Worth it to keep money in CPF or redeem bank loan?

[Best_ctzn]

Currently if keep money in CPF, interest is at 2.5%? Commercial bank loan at Sibor is < 1.5%.

 

So in that case, if I have few hundred ks in CPF, is it better to keep in CPF and pay bank interests every month? Like that is earning 1% interest in CPF every year?

 

Sound very logical but can anybody tell me any catch to this situation? Sorry best is if you are in financial line or gone through this path. Many thanks.

[Joseph22]

Currently if keep money in CPF, interest is at 2.5%? Commercial bank loan at Sibor is < 1.5%.

 

So in that case, if I have few hundred ks in CPF, is it better to keep in CPF and pay bank interests every month? Like that is earning 1% interest in CPF every year?

 

Sound very logical but can anybody tell me any catch to this situation? Sorry best is if you are in financial line or gone through this path. Many thanks.

 

you mean we can take CPF money out and put into commerical bank??

[Actan72]

Currently if keep money in CPF, interest is at 2.5%? Commercial bank loan at Sibor is < 1.5%.

 

So in that case, if I have few hundred ks in CPF, is it better to keep in CPF and pay bank interests every month? Like that is earning 1% interest in CPF every year?

 

Sound very logical but can anybody tell me any catch to this situation? Sorry best is if you are in financial line or gone through this path. Many thanks.

 

 

Not worth for redeem bank loan

Keep it for some other investment which can bring u higher return

[Donut]

i'm doing it right now.... keep $$ in CPF and pay bank loan interests. and i'm having net gains from CPF

 

plus i have the freedom to invest the CPF $$.

 

 

but take note my home loan is from HDB... so interest is lower than bank loans

 

if u are on bank loan, it may not be worth doing it..... depending your bank loan interests u are paying

[Donut]

http://www.mycarforum.com/index.php?showto...p;#entry2168900

 

I have actually started this topic some time ago.... u can see some ppl are dead against it (for God know whatever reasons) and some are for it.

 

U must really do your sums carefully and only you will know whether its worth doing it in your own situation.

 

remember that home loan interest is a decreasing method. the lesser your loan amount is, the lower interests you need to pay...

 

for CPF, its a compounding interests method.

[Joseph22]

You can only use the money you accumlated in CPF at 62 years old. So your take.

for me, it depend on how much is the loan and how much i am earning.

if my CPF contribution a month i can pay my house every month with extra to spare, i wont bother to redeem. If it does not. i will redeem.

[Tigershark1976]

im also in the same situation as u... im waiting my contract with the bank to end by next Jul... the penalty is not really worth for me to redeem now...

 

for me... Im not a good investor, neither im a risk taker ao I dun invest much using CPF acc...on the other hand, no matter how high is the interest/return frm CPF. It is not CASH.... the Gov keep changing the rules and up the barrier for CPF withrawal every now and then. I really wonder i hv the chance to touch my CPF when I reach 62 Yrs Old...

 

For Bank interest, its cash charges. i would rather to clear my loan ASAP rather than keeping it in the CPF acc...

 

Of cos, if you are good investor, and have the confident to more than 10% return every year on your CPF investment. It might be a diff story. You may wanna fully utilise your CPF and accumulate it to an amount that allows u to clear your loan and at the same time, enof balance bullet in the ordinary acc for you to continue building up your wealth.

[Darryn]

You need to remember that if you withdraw CPF money to redeem the loan, you are actually "borrowing" from your 62 year old self.

 

CPF will make you pay interest on this "loan" which is compounding. So at some point in the future you will have to pay the amount you take out today, plus whatever interest this "loan" has accumulated. (either in voluntary contributions or as a forced payment when you sell your flat)

 

Because of this it is probably better that you DON'T use your CPF to pay you loan, but rather pay it by cash from other sources if you can. (even the monthly payment is better by cash if you can, assuming the cash would not be used to pay down other loans with a higher interest rate)

 

You also mentioned that you are risk averse, so for you it is probably "better" not to use the money for investment in hopes of doing better than HDB loan interest. Also remember, that a lump sum in CPF can be used to continue to pay mortgage even if you are not working (currently we have enough to pay mortgage for four years, even if both of us are out of work)

[Ben5266]

Keep your money in CPF. You have more options.

Like, when the time is good, can use the money in CPF as down payment for private property.

Another reason, our HDB loan comes with insurance protection. If fully redeem, that "insurance" is gone.

[Darryn]

Like, when the time is good, can use the money in CPF as down payment for private property.

 

Are you sure? I haven't check this one. I suspect, but dunno, that maybe if already paying one HDB loan they may restrict use of CPF for private property....

 

Last time though I ask - once have minimum sum, can use your own CPF to pay for HDB loan for parents (hmmm...where is the filial piety smilie when you want it?)

[Joseph22]

You need to remember that if you withdraw CPF money to redeem the loan, you are actually "borrowing" from your 62 year old self.

 

CPF will make you pay interest on this "loan" which is compounding. So at some point in the future you will have to pay the amount you take out today, plus whatever interest this "loan" has accumulated. (either in voluntary contributions or as a forced payment when you sell your flat)

 

Because of this it is probably better that you DON'T use your CPF to pay you loan, but rather pay it by cash from other sources if you can. (even the monthly payment is better by cash if you can, assuming the cash would not be used to pay down other loans with a higher interest rate)

 

You also mentioned that you are risk averse, so for you it is probably "better" not to use the money for investment in hopes of doing better than HDB loan interest. Also remember, that a lump sum in CPF can be used to continue to pay mortgage even if you are not working (currently we have enough to pay mortgage for four years, even if both of us are out of work)

 

The fact remain that you can only re-draw your CPF at 62 years old. Regardless of whether you have 1million in the CPF or not you can only collect some of your money at 62 years old. Anyway, when you sell your house you will have to buy a new one. When that happen, you will still used those money u used to pay off the monthly loan to finance the new home. In a way you cannot consider it as money loss. Paying Housing Loan in cash mean that you did not touch your CPF which you can only draw out earliest some of it at 62 years old. that will be real money loss.

 

So the question is will you rather to have a fat Bank or a Fat CPF?

Edited February 19, 2010 by Joseph22

[Joseph22]

Are you sure? I haven't check this one. I suspect, but dunno, that maybe if already paying one HDB loan they may restrict use of CPF for private property....

 

Last time though I ask - once have minimum sum, can use your own CPF to pay for HDB loan for parents (hmmm...where is the filial piety smilie when you want it?)

 

i dont think you can pay downpayment for private via CPF. maybe the remainder loan but not the down payment.

 

As for Pay HDB loan for parents, i think we have to live in the same house as them to do that right? if you living in another HDB loan can we still do that??

[Tigerwoods]

Currently if keep money in CPF, interest is at 2.5%? Commercial bank loan at Sibor is < 1.5%.

 

So in that case, if I have few hundred ks in CPF, is it better to keep in CPF and pay bank interests every month? Like that is earning 1% interest in CPF every year?

 

Sound very logical but can anybody tell me any catch to this situation? Sorry best is if you are in financial line or gone through this path. Many thanks.

Here are some tips :

If you don't intend to invest your CPF money,then clear your Housing loans if any. and

Transfer your ordinary account $$ to Special account t earn 4% instead o 2.5%.

I think there is a cap to the amount in Special account

 

If no more housing loan and :

If you intend to invest your CPF money in shares/Unit trusts and expect to get > 2.5% returns, pull out the max and transfer the balance to Special Account.

 

Lastly and the most important - Nominate ME in your will...

Edited February 19, 2010 by Tigerwoods

[Darryn]

As for Pay HDB loan for parents, i think we have to live in the same house as them to do that right? if you living in another HDB loan can we still do that??

 

Well....this is only verbal over the phone, I never do the search and get the writing to confirm, but the officer told me that once got minimum sum, can make parents payment on HDB on their behalf (but maybe can use back door of transfer from your CPF to their CPF)

 

WOOT - do I hit 5th gear with this post?

[Best_ctzn]

Thanks all for the replies.

 

If I use bulk of the CPF money to redeem part of the bank loan, effectively it seems I am taking a bigger loan from CPF as I will have to repay CPF back whatever I withdraw for housing when I sell the house, with 2.6% interest to boot! This is as oppose to servicing the bank with interest of < 1.5%. And my intention is to service the bank loan fully every month with the CPF money, so there is no cash component to talk about, all CPF money only.

 

But what I will not do is to transfer CPF money from ordinary acct to special acct. No doubt the interest is higher, I can only take out the money after 62 yrs old. I am not into shares and such, but might need it for other things.

 

 

[Ender]

Lastly and the most important - Nominate ME in your will...

 

I'm following your last advice. I need your Full Name, NRIC and handphone number.

[Ben5266]

Yes, we can use our CPF account to pay HDB loan and private property loan.

As for down payment, of course 5% must be cash and the other 5% or 10% can be from our CPF if we got money there.

We can even service $1.2k monthly, when our contribution into OA is only $1k.

Of course, this is true if we are still young, maybe less than 45 or 50?

 

Private property investment looks like a good investment.

Lets say, a new apartment cost $600k.

Use $30k cash plus $70k CPF.

Loan $500k for 25 years @2% interest.

Monthly payment is about $2.1-2.2k. Rental income $2k/month is easy to get.

So, with the investment of $30k cash plus a few hundred dollar a month, plus some risk, the apartment is yours in 25 years.

Yes, this is high risk investment. If the interest rate shoot up to 4% or 8%, the whole equation will change.

This is the driving forces of the property market right now.

High rental and low interest rate.

 

//Disclaimer: I am not game enough for this. Just my observation.

[Yoongf]

Actually, CPF is paying 3.5%, if u factor in the extra 1% for first $60K.

 

http://mycpf.cpf.gov.sg/CPF/News/News-Rele...N_11Feb2010.htm

 

Extra Interest of 1%

In addition, an extra 1% interest will continue to be paid on the first $60,000 of a member