Reduce home loan with CPF OA or do OA to SA transfer?

Reader:
I have an existing HDB loan of 270k over 30 years with my spouse and we are deciding whether we should try to reduce the loan amount with our CPF OA or transfer some to CPF SA.

Objective is to pay the housing loan - debt free and to have a good retirement amount at 65 (hopefully to hit at least 500k in CPF).

We are 35 this year and we have around 80k in our CPF OA each with around 30k in CPF SA.

Hope to get your kind advice on this!

AK:
When we use our CPF-OA savings to pay for our home, we stop earning interest from the government. Instead, we have to pay ourselves interest if we should sell our home.

Once we realise this, it becomes pretty obvious that in an environment of prolonged low interest rates, it would probably be a better idea to pay for our home using cash if we can afford to do so. Don't use our CPF-OA savings.

Central to the idea is to receive more interest income for our CPF savings with an eye on achieving a higher level of risk free and volatility free retirement funding.





Before doing any OA to SA transfer, I would keep enough in the CPF-OA to service at least 24 months of mortgage payments. Bad things do happen unexpectedly.



Savings in our CPF-SA receive a base interest rate of 4% per annum.

If you use your OA savings to pay your HDB loan, you are saving 2.6% in interest payment but you will be losing 2.5% in interest income. So, you have a net saving of 0.1%...






Reader:
Thank you so much for the prompt reply and words of wisdom.

I will keep in mind your kind advice and work out a long term plan.

It has been very kind of you to share your knowledge and wisdom especially for many of us who are caught at a junction, not sure what is the best way to move forward and yet we would want to maximise the returns for our efforts/assets/decision. Sometimes, there is really no right/wrong way to make a decision.

Once again, thank you so much for sharing your knowledge selflessly!






Interested in making good use of the CPF to help achieve retirement adequacy? See related post #2.

Related posts:
1. Average HDB household and $1M.
2. 4 ways to boost our CPF savings.

Small savings might not add up to big money but...

It has been a while since I blogged about my money habits.

Readers who have been following my blog for a long time might remember the blogs on packing lunch to work and not buying drinks when eating out (and definitely not from Starbucks), for examples.





For sure, the blogs did not sit well with everybody and I was even labelled a person with a peasant mentality (or a person with a "poverty mindset") in wealth building because of them.

Well, I hope people who don't like my money habits don't read this blog.

Wait a while.

Filtered.

Still reading?

OK, you have been warned.

Since I changed my diet more than a year ago, I have been consuming more eggs and this is how I have been buying them.

In a tray of 30.

I transfer the eggs into smaller trays for ease of storage.

Tray of 30 @ $3.30.

Tray of 10 @ $1.65.

I save $1.65 each time.

What? $1.65 only? 

It is a 33.3% savings! 

Hey! It is like getting 10 eggs for free!

As you can tell from the scribbles on the label, I have been doing this for quite some time.

I know many people think that it is not worth saving small amounts of money. 

Maybe, saving small amounts of money gives them a "poverty mindset" and they don't like it.

Small savings are for poor people and they want to feel rich.

AK, you not poor wor. Why you so giamsiap? So cham like that.





Well, saving small amounts of money might not make us rich but it definitely won't make us poorer. Now, doing the opposite would definitely make us poorer.

Almost bankrupt, AK's family was once quite poor. AK doesn't want to go back there.

Related posts:
1. Money habits and $100K savings.
2. Earn $32,000 with a mug?
3. My family almost went bankrupt.