Opportunity costs of using your CPF to finance your home loan

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For many Singaporeans homeowners, paying off their home loans using their CPF seems to be the default option. This could possibly be attributed to the lack of understanding of CPF. A common misconception is that your CPF is money that can never be withdrawn - hence you'd be better off using it to service your mortgage. Another reason may be...

2% per annum on the first $30,000, 1% per annum on the next $30,000

This is just one of the many reasons to use cash instead of CPF to repay your home loan and instead capitalise on the guaranteed, risk-free returns that you can later use to fund your retirement.If, for some reason that a guaranteed interest of four per cent still is not enough for you, you can invest the funds from your OA. The CPF Investment Scheme allows you to invest up to 35 per cent and 10 per cent of your savings in stocks and gold respectively.

There is a wide range of assets that you can invest in, such as individual stocks of Singapore public-listed companies, exchange-traded funds , fixed deposits , Singapore government bonds and even gold. While CPF offers a generous 2.5 per cent guaranteed interest for funds stashed in your OA, you have to pay the 2.5 per cent in accrued interest if you used your CPF funds to service your home loan.

With a loan tenure of 20 years and a 2.6 per cent interest rate for HDB loans, your monthly repayment would be $1,819, which you paid with your CPF OA.Total instalments paid after five years: $1,819 x 60 months=$109,140$109,140 + $20,000 + $40,000=$169,140Total CPF used + Accrued interest=Amount to return to CPFUsing CPF's outstanding loan calculator, you would be left with an outstanding loan of $270,730.

 

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