CNY Property Tip #4

In this year’s CNY, it is interesting that I received an Ang Bao from a couple who is not yet married. This is probably the first time I encountered it. It broke down what is norm in our culture because the kingdom is often different from the world. On top of that, they blessed me with this beautiful gift —— the highest call every father has.

Enough said.

As promised over the CNY festive season, here is the next tip to answer the question that I posted in my first post —— “Are you working to pay your house OR is your house working to pay you?”

Number 5: Right Use of CPF Funds

Many people do not realise the danger of overusing CPF funds, leading to high CPF accrued interest. CPF funds can either work FOR you or work AGAINST you.

Some of my clients said, “There is a lot of CPF Housing grant nowadays. Take as much as possible!”

Is that always the best option?

For my previous house, I did not take a HDB loan. I took a bank loan. As a result, I enjoyed lower mortgage interest rate throughout my stay. In fact, during my first year, the interest rate was ONLY 0.88% as compared to HDB mortgage interest rate of 2.6%!

You may wonder why I am talking about interest rate when I was initially sharing about the danger of overusing CPF funds. The higher your interest rate is, the more you will be likely to use your CPF funds to pay the monthly instalment.

Myth #1 - Take as much CPF grant as possible (applicable to HDB & EC only)

When you receive CPF grant, the amount isn’t directly used to offset your property price. It is however, first credited into your CPF OA before the funds are used to pay for your property.

Remember: When you keep your CPF funds in your OA, you gain 2.5% compounding interest p.a. But if you withdraw from your OA, you are liable to put back the compounding interest using your own cash after selling your property in future.

In other words, the larger the amount of CPF funds you use, the greater the amount of CPF accrued interest you have to put back in cash.

Myth #2 - Take smaller amount of housing loan and pay off as much as possible using my CPF funds

This works if you intend to stay in your house forever. But it will defeat the purpose of letting your house work to pay you. Instead, you will be working to pay your house (forever).

As mentioned, the larger the amount of CPF funds you use, the lesser cash proceeds you get when you sell your house in future. Some of my clients even experienced zero cash proceeds!

This is why I don’t encourage taking HDB contra if you intend to sell your HDB to purchase another HDB. Not only do you lose out your physical cash proceeds, you also use a big portion of your CPF funds (which leads to MORE accrued interest). If you need to move from one house to the another urgently, choosing a bridging loan over HDB contra may be better.

Choosing the right property for capital growth includes loan calculation, right appropriation of cash and CPF funds, as well as looking at the remaining lease of the property (whether its public or private housing).

Hope the 5 tips thus far have been helpful. Stay blessed! #cnypropertytips #letyourhousework #letyourhousepayyou #sghomeaffairs

For more updates on practical tips and market conditions, follow the FB Page at SG Home Affairs.