1) On top of the CPF 2.6% interest, you still need to pay additional 2.5% for the accrued interest, making the total interest of 5.1%
2) Use cash to pay and let your CPF monies earns 2.5% interest instead
3) Bank rates are lower than CPF OA interest rate +0.1%
Well parts of the statements are true enough but I think using CPF is still better. Let's debunked the reasons:
1) Actually we need to pay only 2.6% for the loan interest i.e. current CPF OA interest rate +0.1%.
The 2.5% is set aside as "Accrued Interest" so that when you sell your house, the amount need to transfer back to the OA account, which is also your own money. So you are not paying the 2.5% "Accrued Interest" as an interest for the loan but as an interest to your own OA.
And yes, the money parked in "Accrued Interest" will not earn you any interest but is it using cash still better?
2) True, that if you use cash to pay your loan and leave your CPF monies alone, you will enjoy the 2.5% interest. Much better than leaving in your bank deposit earning a 0.05%. But there are other alternatives to make your money work harder to easily beat the 2.5% interest. One way is to invest and another, you can to our previous article on:
Earn 71x your Savings Account Interest Rates
And if you use cash, instead of CPF monies, liquidity might be an issue if you need cash as CPF monies is locked up to Age 55 (as of today) that is if you meet the minimum sum requirement.
For the above reasons, let's do a simulation with actual figures, taking into account "Accrued Interest" (which not earning any interest):
Assuming you have $1,000 in both CPF and cash, on the left is you use your CPF to pay a $200 loan and on the right you use cash to pay the loan of $200.
If your cash interest can earn anything higher than current CPF interest rate of 2.5%, e.g. 2.6% in this simulation, the total interest you earn is more if using CPF to pay for your loan.
So to conclude, in my personal opinion, using CPF monies to pay for your housing loan is better and to highlight again, CPF monies can't be used till Age 55. So even if you have $500k in CPF, but you exhausted your cash for your loans, you will need to starve till 55.
3) As of today, or even the past 10years, yes the bank rates is much lower than the HDB loan rates. That is because of the current low interest environment.
Back to about 12 years ago only, in 2006:
HDB mortgage rates was 2.6% and still the same as of today.
The SIBOR then was 3.44% and and a typical mortgage rates would be around 4.5%.
Back to about 10years ago, in 2009:
HDB rates is still at 2.6%
SIBOR has dropped to 0.69% and a typical mortgage rates would be around 1.7%. And SIBOR continues to be at low level for the next 5~6years.
Today, in 2019:
HDB rates is still at 2.6%
SIBOR has increased to 1.88% and some banks have already increase their rates and some even exceeded the HDB rates.
So it's true that the bank mortgage rates are better then HDB's, but very soon, opposite will be a norm - that's what I believe.
Here an article talking about the housing loan option during this volatile period for your reading:
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