Full settlement the HDB loan from the Bank or not?

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Full settlement the HDB loan from the Bank or not?

Postby pqy » Wed Feb 09, 2011 2:44 pm

Hi anyone can advise what the points to consider before we full settle our HDB loan with Bank. Our HDB was covered under the Home Protection Scheme (HPS).

pqy
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Postby happy to be mum » Wed Feb 09, 2011 2:51 pm

Hi pqy

I used to be an advocate to pay the loan in full. However after brainwashing from DH, it makes me think otherwise now.

Our HDB loan interest is really low as compared to some other countries. If you know what to do with your money on hand for investments, you should not pay in full and also like what you mentioned, we are covered under HPS, of course we will never want anything to happen to our spouse but if you already paid in full & something really happen to our spouse, I don't think we can claim any amount back.

Think harder to make your money grow instead of giving it to HDB ;)

happy to be mum
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Re: Full settlement the HDB loan from the Bank or not?

Postby hquek » Wed Feb 09, 2011 2:55 pm

pqy wrote:Hi anyone can advise what the points to consider before we full settle our HDB loan with Bank. Our HDB was covered under the Home Protection Scheme (HPS).


Points you may want to consider:
1. what is the interest rate bank is charging?
2. if you don't pay, what is your opportunity cost? That is, will your money (cash or cpf) generate better returns?
3. how are you going to settle the payment - cash or CPF?
4.1 If you pay via cash, will you have enough for rainy days? OR
4.2 if CPF, will you need this money - eg for downpayment of next private property?

FYI, I bought HPS initially when we first got HDB flat; but then changed to a similar product with one of the insurers - HPS premium is more expensive. Anyway, I think the similar product is portable - ie if I die now, my beneficiaries will get money - whether they want to settle the loan or not is up to them; and even if I paid up the loan fully already, my beneficiaries will still get the amount assured. Better contact your agent for more details.

hquek
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Re: Full settlement the HDB loan from the Bank or not?

Postby pqy » Wed Feb 09, 2011 3:28 pm

thanks hquek and happy to be mum.

Hi hquek, i will paid full the bank loan partially with both cash and CPF. Subsequently, if i sold my current fully settled HDB. The big portion of the sale proceeds wil be credited back to our CPF account right? Then we can use the CPF money again to pay for downpayment and instalment for the new hse right?

hquek wrote:
pqy wrote:Hi anyone can advise what the points to consider before we full settle our HDB loan with Bank. Our HDB was covered under the Home Protection Scheme (HPS).


Points you may want to consider:
1. what is the interest rate bank is charging?
2. if you don't pay, what is your opportunity cost? That is, will your money (cash or cpf) generate better returns?
3. how are you going to settle the payment - cash or CPF?
4.1 If you pay via cash, will you have enough for rainy days? OR
4.2 if CPF, will you need this money - eg for downpayment of next private property?

FYI, I bought HPS initially when we first got HDB flat; but then changed to a similar product with one of the insurers - HPS premium is more expensive. Anyway, I think the similar product is portable - ie if I die now, my beneficiaries will get money - whether they want to settle the loan or not is up to them; and even if I paid up the loan fully already, my beneficiaries will still get the amount assured. Better contact your agent for more details.

pqy
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Postby MrsTan » Sat Apr 16, 2011 8:03 am

Hi, I have DBS home loan of about $200k for 30 yrs, I am paying it off very slowly because I want to keep my CPF. My loan interest is about 1.75 while my CPF interest earned is about 2.5%; due to compounding interest effect, the interest expensed definitely would be lower than interest earned and is not worthwhile to pay off the loan now.

In addition, if you need to buy a new house, currently government set a cap on borrowings, so if u spend all you have, subsequently if u want to buy house, maybe abit troublesome cos u need to time ur buying and selling nicely so that the funds can be contra off.

Lastly, CPF can also be used for education, as such, I also plan to keep it for my children tho I already bought educational insurance for her.

MrsTan
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Postby thankgod » Wed Apr 20, 2011 10:35 am

if you can get bank fixed loan for say 3 yrs - then i think at present it will still make sense not to clear the loan. cpf provides a higher return than the bank loan interest and housing loans are the "easiest" form of loans to get with the "cheapest" cost. i would rather get a fixed rate loan, then take my cpf to do sound investments. even the most conservatives should give you a slightly better return than the bank interest rate.

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Re: Full settlement the HDB loan from the Bank or not?

Postby hquek » Wed Apr 20, 2011 10:53 am

pqy wrote:thanks hquek and happy to be mum.

Hi hquek, i will paid full the bank loan partially with both cash and CPF. Subsequently, if i sold my current fully settled HDB. The big portion of the sale proceeds wil be credited back to our CPF account right? Then we can use the CPF money again to pay for downpayment and instalment for the new hse right?


Sorry pqy, I didn't monitor.

If you sell your property, CPF will first claw back the CPF that was used, and the accrued interest (this is your interest income if you had left the money in your cpf). And yes, you definitely should be able to use cpf for the new house.

And if you pay up fully, meaning you start to accumulate cpf again; once you hit a magic figure (based I think on a percentage of the min sum that needs to be maintained - this is NOT the 123K or 126K min sum), you can actually use CPF for your next property purchase. I was happy to find that out becos I don't need to keep so much before I qualify to use cpf.

But note, there will be limits on how much you can pay for your next property out of your cpf - I think it's like 100% or less of the purchase price. You have to see what are the rules prevailing at that time.

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Postby hquek » Wed Apr 20, 2011 10:58 am

MrsTan wrote:Hi, I have DBS home loan of about $200k for 30 yrs, I am paying it off very slowly because I want to keep my CPF. My loan interest is about 1.75 while my CPF interest earned is about 2.5%; due to compounding interest effect, the interest expensed definitely would be lower than interest earned and is not worthwhile to pay off the loan now.

In addition, if you need to buy a new house, currently government set a cap on borrowings, so if u spend all you have, subsequently if u want to buy house, maybe abit troublesome cos u need to time ur buying and selling nicely so that the funds can be contra off.

Lastly, CPF can also be used for education, as such, I also plan to keep it for my children tho I already bought educational insurance for her.


I'm not very sure about this but do check. Loan interest is 1.75% on paper, but effective interest rate leh?

My ex-hdb loan was from posb. They started at 1+% and then happily raised it to 4% and more over time. Needless to say, I started to pay off as soon as I am able. And the irritating thing about HDB loan is that when you make capital repayment, they will reduce the monthly payments so as to keep the original term of loan...they DON'T maintain the monthly payment and reduce the term. At the last stretch, I was faced with the silly prospect of owing them less than 3K for the next 5 years - nearly fainted when I hear that.

I think private property loans are different, if you make capital repayment, I think they will adjust the term of loan so it's shorter.

If you have an existing loan, I think there is a 60% cap on borrowings. But if you don't have a loan (ie fully paid), the cap on borrowings will be much higher.

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Postby MrsTan » Wed Apr 20, 2011 12:36 pm

I do re-pricing when the rates up, so paid 500 admin cost.

I think is better to retain longer tenor, cos imagine if u suddenly short of cashflow, u want to lengthen the tenor, is v difficult, subject to approval, but shorten it v easy.

Even though my rates dropped, I tell them I want to retain the monthly payment amt, so that more payment towards the capital.

MrsTan
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Postby hquek » Wed Apr 20, 2011 12:54 pm

Keep in mind that once your loan hits less than 100K, banks will not want to entertain you. It's true about ensuring one has sufficient cash/cpf in hand.

:-)

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