Tx funds from CPF O.A to S.A vs spouse's S.A vs home payment
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Like to seek advice from finance gurus out there.
After setting aside a buffer for HDB loan payments in the event of unemployment I am left with a balance in my CPF O.A. annually. Should I transfer this balance to:
1. My S.A account to enjoy 4% interest instead of 2.5% in O.A.
2. My spouse’s S.A account at 4 % for her retirement planning since she is a SAHM with $0 in CPF or
3. Make lump sum payments towards the HDB concessionary loan which stands at o.1% above my O.A @ 2.6%.
Not interested in investing since returns are never guaranteed, unlike the 3 choices above.
Like to know your opinions. Thanks -
Ummm I risk adverse so will close off the loan as fast as I can. Cpf is our money but really no clue when we can ever see it. I have cleared my hdb loan and it is a great feeling to be debt free. From there then I slowly build up to get the balance I need for future investments.
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I agree with hquek. Make block repayments to the HDB loan with the OA.
Once you transfer money to the SA, think you cannot touch it again except for SA-approved investments, and you did mention you were investment wary. -
Those were my initial thoughts too, got swayed by the higher interest rates in the SA account. Thanks for the affirmation and sound advice guys.
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gremlin, this is a very common dilemma. I took the path of expediting / completing repayment of my home mortgage with the bank about 10 years back. Really felt shiok without that ‘burden’.
Unfortunately it actually wasn’t the wisest choice. I am more receptive to investing, so in that sense I’m slightly different from you. With hindsight, I should not have repaid the loans as the cost of funds (interest) were relatively low. Should have used the funds to purchase another asset (e.g property). The interest paid for the loans could be offset against rental income of the second property, and in time we will own another inflation-proof asset. The moral of the story - if you can get better returns compared to the cost of funds, you should pursue that option. Just need to work out the investment returns vis-a-vis interest charge
Transferring to SA is also a good option (I think) if you don’t foresee needing to use those funds and you’re not too far from age 55 / Retirement Account. But if that’s a long time away still, do remember that you may change your thinking down the road. Transfer to Spouse yields a small tax savings. -
Hi Gremlin
A possible decision matrix might go this way:
a) Do you intend to use the CPF OA for stocks / gold / unit trusts investment?
If your answer is affirmative, do not pay up the loan. The investible sum is calculated based on the total balance in your OA. The lower the balance, the lower amount that you are allowed to invest - end. If your answer is negative, refer to b).
b) Do you intend to use the CPF OA for other property investments? This could be an additional property (private bank loan) or to sell your current property and upgrade (private bank loan). If your answer is affirmative, the benefits of transferring to SA will be less obvious in terms of cash flow. The better option might be to repay your loan, depending on the timing of your future property purchase - end. If your answer is negative, refer to c).
c) Currently, you have a HDB loan. You have no intention of investing your CPF OA and do not plan to get a private bank loan for a property purchase. You might still get another HDB loan in the event that you wish to upgrade your property. Do feel free to transfer ALL your money into the your SA (as long as it has not hit the top-up limit yet). In the event that you do not have any money in the OA to pay for your HDB instalment, HDB will deduct it from your SA. The only catch is that this amount plus imputed interests will have to be repaid to the SA once you sell the property.
On the other hand, there is nothing to prevent you from choosing all the options that you have listed. E.g. you might have $30k to spare, you may choose to transfer $10k each to your SA, spouse's SA and for early repayment.
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Thank you all, really opened up my eyes to all the various options!
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Just to share… my friend passed away suddenly and the HDB flat was considered ‘paid’ because of HPS (Home Protection Scheme). His wife and daughter have no financial difficulty because of life insurance and HPS.
My personal choice is not to pay off my HDB loan so soon as it is only 0.1% above CPF OA rate. -
Hi Papaya, sorry to hear that and your rationale is valid. I agree that life is unpredictable, but I personally dun make decisions that way. We are well covered with insurances in the event of unfortunate demises but I will still pay off my loans ASAP. Insurances are things you hope you will never need to claim though a necessity to have. If I make decisions based on that (what if I suddenly die tmr) I would never have got married, have children, pursue a higher education/career…etc. Chose making a lump sum payment to HDB eventually, looking forward to receiving the HDB letter on the decrease in monthly payments!
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Does anyone know when is the best time of the year to make lump sum payments to HDB from the CPF O.A? Meaning before HDB charges the interest for the home but after CPF dispense the interest into our O.A. Can the timing even be calculated? Sorry if I worded the question weirdly or if it sounds stupid, don’t have a finance background. Thanks gurus.
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