2nd loan is going to be a permanent feature, it become critical to clear your HDB loan ASAP...

[Arcachon]

HDB loan can easily reduce but not easy to increase. Max it.

[fluxos]

HDB loan can easily reduce but not easy to increase. Max it.

Thank you Arcachon, very insightful.

I have the intention to max the loan now. In terms of 25 vs 30 years loans, which should I go for?

Whether or not the house will be sold once mop in 5 years is hard to say right now. But I don't think so..

[Arcachon]

Thank you Arcachon, very insightful.

I have the intention to max the loan now. In terms of 25 vs 30 years loans, which should I go for?

Whether or not the house will be sold once mop in 5 years is hard to say right now. But I don't think so..

1. Depend on your income, ROI of the money your have.

2. Money can only depreciate over time, more so now because everyone is printing money, it is just a piece of IOU, worst they use digital bit to represent money now(no ink and paper needed).

I go to the bank and do a cash out, you know what they do, they just key into their system and money is created.

3. DPS can only be found in HDB, it very useful if you know how to use it.

Max it 30 years.

My father once told me when the war come, everything is gone.

I would recommend max loan, when the war come transfer your money out of Singapore, you can't transfer your HDB out of Singapore.

Every 5 year try to reduce your holding on the property and max the loan, e.g.
My 5 room cost SGD 250,000 now worth SGD 640,00, I have SGD 390,000 stuck in HDB, I will get the money out by selling and buying and reduce the money stuck in HDB to min.

[minority]

always take the max of the loan period so you have smaller per mth repayment. as time goes by your income will catch up as u progress with your carreer. Then you should try to shorten the loan period on your current property that you stay in with partial repayment.

If you plan to save up for the next place then you need to consider the cash you have on hand for the 2nd property.

It would be ideally that you save up sufficient cash for the 1st 20% down on the next property and with the crurrent hdb paid up. Then you have the option to either redeem the HDB and then plonk it down again on your next place. Or you can like many people rent it out and use the mthly rental as the mthly repayment on your 2nd place.

It might sound daunting but it always do. but it can be done over time with careful planning.

I presume you are buying the place from HDB direct? That would be the best choice. but its wise to over time shorten your loan payment given its very doable to redeem the HDB within 10yrs. You just need to be prudent and plan well. Its been done many times over.

[Allthepies]

Of course u shld take max loan and duration but get enough money to be able to clear it ASAP..

If u go for private loan, u dont have to clear your CPF at all...

[Arcachon]

http://heresthenews.blogspot.fr/2012/11/how-to-cool-hdb-resale-market.html

Would you sell your four-room flat for $400,000 now? Or hold on to it, get $2,200 a month or $26,400 in annual rental income for 10 years, and then sell it in 2022, by which time you hope the price goes up to $600,000?

It's a no-brainer. A steady income stream today, with possible capital appreciation tomorrow, gives every reason for HDB flat-owners to hang on to their money-making machine.

[minority]

if you are using your CPF to pay your HDB, you will NEVER be able to "clear" your loan: the interests owed to CPF Board will just compound at 2.5% each year.
30 years later, you will find the interests you owe to CPF is as much as the principle you have drawn from CPF.

Thats a misconception. the interest levied on the CPF funds used are
1. to be paid back to self not bank nor state/
2. If the HDB was never redemeed i.e. the interest paid to self is not paid either.
3. IF one sold the HDB the interest to self is paid back to owns CPF account and either withdrawn at withdrawal age or can be use to paid for next home. i.e if one is upgrading.

So there is a different when interest is paid to bank with is gone verse a inflationary top up of ones own retirement acct.

[Arcachon]

How much loan can you take now? Monthly Instalments The monthly instalments of an HDB concessionary loan are capped at 30% of joint applicants’ monthly income. In some cases, the percentage is lower because of the family’s financial commitments. This prevents buyers from over committing to housing at the expense of other living costs.

Repayment Period This is capped at 65 years minus the buyer’s age, or 25 years, whichever is shorter. Mortgage Insurance:

DPS - If you are using your CPF savings to pay your monthly housing loan instalments, you have to apply for the Home Protection Scheme(DPS). This is an insurance scheme administered by the CPF Board. It insures CPF members and their families against losing their homes should members become permanently incapacitated or pass away before their housing loans are paid up. Find out more from the CPF Board. - See more at: http://hdbspeaks.sg/fi10/fi10336p.nsf/cc/MaximumLoanQuantum?OpenDocument#sthash.LsmtUncO.dpuf

http://hdbspeaks.sg/fi10/fi10336p.nsf/cc/MaximumLoanQuantum?OpenDocument

[fluxos]

How much loan can you take now? Monthly Instalments The monthly instalments of an HDB concessionary loan are capped at 30% of joint applicants’ monthly income. In some cases, the percentage is lower because of the family’s financial commitments. This prevents buyers from over committing to housing at the expense of other living costs.

Repayment Period This is capped at 65 years minus the buyer’s age, or 25 years, whichever is shorter. Mortgage Insurance:

DPS - If you are using your CPF savings to pay your monthly housing loan instalments, you have to apply for the Home Protection Scheme. This is an insurance scheme administered by the CPF Board. It insures CPF members and their families against losing their homes should members become permanently incapacitated or pass away before their housing loans are paid up. Find out more from the CPF Board. - See more at: http://hdbspeaks.sg/fi10/fi10336p.nsf/cc/MaximumLoanQuantum?OpenDocument#sthash.LsmtUncO.dpuf

http://hdbspeaks.sg/fi10/fi10336p.nsf/cc/MaximumLoanQuantum?OpenDocument

Based off 90% of the flat value, we can loan about 480k (our income would qualify) for 30 years (we can take 30 years, as this BTO was booked in year 2011, before CPF capped repayment at 25years).

[Arcachon]

Why would anyone who loan you money knowing the value of the money they received will be depreciate over time even with interest charge.

The reason is they don't have the money in the first place, if you don't loan from them(Bank) the money cannot be created and they can't earn the interest + money created.

1969 - 3 room HDB cost SGD 6,600.

2013 - 44 years later the same unit cost SGD 300,000.

You do the math, with interest what is the total cost of SGD 6,600 after 44 years.

http://www.mortgagecalculator.org/

http://www.homeloanwhiz.com.sg/?gclid=CIH6l6nKkr4CFSOWtAod2m4AVQ#!calculator/c23z6

[fluxos]

always take the max of the loan period so you have smaller per mth repayment. as time goes by your income will catch up as u progress with your carreer. Then you should try to shorten the loan period on your current property that you stay in with partial repayment.

If you plan to save up for the next place then you need to consider the cash you have on hand for the 2nd property.

It would be ideally that you save up sufficient cash for the 1st 20% down on the next property and with the crurrent hdb paid up. Then you have the option to either redeem the HDB and then plonk it down again on your next place. Or you can like many people rent it out and use the mthly rental as the mthly repayment on your 2nd place.

It might sound daunting but it always do. but it can be done over time with careful planning.

I presume you are buying the place from HDB direct? That would be the best choice. but its wise to over time shorten your loan payment given its very doable to redeem the HDB within 10yrs. You just need to be prudent and plan well. Its been done many times over.

Thank you minority, this is really good advise.

Yes, we bought it directly from HDB through balloting.

However, I'm not sure about being able to repay it in full in 10 years, as the 4rm flat we bought is very expensive at about 540k (it is one of the hot areas, stone's throw away to MRT in a mature estate). If we maximise the loan quantum, looking at about 480k loan quantum.

[phantom_opera]

ang mo kio?

don't think too much lah ... :p