Serious Should Home Buyers Use Up Their CPFOA Completely Before Taking A HDB Loan?

I am currently renting a place now after selling my condo. Thinking of buying resale HDB now. Any expert here to advise?

1. I read this article in Yahoo today (below). Looks like if I buy resale, my CPF OA which has about 600k will be emptied. Really?

2. Investing with CPF OA monies. Never done that save for some insurances paid via CPF. Can make money meh?

I will be grateful for any sound advice



https://sg.yahoo.com/finance/news/home-buyers-cpfoa-completely-taking-233252077.html

Should Home Buyers Use Up Their CPFOA Completely Before Taking A HDB Loan?
DollarsAndSense.sg
Timothy Ho 11 hours ago

One common question many Singaporeans would ask whenever they are taking up a HDB loan for their flats is whether or not they should let HDB used up their CPF Ordinary Account (CPFOA).

In case you don’t already know, let us first explain.

When you buy a HDB flat, new or resale, you have the option of taking a HDB loan. Interest rate for the loan is 2.6%.

There are some conditions to taking a HDB loan. You can find them all here on the HDB website. Most of them have to do with your age, income and whether or not you are deemed eligible.

One area worth thinking about is whether or not you should allow HDB to used up your CPFOA before they grant you a HDB loan.

Technically, you don’t have a choice. The above statement clearly stats that homebuyers have to use all their CPFOA monies for the purchase of a flat before a housing loan from HDB will be granted to them for the remaining amount they need.

For example, if a HDB flat costs $300,000 with a downpayment of $30,000 already made, homebuyers would need a remaining $270,000 loan. If homeowners have a combined $60,000 in their CPFOA, it will be used to pay down the balance of the flat first, before HDB loans them the remaining $210,000.

I Am Assuming I Have A Choice?

That’s right. You have some options but they are not immediately obvious. That is to say, you won’t find them being discussed on the HDB or CPF website.

If you were familiar with CPF, then you would already know that CPF members are able to invest any amount above $20,000 in their CPFOA. For example, if you have $60,000 in your CPFOA today, you can invest up to $40,000. Investments can be made in stocks, unit trusts, ETFs, investment plans offered by insurance companies and even Singapore Government Bonds.

The trick here is that if you were to invest in some of these instruments before you take a HDB loan, HDB will not request for you to liquidate your investment holdings when granting you a HDB loan. They will give you a loan based on how much you need after your CPFOA has been used up, regardless of whether or not CPFOA monies have been used for investment purposes.

If you were to liquidate your investments after the loan has been given, the investment would be returned to your CPFOA. HDB will not crawl back the loan they have given just because you suddenly have an injection of fresh cash in your CPFOA.

In case you still don’t understand. Here are two simple scenarios.

Scenario 1:

Alex needs a housing loan of $300,000. He has $60,000 in his CPFOA. He will be expected to use the $60,000 in his CPFOA first before HDB loans him the remaining $240,000 he needs.

Scenario 2:

Ben needs a housing loan of $300,000. He has $60,000 in his CPFOA. He invests $40,000 in Singapore Government Bonds. As such, he only has $20,000 left in his CPFOA now. He is expected to use the $20,000 in his CPFOA before HDB loans him the remaining $280,000 he needs.

If he liquidates the Singapore Government Bonds holdings after that. The $40,000 will be returned to his CPFOA.

What Are The Considerations?

While the use of CPFOA would reduce the housing loan and monthly mortgage that homeowners would need to pay, some people may prefer holding on to extra cash balance in their CPFOA. This gives them greater future flexibility in the short term in being able to utilise the balance in their CPFOA for mortgage repayment.

For example, if a homeowner intends to take a break from work for one year, having some balance in his CPFOA can help him cover the mortgage during this period of time.

Most Singaporeans would generally just allow their CPFOA to be fully used before taking a HDB loan. However, if there are unique circumstances (e.g. intention to go for further studies, quitting your job soon) that make it beneficial for you to hold on to some extra CPFOA cash balance, then you should think about whether the alternative of “parking” some CPFOA money away via an investment would make financial planning sense for you.

Have a question on how this could work? Discuss it with other like-minded individuals in our open Facebook Group on financial planning in Singapore.

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AhNehs said:

I will be grateful for any sound advice

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Dear "AhNehs" (), here's mine:

AhNehs said:

I am currently renting a place now after selling my condo.

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Congratulations on managing to find a buyer for your condo!
In my humble opinion, you also did the morally right thing to sell it; and I think you know what I really mean.

AhNehs said:

Thinking of buying resale HDB now.

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"Downgrading" to "HDB status" is also another morally right thing to do.
It might not be the perfect morally right thing to do, but I dare say that in the current circumstances of an upper-middle (or maybe even lower-upper) class unmarried, middle-aged Sinkie man (such as yourself ), it's the best that can be done.

One of my uncles has also been living in a HDB flat (with his wife and son, who is his only child) since the 1990s, and he's a multi-millionaire (but I'm guessing his net worth is probably less than S$ ten million), who seems to like investing only in the stock market (and in my opinion, he was simply patient and lucky), which is why he never bothered to "upgrade" himself to "condo status".

AhNehs said:

my CPF OA which has about 600k will be emptied. Really? ... Investing with CPF OA monies. ... Can make money meh?

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As I've explained before last year:
sammyboy.com/showthread.php?234940-ST-Stupid-Sinkies-Don-t-Appreciate-That-CPF-Is-Damn-Good!&p=2503851#post2503851

flatearther said:

From my point of view (which other people might have also already realized before), the so-called "employee's contribution" is actually used to brainwash adult Sinkies into thinking that the money is theirs, so that they (or at least the majority) keep on voting for the PAP until the end of the world.

The truth is that both the employee's and employer's "contributions" are part of the overall:
wikipedia.org/wiki/Payroll_tax
paid by the employer only.

So for example, if the "employee's contribution" is 20% and the "employer's contribution" is 16%, that would mean for every S$80 the employee takes home every month, the employer has to pay/lose an additional S$36 to the government; or in other words, S$45 for every S$100.

It is basically a part of the overall tax on employers only, in order for the government to set aside mainly for the basic necessities of middle-class Sinkies, especially after their retirement at the start of old age (and 60 is the usual symbolic start).

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so that "600k" in your "CPF OA" has never been your money, but the government's money that has always been demanded from every single one of your employers.
Which is why, if you use that money to buy a HDB flat, neither would you really be the owner of that flat; you would only be the leaseholder because the real owner is the government, who used its own money to buy that flat for you to live in temporarily, so as to prevent you from becoming too proud/vain (just because you managed to "buy" a HDB flat), while still trying to brainwash you into thinking that you are the "owner", in order to bribe you to work as a slave during your youth (i.e. during your 20s and 30s) in return for take-home pay (that you can use to buy both necessities and luxuries), which also prevents you from rebelling against the government during your youth, which is the chief concern of the government (and, of course, their upper-class cronies) and which is also why they want all (or at least the vast majority of) male Sinkies to remain as "NSmen" until they reach 40 because 40 is the symbolic start of middle age (and the start of their so-called: wikipedia.org/wiki/Midlife_crisis), when the bodies of all men are definitely significantly weaker than their bodies when they were, let's say, 30.
And obviously, after 40 (and especially after 50), men are simply not physically strong enough to rebel against the government; they can only use their words, which are obviously not good enough, simply because actions always speak louder than words.


Anyway, unless I'm mistaken, S$600,000 can probably buy an old 4-room (3 bedrooms + 1 living room) HDB flat in the Holland Village area:
propertyguru.com.sg/singapore-property-listing/hdb/queenstown/holland-avenue_136784
propertyguru.com.sg/singapore-property-listing/hdb/queenstown/holland-close_105394
propertyguru.com.sg/singapore-property-listing/hdb/queenstown/holland-drive_135747
where I've been living in for the past ten years.
So if you intend to remain single for the rest of your life (and I'm guessing you have at most thirty years left, even if you become a vegan! ), you should only need at most S$500,000 (maybe even at most S$450,000) to buy any old 3-room (2 bedrooms + 1 living room) HDB flat in this area; after that, you can try to stalk me! :p