The CPF Strategy in Your Housing Loan

The CPF Strategy in Your Housing Loan

Using Your CPF to Lower Mortgage Costs One of the most common uses of the CPF Funds in Singapore is the servicing of mortgage loans for both HDB and private properties. The interest rate in the CPF Ordinary Account has remained at 2.50% p.a. for an extended period of time, while interest rates on mortgage loans had hovered around the 1-1.5% levels. This allowed home loan owners to arbitrage on the 2 rates; effectively making a “profit” by enjoying higher CPF interest rates while servicing their lower-cost mortgage loans. Higher Mortgage Interest Rates Today With SOR and SIBOR rates increasing from their low rates to current levels in excess of 1%, it is perhaps time to revisit this : Does it still make sense to hold a higher mortgage amount, or should one pay down their loans with their existing CPF balances? Circumstances will vary among individuals so the first step is to look at the mortgage carrying rate. Action should be taken if mortgage rates clearly exceed CPF interest rates. Otherwise, one can hold back any action. If the mortgage rates exceed CPF interest rates, the next question to address is the amount to be used to pay down the loan amount. Should one use the whole CPF Ordinary Account balance, or is there a magic figure that can be derived? Is There A Magic Formula? There is no ONE best way.. but the strategy should be flexible enough so that it is able to ride out any life changes. One suggested method is to leave a buffer of 6-12 months of mortgage instalments in your CPF balances....
 

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