Private housing loan VS HDB loan

[Vextan]

i agreed, cannot take business venture into consideration. it's 50/50 chances..

It's not even 50/50, more like 10/90 . Serious.

[Kurty]

maybe i wasn't clear enough with my example. monthly instalment for private loan of $240K over 30 years at 1.2% is $794. HDB loan at 2.6% is $960. assume TS has $960 in CPF to pay the instalment, instead of deducting $960 from CPF OA account, there will be surplus of $166 per month which will enjoy the 2.5% CPF interest rate.

 

there are many people who have more than enough CPF to fully pay off their property but choose to keep the CPF in OA account since it's earning higher interest (2.5% vs 1.2%). one could also re-invest 30% of the OA money into other instruments e.g. REITs, dividend stocks for higher returns.

 

here's my favourite example of an owner who can pay in full but choose not to.

mark zuckerberg took loan for $5M bungalow

 

as for partial repayment without penalty, that is becoming common with many banks. if it's absent for the offer letter, just ask for it.

 

i'm the TS

 

question: the monthly CPF contribution can be paid for bank loan? I thought borrowing from bank, you need to pay back in hard cash?

 

2. if CPF contribution can be used, it would really be ideal. But in my scenario, i can't as i won't have anymore CPF contribution when stop working.

 

3. as of now, i only got 60k in my cpf, 20k lying in investment ac after selling some stocks (if i'm not going to use it, likely the money will return back to CPF), 20k lying in unit trust but in red.

 

The rest, i don't really know how to answer. thanks

[Vextan]

i'm the TS

 

question: the monthly CPF contribution can be paid for bank loan? I thought borrowing from bank, you need to pay back in hard cash?

 

2. if CPF contribution can be used, it would really be ideal. But in my scenario, i can't as i won't have anymore CPF contribution when stop working.

 

3. as of now, i only got 60k in my cpf, 20k lying in investment ac after selling some stocks (if i'm not going to use it, likely the money will return back to CPF), 20k lying in unit trust but in red.

 

The rest, i don't really know how to answer. thanks

Yes, you can pay bank using CPF. No question about that. But upfront you have to pay 5% cash.

 

You can go around it by using your cpf to buy shares now, then after the house has been bought, then sell the shares, and when the money goes back to your ordinary account, use it to pay monthly instalment. this is a loop hole everybody knows.

Edited January 23, 2013 by Vextan

[inlinesix]

maybe i wasn't clear enough with my example. monthly instalment for private loan of $240K over 30 years at 1.2% is $794. HDB loan at 2.6% is $960. assume TS has $960 in CPF to pay the instalment, instead of deducting $960 from CPF OA account, there will be surplus of $166 per month which will enjoy the 2.5% CPF interest rate.

 

there are many people who have more than enough CPF to fully pay off their property but choose to keep the CPF in OA account since it's earning higher interest (2.5% vs 1.2%). one could also re-invest 30% of the OA money into other instruments e.g. REITs, dividend stocks for higher returns.

 

here's my favourite example of an owner who can pay in full but choose not to.

mark zuckerberg took loan for $5M bungalow

 

as for partial repayment without penalty, that is becoming common with many banks. if it's absent for the offer letter, just ask for it.

You are very clear on your example. You are looking from monthly installment only whereby i am illustrating the interest income from CPF vs interest expense on outstanding mortgage. For 1st 5 yrs, the outstanding liability will be substantially higher than CPF (all accounts). The interest expense will be substantially higher than interest income. The only way to reduce interest expense over the tenure is to make partial redemption.

 

The only reason Mark still borrowing $$ is likely could be due to tax reason.

[CH_CO]

maybe i wasn't clear enough with my example. monthly instalment for private loan of $240K over 30 years at 1.2% is $794. HDB loan at 2.6% is $960. assume TS has $960 in CPF to pay the instalment, instead of deducting $960 from CPF OA account, there will be surplus of $166 per month which will enjoy the 2.5% CPF interest rate.

 

there are many people who have more than enough CPF to fully pay off their property but choose to keep the CPF in OA account since it's earning higher interest (2.5% vs 1.2%). one could also re-invest 30% of the OA money into other instruments e.g. REITs, dividend stocks for higher returns.

 

here's my favourite example of an owner who can pay in full but choose not to.

mark zuckerberg took loan for $5M bungalow

 

as for partial repayment without penalty, that is becoming common with many banks. if it's absent for the offer letter, just ask for it.

 

Dude , i assume you have not read in depth to understand his constants. This guy is intending to take some risk to start up his own business and with all businesses there are risks involved. I would probably presume he doesn't intend to have any income assuming he is doesn't do well.

 

In this case , any stupid investments elsewhere would only increase the amounts of interest he actually needs to pay. Yes , setting aside some money in stocks using cpf is good for a just in case measure but in fact why would one do so if he is so sure that he has enough money to pay off ?

 

The issue here is the uncertainty that he is in and it isn't wise for you to blatantly advice him to take unnecessary risk , the problem is , with him speaking to any financial advisors , they would probably be more keen to sell him a loan than to advice him to take a cpf loan. Why i know coz i work in a bank.

 

By the way don't give me those math equations , i know as much if not more than you how this is being counted. Here i quote , you mention 1.2% over 30 years , now is this GUARANTEED? Do remember i am bolding this , i will take note what you say. For CPF ,it is more or less the same the past 1 or 2 decades , basically a difference of 0.1% above what they are paying to cpf holders.

 

In actual fact, the special account actually pays 4% , why don't you suggest borrowing from the bank and putting it to Special account and over 30 years you probably earn back the difference? The issue is bank rates varies from time to time.

 

I don't even need to take the back records to tell you , it is only in the recent years where interest rates has dropped, even 5 years ago , we are seeing rates above 2.7% so assuming if one only gains 2 years of 1% discount and to be short changed on the remaining years , would he end up paying more?

 

I am not sure if you are in advisory biz but since you mentioned banks i am assuming you are quite close or savvy , and it seems clearly you are posting something very misleading here.

Edited January 23, 2013 by CH_CO

[Jeronlee]

You are very clear on your example. You are looking from monthly installment only whereby i am illustrating the interest income from CPF vs interest expense on outstanding mortgage. For 1st 5 yrs, the outstanding liability will be substantially higher than CPF (all accounts). The interest expense will be substantially higher than interest income. The only way to reduce interest expense over the tenure is to make partial redemption.

 

The only reason Mark still borrowing $$ is likely could be due to tax reason.

we could be looking at different side of the coin but i suppose we both agree that the outstanding liability is highest in the early years of the loan.

 

to better illustrate my point. below are some values taken off a typical amortization table:

1) bank loan @ 1.2%, monthly instalment of $794

on first month of loan, $240 goes to interest and $554 goes towards principal loan amount of $240K

36 months later, outstanding balance with bank is $219,696

 

2) HDB loan @ 2.6%, monthly instalment of $960

on first month of loan, $520 goes to interest and $440 goes towards principal loan amount of $240K

36 months later, outstanding balance with HDB is $223,989

 

Savings from interest is $4293 excluding any other interest earned from bank/CPF OA.

[Galantspeedz]

You are very clear on your example. You are looking from monthly installment only whereby i am illustrating the interest income from CPF vs interest expense on outstanding mortgage. For 1st 5 yrs, the outstanding liability will be substantially higher than CPF (all accounts). The interest expense will be substantially higher than interest income. The only way to reduce interest expense over the tenure is to make partial redemption.

 

The only reason Mark still borrowing $$ is likely could be due to tax reason.

 

to add on, a possible reason for Mark to take loan is to build relations....

[CH_CO]

we could be looking at different side of the coin but i suppose we both agree that the outstanding liability is highest in the early years of the loan.

 

 

In the event in which TS fails his biz. (ZERO income)

 

 

to better illustrate my point. below are some values taken off a typical amortization table:

1) bank loan @ 1.2%, monthly instalment of $794

on first month of loan, $240 goes to interest and $554 goes towards principal loan amount of $240K

36 months later, outstanding balance with bank is $219,696

 

Bank takes his house , sells it irregardless profit or loss , slaps the remaining amount inclusive of interest , they are supposed to get.

 

 

2) HDB loan @ 2.6%, monthly instalment of $960

on first month of loan, $520 goes to interest and $440 goes towards principal loan amount of $240K

36 months later, outstanding balance with HDB is $223,989

 

Savings from interest is $4293 excluding any other interest earned from bank/CPF OA.

 

You basically can talk to HDB for a deferred payment of up for quite a long time before they take back , and during which assuming if they take back , they would not charge you interest on the the remaining balance.

 

Given current price inflation and the initial down payments he has given , he probably doesn't need to pay anything back and in fact probably has some balance left if i am not wrong based on his cpf amounts<- i need someone to confirm this i am not very sure about this side.

Edited January 23, 2013 by CH_CO

[Jeronlee]

Dude , i assume you have not read in depth to understand his constants. This guy is intending to take some risk to start up his own business and with all businesses there are risks involved. I would probably presume he doesn't intend to have any income assuming he is doesn't do well.

 

In this case , any stupid investments elsewhere would only increase the amounts of interest he actually needs to pay. Yes , setting aside some money in stocks using cpf is good for a just in case measure but in fact why would one do so if he is so sure that he has enough money to pay off ?

 

The issue here is the uncertainty that he is in and it isn't wise for you to blatantly advice him to take unnecessary risk , the problem is , with him speaking to any financial advisors , they would probably be more keen to sell him a loan than to advice him to take a cpf loan. Why i know coz i work in a bank.

 

By the way don't give me those math equations , i know as much if not more than you how this is being counted. Here i quote , you mention 1.2% over 30 years , now is this GUARANTEED? Do remember i am bolding this , i will take note what you say. For CPF ,it is more or less the same the past 1 or 2 decades , basically a difference of 0.1% above what they are paying to cpf holders.

 

In actual fact, the special account actually pays 4% , why don't you suggest borrowing from the bank and putting it to Special account and over 30 years you probably earn back the difference? The issue is bank rates varies from time to time.

 

I don't even need to take the back records to tell you , it is only in the recent years where interest rates has dropped, even 5 years ago , we are seeing rates above 2.7% so assuming if one only gains 2 years of 1% discount and to be short changed on the remaining years , would he end up paying more?

 

I am not sure if you are in advisory biz but since you mentioned banks i am assuming you are quite close or savvy , and it seems clearly you are posting something very misleading here.

in my earlier example i have made an assumption that interest rate could be at 3.8% few years down the road so it is not my intention to mislead anyone into thinking that 1.2% will last forever. i'm sure TS knows that the majority is for HDB so i'm just offering an alternative view based on my personal experience and the course of my work.

[Mothorrr12]

I think let's look at it from another angle as well. If the TS is planning to hold onto the property for a long time i.e 30 years or more I would say hdb loan as the rate is pegged to the cpf even if it's 2.6%. But if he is planning to sell the property in for example 5 years (he is a risk taker and businessman after all), then a bank loan would be smarter. If it's longer than that, there's always the option of going down the home refinance route. So i think it really depends on what intentions he has for the property and how much risk he is willing to take.

[Enye]

want future flexibility of early or partial redemption at a higher rate now---> HDB

 

want lower rates now but no flexibility of early/partial redemption and rates possibly moving higher in future ----> private

 

correct me if I am wrong but for private loan even if don't pay, i think bank cannot repossess because it is a HDB flat?

[CH_CO]

want future flexibility of early or partial redemption at a higher rate now---> HDB

 

want lower rates now but no flexibility of early/partial redemption and rates possibly moving higher in future ----> private

 

correct me if I am wrong but for private loan even if don't pay, i think bank cannot repossess because it is a HDB flat?

 

Only if there are other owners . Assuming if sole owner , foreclosure is possible.

 

I think guys need to read up more on this guide for more information. I lazy to explain layman things when people can google for more info.

 

http://www.moneysense.gov.sg/Understanding...ns_English.ashx

[Adrianlim13]

one final comment from me --

 

one can switch from HDB to bank loan and not the other way round.

[Kurty]

thank you for your valuable inputs, i'm really appreciative and grateful.

 

Yes, my future is uncertain as i wish to venture something of my own, pursue my dream.

even with the saving i got, as much as possible, i hope to use it for my venture.

 

no doubt the bank offer very low interest rate, i'm really tempted thats provided i'm still working.

along with my partner, we will have more than 2k of CPF contribution which can be used to pay off the bank loan.

Along with the rental from the room, it sure looks even attractive.

 

However, not in my scenario.

Both of us are leaving our jobs to pursue a dream, whether will succeed or fail, it still early to tell.

hence the backup plan will be renting out our 2 rooms which will probably fetch $1.2k

along with my current room as at $500.

 

The rental will be use to pay off HDB loan, hopefully if there's any excess, it will be used as cushion if the worst event.

 

I'm the only son, my parent's flat has been fully paid up years back but i don't wish to take this as a consideration.

 

Since you have mentioned that it's wise to utilize my 20k in CPF investment account, after the payment of flat has been made, i could sell back the stock and regain my 20k, this 20k will act as a buffer for me.

correct me if i'm wrong, this 20k of CPF will ease me for the next 16mths where as i still getting income from the 3 rooms rental.

 

Now, the problem is: what to buy.. any recommendation for low risk stocks..

 

Thanks again

[Kurty]

forget to mention:

 

the flat, i dont have any intention to sell.

 

if i were to sell, probably sell my parent's and have them with me.

 

The flat is a home to me, even if i made it one day, i will still hold onto.

although i have plans to renounce but that's too early to tell.

 

take it as a home, i love singapore's security.

[Jman888]

hence the backup plan will be renting out our 2 rooms which will probably fetch $1.2k

along with my current room as at $500.

 

The rental will be use to pay off HDB loan, hopefully if there's any excess, it will be used as cushion if the worst event.

 

 

maybe you should explore renting out the whole unit since you are not staying in singapore, and not rent out your existing room at your dad's place. I wouldn't want my dad to deal with strangers and the trouble of managing tenant, seriously!

[D3badge]

Hello folks,

 

i know mcf a lot of gurus with rich expertise in wealth management, would like to seek some advice.

 

supposedly:

 

- 240k of loan, which will you go for? private or HDB? was told that private is as at 1.2% whileas HDB is at 2.6%.

 

- BTO, intend to sublet 2 units out as will be going malaysia for work. Any concern?

 

- the rental of 2 units will be used to fund the private loan installment.

 

- is it able to take more loan apart from the 240k? could use the extra for renovation and venture.

 

 

Due future, taking in as no CPF contribution.

Will come back once or twice a month.

 

 

please give your valuable thoughts, thanks

 

many people here give you very insightful answer, but there is a question you need to ask yourself too. Do you intend to upgrade (have the aspiration and financial ability etc you know best) to a private property after MOP?? (3 yrs for resale and 5 yrs for brand new).

 

If answer is strong yes I would think bank loan better cause interests lower and you are not gonna hold this HDB long term or forever.

[D3badge]

forget to mention:

 

the flat, i dont have any intention to sell.

 

if i were to sell, probably sell my parent's and have them with me.

 

The flat is a home to me, even if i made it one day, i will still hold onto.

although i have plans to renounce but that's too early to tell.

 

take it as a home, i love singapore's security.

 

sorry just see this posting...... HDB loan for you then