My wife and me have paid upfront for the 127k for our 4 room
flat with every single cent in our CPF ordinary account. Guess what
the nightmare isn't over yet. It get's better.
As you all know, CPF pays an interest of 2.5% to the balance in the
ordinary acccount. When you use your all your savings in your
ordinary account to pay upfront for your flat, you think your
nightmare is over? Far from it.
DO you know that the moment, you borrow from your CPF account to
pay for your flat, the interest start compounding? What interest?
The 2.5% interest. Every month CPF will calculated the interest
accured each month as if the amount you have loaned remained with
CPF. It will update your statement monthly to show you how much you
owed in interest.
You are asking "What the... ?"
Yes, you owe yourself interest payments! If you ever sell your flat
you need to return what ever you have borrowed from cpf ordinary
account with interest.
What if you don't sell your flat? If you decide not to sell your
flat? The principal amount owed to the CPF account, with the
compound interest will continue to compound!
To date, I owed my cpf ordinary account $3k in interest payments
after 1 year of owning the flat. In 30 years time,I will owe myself
$140k in interest!
If at that point of time(after 30 years) my 4 room flat gets EN
BLOC under the SERs scheme. I need to be compensated at least $267k
for the 4 room flat. $127k + $140k =$267K. If HDB decided to
compensates less then $267k, I will have to fork out the difference
in cash as interest payments. As under En Bloc scheme, all your
funds (whatever you have borrowed from your ordinary account with
interest from the day you borrowed) will need to be returned back
to CPF first, before you are allowed to purchase your SERS new
flats.
I did a calculation based on the 127.5k 4 room flat using the old
rule of 20% down payment, and remaining lump sum service by 30
years mortgage.
You need to take out $25,500 from your cpf account to pay the 20%
downpayment under the old rule. After 30 years at 2.5% compounding
interest rate, the total amount you need to return cpf with accured
interest is $53,487.97.
As for the remaining lump sum, $102,000 that you will pay with
installments over 30 years to HDB at 2.6% interest rate. The total
sum with interest that you will need to draw out from your cpf is
$147,005 to pay up the mortgage.
$147,005 will be split into 360 installments of $408.35 to be
withdraw from cpf every month to service the mortgage. Every month,
once the $408.35 is out of your account, cpf will start calculating
the interest as if the money has remained inside. Over 30 years,
the principal with interest accured with be $218617.34 ($147,005
principal/ $71,117 interest)
So the final grand total amount you have to return to cpf if you
flat is EN BLOC in 30 years is $272105.31. (20% deposit $53,487.97,
30 year mortgage monthly payments $218617.34)
Now compare this with the upfront payment of $127.5k compounding at
2.5%. Grand total:$267,349.
The difference is $4756.
However, if you take a 30 year mortgage, the total amount that you
have withdraw from cpf is $172,505 ( $25,500 for 20% downpayment,
$147,005 for monthly installments). As you need to use $45,005 of
your cpf ordinary account balance as interest payments to
HDB.
At the 31st year, $172,505 will compound at a faster rate then then
the $127,500 as the principal is bigger.
