Financial Freedom SG

For this part, we shall look at how the we pay the housing loan using the Ordinary Account (OA) and other financial matters. With the constant increase in the minimum sum to be kept in your CPF account, with the latest increase to be $131,000, this balancing act to keep monies in the CPF account becomes even more important.

 

CPF OA

The key part here is that if you use OA to pay your housing loan, you may end up with the situation where you end up unable to use OA to pay your housing loan for the last few years because the limit for using CPF to pay the housing loan has been reached.

The rule for this is because the government doesn’t want you to end up in the situation where you retire and have a nice big house, but no savings in the CPF OA. Meaning you are not prepared for retirement. And that the government will be saddled with giving you money to maintain you. So they make a host of rules to make sure that your CPF has a minimum sum that increases as inflation goes up.

Think by the time I retire, maybe the minimum sum will be half a million.

In the CPF website, they put these valuable nuggets of advice:

1. Ensure that the CPF used is not way above the value of the property.

2. Instill financial prudence so that members will not over-commit to property at the expense of retirement savings.

Valuation Limit

The important part is to look at the limits of using CPF for the housing loan. It basically allows you to loan up to 100% of the valuation. So if your flat is valued at $300,000 and you paid over the odds for it and cough up $350,000 for the flat, you will find out that a few years before the flat is fully paid up what you cannot use CPF to pay for the flat anymore and have to cough up cold hard cash to service the housing loan.

Even if you have been prudent and bought one within the valuation or below it, this still means that you are still likely to have to pay cash at some point as part of the payment for housing loans goes to service the interest payments for the loan. Especially the first few years. However, if your CPF OA has the minimum sum, which is $131,000 at this point in time, then the amounts above it can be used to pay the housing loan even if you have reached the 100% limit.

Is your head swimming with the financial details and nitty gritty of all these?

Think the folks at CPF and HDB needs to hire those fine fellows at OCBC who went through an exercise to simplify the the very legalistic product terms at OCBC to make it easy for us ordinary mere mortals to understand. Their mandate will be to make cut terms where possible and if not make it easy and not multi-layered and so difficult to comprehend and understand.

Suffice to say, do your homework thoroughly before buying the flat.

The way I go about it is to pay part cash and CPF even though the combined incomes of my wife and myself will be able to service the loans with no problems. I treat it as sort of forced savings which makes me save at least part of my salary to the CPF OA. My wife’s OA is not touched by the housing loan so her account is really climbing and becoming like a retirement account.

 

Housing Grants for Resale Flat

The other topic we are touching on is a bit more pleasant. In this case, the government gives you a grant. Really.

The funny thing was that when I got the grant a few years back, the housing agent said that he has not done a housing grant for a long while. So I wonder if people who buy it knows about it. But I am sure the HDB housing loan officers will be sure to ask if you are applying for one if they see that you are eligible for it. It makes sense to know about it and what they entail so that you have better options.

The housing grant gives $30,000 for first time buyers of HDB flats who are buying resale flats. If you are getting a flat near your parents either for the husband or wife, then it is another $10,000 grant so you can get a grand total of $40,000.

The premise for the grant is that you don’t get to enjoy the ‘subsidy’ provided for first time buyers of new HDB flats so if you get the resale flats, the government subsidies it directly and pays this amount to the seller, while you get a nice deduction on your purchase.

If your household earnings is $2,250 and below, you can now get a special housing grant on top of the normal housing grant. This ranges for another $20,000 for a 2 room flat to $5000 for a 3 room flat.

As with all things, there is a flip side to it- the Housing Grant Levy where they take it back.

 

Housing Grant Resale Levy

If you decide to sell your resale flat after staying in it for the minimum 5 years to get a new subsidized flat, you must pay HDB a fixed amount ranging form $15,000 for a two room flat to $50,000 for an executive flat. The logic is that you have already enjoyed the subsidy and they have to penalise you somehow so that you don’t get to enjoy a subsidy twice.

The funny thing or unfair part of it is that if you get $40,000 or $30,000 for the subsidy, why then are you paying $50,000 back to the government if you are selling an executive flat?

 

Other Costs

On top of all these, there is still the small matter of the legal fees, stamp fees, insurance, payment to the property agents, valuation fees, etc. You can check the details of all these costs by clicking on the links to the source.

 

I hope that you are thoroughly confused by now with all the terms and conditions. I guess that is why the property agent is needed to make sense of it all. Just make sure that you also know the key important points as listed so that you will not get the bad end of a deal.

 

Source:

1. CPF website on Using CPF for Housing.

2. HDB Housing Grants

3. Conditions after purchase for HDB flats

4. Other costs associated with buying HDB flats