(For Discussion) - Use Of Cpf For Properties

[hentamkings 0]

Hypothetical Case:

You currently only own a private property with outstanding mortgage at $50k and you have CPF of about $80k ($50k in ordinary, while $30k in special account). You intend to redeem the mortgage by paying off the outstanding mortgage of $50k (so that when you purchase the 2nd property, you could take up a loan of up to 80/90%). Also, currently you have $200k cash (which you do not intend to purchase any form of securities) and you are intending to purchase a 2nd private property when the time is right. Would you:-

1. Use the $50k in your CPF ordinary account to fully pay off the outstanding mortgage; or

2. Use only $10k in your CPF ordinary account and $40k cash to fully pay off the outstanding mortgage.

Note(1) : You took up this option (2) as you want to use CPF to pay the monthly mortgage of the 2nd property. For this option, your CPF would be left with $70k ($40k in ordinary, while $30k in special account) in your CPF to meet the requirement of half the minimum sum ($65.5k i.e. half of $131k) being pledge being you could use your CPF monies for the 2nd property.

Note(2) : CPF states that you must first set aside half of the prevailing Minimum Sum (currently $131k) before you can use the excess CPF savings in your Ordinary Account for the second and subsequent properties. Savings in the Special Account (including the amount used for investments) and Ordinary Account can be used to meet this required amount.

Assumptions for the above case:

• ABSD does not affect you

• picture a time when the property market is pretty neutral (not overheat or overcold)

• by using the $50k in the ordinary account in option (1), you still does not exceed the valuation limit given by CPF for the 1st property.

Please chose either 1 or 2 and give your reasons if possible. Thank you.

[blue_skies 3]

I would go for option (1) and pay off the outstanding loan with whatever I have in the CPF.

With the loan for the 1st ppty redeemded, I will try to get 80% loan for the 2nd ppty. I think it is pointless to have 70k stuck in CPF that cannot be used for anything (except when I retire!!).

If you have already fully paid up for the 1st ppty, and you are buying a 2nd private ppty, you would probably be renting one of them out, and the rental would likely be able to partially cover the mortagage for the 2nd ppty. So there's no need to use the CPF for that purpose.

[bepgof 20]

Believed you belong to GEN-Y, yet to taste the REAL power of CASH.

Golden rule: Don't activate CASH to pay anything, unless no choice.

U forgot to set the price of the 2nd pty. If u set, I will tell u the what/how/why.

[hentamkings 0]

blue_skies,

Thank you for sharing your view.

bepgof,

Thank you for sharing as well. lets say the 2nd property is around the price of 1-1.5m.

Hi,

I have asked this somewhere else and the only 2 respondents also chose option (1). the 2nd option was an idea that u could keep on using CPF to pay the mortgage for the 2nd property. in the 2nd option (assuming you keep working), then you can use the monthly contribution into your ordinary account to pay off the mortgage of the 2nd property. this is not possible in the 1st option unless you accumulate the amount in the ordinary account (half of minimum sum) again. Please do share your view on this as I believe that different people have different considerations and different choice would suit different people better. Thank you.

ps: are most of us having concerns how "people" are losing our money in cpf?

[blue_skies 3]

bepgof, I'm Gen X la

Yes I agree that cash can do wonders but earning interest in my CPF account isn't really what I believe in, and neither do I believe in keeping cash in the bank to earn interest. Then again, we are all brought up with different ideals and thinking so everyone would have different ideas as to how best to make use of their cash.

hemtamkings,

The magic question for you would be - When is the RIGHT time?

I had a couple of friends who sold their 5 rm HDB about 3 years ago and are still waiting for the RIGHT time to buy again. The RIGHT time still hasn't arrived (according to them), during which time the HDB flats in that very same area have been steadily going up and now the cash they took back from the sale of the flat does not seem to be very much anymore.

You mentioned " ...in the 2nd option (assuming you keep working), then you can use the monthly contribution into your ordinary account to pay off the mortgage of the 2nd property..."

I think you are also assuming that the buyer (and his / her spouse) are both high earners, and they have a significant amount of CPF contribution every month. For a 1 - 1.5 mil ppty, and 70% bank loan, 20 yr repayment period, your monthly instalment is approx 3.5k/mth. This is just a very rough estimation, but I don't think the CPF contribution for majority of the cases can fully pay off the mortgage, and you might still have to top up extra cash every month.

[bepgof 20]

blue_skies,

Thank you for sharing your view.

bepgof,

Thank you for sharing as well. lets say the 2nd property is around the price of 1-1.5m.

Hi,

I have asked this somewhere else and the only 2 respondents also chose option (1). the 2nd option was an idea that u could keep on using CPF to pay the mortgage for the 2nd property. in the 2nd option (assuming you keep working), then you can use the monthly contribution into your ordinary account to pay off the mortgage of the 2nd property. this is not possible in the 1st option unless you accumulate the amount in the ordinary account (half of minimum sum) again. Please do share your view on this as I believe that different people have different considerations and different choice would suit different people better. Thank you.

ps: are most of us having concerns how "people" are losing our money in cpf?

Say 1 mil.=$1,000,000.

1. Booking = 5%

2. Stamp + lawyer, abt 3%+2%=5%

3. Cash payment = 20%-5%(booking) = 15%

Loan =80%

Total = 1+2+3 = 25% = $1,000,000 x 0.25 = $250,000.

Your cash($200K) not enough le! You failed the homework!

Monthly instalment = $3,860 (Loan amount=$800,000)for 20 yrs at 1.5% interest rate.

Best to "empty" your cpf OA as much as you could. MS & SA, haizzz, can see but cannot touch, better don't see or even "think" of them, treat them as if "dead".

Edited January 10, 2012 by bepgof

[hentamkings 0]

blue_skies and bepgof,

Thank you for your valuable insights.

Its pretty true that in the 2nd option, you would lock up quite an amount in the ordinary account (though earning you some interest) just to make sure you can keep using the CPF. After seeing more views and dicussion, I am more inclined towards option (1) but I am really far from the plan. need to work more donkey years!

I dont enjoy the fact that you have to pay back CPF the "interest" earned if you have not taken out the monies from the ordinary account for your property (i mean it is money earned by us in the 1st place). its ok to pay back the amount you take out from the ordinary account, but not the interest.

On to another question, if you have fully paid up your current residential property and is in the mid 30s. would you consider saving up to invest in 2nd property (for passive income) or just keep the savings in cash, or invest the cash in other area (for passive income)?

[therat 18]

I dont enjoy the fact that you have to pay back CPF the "interest" earned if you have not taken out the monies from the ordinary account for your property (i mean it is money earned by us in the 1st place). its ok to pay back the amount you take out from the ordinary account, but not the interest.

I don't buy this idea too.

Sound very stupid, at least to me.

On to another question, if you have fully paid up your current residential property and is in the mid 30s. would you consider saving up to invest in 2nd property (for passive income) or just keep the savings in cash, or invest the cash in other area (for passive income)?

I would invest in 2nd property for my retirement fund.

Saving is good but put all your cash in saving.. don't look good at this time.

Interest is far too low. You basically is losing money every mth, every yr. Bit by bit.

I will split my cash into 3 part.

st1 part - buy property. Be land lord

2nd part - buy dividend share. Share dividend. Act as part of the pocket money

3rd part - cash for my eat, drink, allowance. and retirement fund.

[hentamkings 0]

I don't buy this idea too.

Sound very stupid, at least to me.

I would invest in 2nd property for my retirement fund.

Saving is good but put all your cash in saving.. don't look good at this time.

Interest is far too low. You basically is losing money every mth, every yr. Bit by bit.

I will split my cash into 3 part.

st1 part - buy property. Be land lord

2nd part - buy dividend share. Share dividend. Act as part of the pocket money

3rd part - cash for my eat, drink, allowance. and retirement fund.

therat, Thanks for sharing. the 3 part idea sounds like an option too. only that most likely i wont have enough to split into 3. hahaha.. may not even have enough for 1st part. but must try to work towards it. no plan means wait for the "someone" to lose your money in some overseas investment.