Buy HDB flat: Is it a good way to use CPF to pay bank loan?
Currently, the bank interest is about 4%.
And the rate of CPF is 2.5%.
If you pay the bank loan through CPF, will you pay double interest - 4% + 2.5% = 6.5%?
I think it is true.
CPF rule: When you sale the HDB flat, you need pay all those money you borrow from CPF back to CPF account, with addition of the 2.5% interest.
For example, if the loan from bank is $5000. Then the interest from bank is $2000. When you pay the installment all through CPF. Then, the interest from CPF is $1000. All number is just for example.
When you sale the house, suppose the price of flat is not changed. Then, you need return $5000+$2000 to your CPF account. And, another $1000 is for the interest.
So, you need pay CPF by cash by: $2000+$1000=$3000.
So, the total money you have after sale the house:
S$8000 (in CPF) + (x-3000) = x+$5000. Here, x is total cash you have during this period.
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If you do not use CPF to pay the bank loan:
You pay bank: $5000+$2000
When you sale house, you get: $5000
So, total cash = x-($5000+$2000) + $5000 = X-$2000
In cpf account:
$5000+$2000+$1000 = S$8000, $1000 is interest from CPF.
So, total money is:
X-$2000 + $8000 = x + $6000
So, the difference is $1000.
That is to say, if you do not want to lose money,
you need invest the $7000 (cash) to get $1000 interest
at least.
