27.3 C
Singapore
Wednesday, February 1, 2023
Ads

MAN ASKS IF HE SHOULD WIPE OUT HIS CPF TO BUY RESALE FLAT, OR KEEP IT TO EARN INTEREST

Is it better to wipe out our CPF when purchasing our first resale flat or keep our CPF to earn interest?

Advertisements

I’m taking out a bank loan with my partner for our first resale HDB house. This alone is going to need a 5% downpayment in cash. I would assume it’s always better to conserve as much cash as I possibly can.

Sometime back, an agent suggested that I don’t wipe out my CPF when purchasing my first flat. Instead, after paying all the necessary down payments and fees through CPF, I should keep my remaining OA balance and let the interest roll. To service the bank loan, I will only pay it with 100% of my monthly CPF contribution along with additional cash depending on my comfort. I can choose not to add any cash at all if I don’t mind it taking longer. After a number of years, when the CPF has accumulated enough to pay off the remaining balance of the loan, I will pay a lump sum from my CPF to the bank to clear off the debt.

The idea behind this is that I ought to let the interest on my CPF funds compound. If I had wiped out my CPF OA, not only do I not benefit from the 2.5% interest in my OA account, I will also have to pay back that interest to CPF when I sell the flat. Therefore, by maintaining my CPF OA, I am technically earning interest that will go toward paying off my debt in the long run.

This isn’t the first time I’ve heard of it. I recall seeing similar ideas on some YouTube videos. However, by doing so, I will have to take out a significantly larger loan than if I had wiped out my CPF. The total final interest for the debt might easily be 50% or more of the principal in the end should the interest rate remain at the current level or only slightly lower!

Advertisements

I did some very naive calculations, and I couldn’t see how this would work out better unless interest rates go below 1%. But 2023, and maybe 2024, is already looking at 4-5% loan rates. It will take at least 16 years for my CPF to collect enough interest to cover a larger loan, which is a long time for many things to happen. Moreover, after I initiated the lump sum payment from my CPF to the bank, wouldn’t I start incurring interest with CPF that I will still have to pay back when I sell the flat? I’m not sure whether I’m missing something here.

Is this really a good idea in today’s market? Has anyone accomplished something similar? What should I think about?

0 Comments

- Advertisement -
- Advertisement -
Latest News

TAIWAN ACTRESS ACCUSED THAI POLICE OF EXTORTING HER OVER 27,000 BAHT

On January 26, 2023, Maj. Gen. Achayon Kraithong, spokesman for the police revealed the case of Taiwanese actor An...
- Advertisement -