"Full deduction" from HDB when purchasing flat is BEST option?

[wmg]

Hi people,

I'm sure all or most of you are preparing or thinking of marrying soon. This question will tuck at our heart.

Our next agenda after married will be getting a "nest" of our own. Do you think letting HDB wipe out our full savings in the CPF ordinary account (thus having lesser loan amount), or "park" some of the funds at other places before the full deduction, is better? ;-)

wmg

 

[cottoncandy]

hi wmg

we opted for full deduction for the very first payment

 

[powder]

go for full deduction...

u only park your money if u're pretty sure your earnings is gonna be higher than your loan interest..., and provided u dun intend to lose your job.

if u calculate interests upto 25-30yrs, u'll realise tat u end up paying condo prices for a hdb. so if u wanna pay less on interest, then better to pay more on your loan... and make it a habit to repay your capital loan yearly after getting your bonus... it can help reduce years of interest....

 

[wmg]

I've done some calculation, maybe this will let us have a clearer idea. This is my own opinion, but you are always welcome to comment on it

Scenario;
A HDB flat which costs S$250,000. Combine CPF of S$60,000. Loan for 30yrs. Interest rate of 2.6% P.A. from HDB.

Example 1; Full deduction
Total balance savings in CPF Ordinary Account for all applicants (round down to nearest hundredth dollar) $60000

Payments Required for Purchase of HDB Flat
Purchase Price of Flat $250000

Add 0% premium on purchase price (if any) $0
------------
Total purchase price of flat plus premium $250000

At time of Signing Agreement for Lease

20% Downpayment $50000

Stamp fees $ 3202.0

Conveyancing fees $ 171.15

--------------

Total fees $3373.15
------------
Total amount payable $53373.15

Deduction from CPF Ordinary Accounts $53373.15

Cash top up $0.0


At time of Collecting Keys
Balance 80% of purchase price $200000

Add Fees payable
Lease in-escrow stamp/regn fees $ 42.3
Mortgage stamp fees $ 502.0
Mortgage in-escrow stamp/regn fees $ 48.3
Survey fees $ 288.75

--------------

Total fees $881.35

Less Total CPF balance in all applicants' Ordinary Account
After deducting downpayment & stamp fees (round down to nearest dollar) $6626

------------
Amount Payable (round down to nearest dollar) $194255


Mortgage Loan for Purchase of HDB Flat
Age of the youngest applicant 30 years

Maximum repayment period 30 years
65 minus age of youngest applicant or 30 years, whichever is shorter

Maximum loan that HDB can grant under Credit Assessment $299700

Maximum loan eligible $200000

Mortgage loan required (round down to nearest hundredth dollar) $194300

Cash top-up (if any) (round down to nearest dollar) $0

MONTHLY MORTGAGE LOAN INSTALLMENT
At 2.6% for repayment period of 30 years
$778

Total (Principle + Interest)
S$778 x 12 x 30 $280080

I'll be paying S$80080 for interest!!!

 

[wmg]

Scenario;
A HDB flat which costs S$250,000. Combine CPF of S$60,000. Loan for 30yrs. Interest rate of 2.6% P.A. from HDB. "Parking" away S$10000 before deduction, taking into account putting back earning 2.6% P.A. without investing.

Example 1; Full deduction
Total balance savings in CPF Ordinary Account for all applicants (round down to nearest hundredth dollar) $50000

Payments Required for Purchase of HDB Flat
Purchase Price of Flat $250000

Add 0% premium on purchase price (if any) $0
------------
Total purchase price of flat plus premium $250000

At time of Signing Agreement for Lease

20% Downpayment $50000

Stamp fees $ 3202.0

Conveyancing fees $ 171.15

--------------

Total fees $3373.15
------------
Total amount payable $53373.15

Deduction from CPF Ordinary Accounts $50000

Cash top up $0.0


At time of Collecting Keys
Balance 80% of purchase price $200000

Add Fees payable
Lease in-escrow stamp/regn fees $ 42.3
Mortgage stamp fees $ 502.0
Mortgage in-escrow stamp/regn fees $ 48.3
Survey fees $ 288.75

--------------

Total fees $881.35

Less Total CPF balance in all applicants' Ordinary Account
After deducting downpayment & stamp fees (round down to nearest dollar) $0

------------
Amount Payable (round down to nearest dollar) $200881


Mortgage Loan for Purchase of HDB Flat
Age of the youngest applicant 30 years

Maximum repayment period 30 years
65 minus age of youngest applicant or 30 years, whichever is shorter

Maximum loan that HDB can grant under Credit Assessment $299700

Maximum loan eligible $200000

Mortgage loan required (round down to nearest hundredth dollar) $200000

Cash top-up (if any) (round down to nearest dollar) $881

MONTHLY MORTGAGE LOAN INSTALLMENT
At 2.6% for repayment period of 30 years
$801

Total (Principle + Interest)
S$801 x 12 x 30 $288360

Interest is S$88360
S$10000 earning 2.6% for 30 years
Total available from initial S$10000 = $22160

Thus, $288360 - $22160 = $266200

I would have paid S$66200 of interest instead.

So, if i "park" S$10000 away first, just earning the 2.6% ONLY, I would have "saved" S$8280. ($288360 - $280080 = $8280)

And, if i invest it and manage to "earn" 5% P.A. instead, i would have S$45380 from my initial S$10000. And my savings will be S$37100!!!
[$280080 - ($288360 - $45380) = S$37100] !!!!!

 

[domrai]

Hi Wmg,
How to earn the 2.6% for the $10000
CPF interest should be 2.5% rite?

 

[wmg]

1975 6.50
1976 6.50
1977 6.50
1978 6.50
1979 6.50
1980 6.50
1981 6.50
1982 6.50
1983 6.50
1984 6.50
1985 6.50

Jan-Feb 1986 6.50
Mar-Jun 1986 5.78
Jul-Dec 1986 5.38

Jan-Jun 1987 4.34
Jul-Aug 1987 3.31
Sep-Dec 1987 3.31

Jan-Jun 1988 3.19
Jul-Dec 1988 2.96

Jan-Jun 1989 3.10
Jul-Dec 1989 3.39

Jan-Jun 1990 3.77
Jul-Dec 1990 3.88

Jan-Jun 1991 4.85
Jul-Dec 1991 4.54

Jan-Jun 1992 4.59
Jul-Dec 1992 3.31

Jan-Jun 1993 2.62
Jul-Dec 1993 2.50

Jan-Jun 1994 2.50
Jul-Dec 1994 2.50

Jan-Jun 1995 3.10



YEAR CPF Interest Rate Per Annum (%)

Jul-Dec 1995 3.82
Jan-Jun 1996 3.52
Jul-Dec 1996 3.48
Jan-Jun 1997 3.48
Jul-Dec 1997 3.48
Jan-Jun 1998 3.48
Jul-Dec 1998 4.29
Jan-Jun 1999 4.41
Jul-Sep 1999 2.50
Oct-Dec 1999 2.50
Jan-Mar 2000 2.50
Apr-Jun 2000 2.50
Jul-Sep 2000 2.50
Oct-Dec 2000 2.50
Jan-Mar 2001 2.50
Apr-Jun 2001 2.50
Jul-Sep 2001 2.50

YEAR CPF Interest Rate Per Annum (%)

Oct-Dec 2001 2.50
Jan-Mar 2002 2.50
Apr-Jun 2002 2.50
Jul-Sep 2002 2.50
Oct-Dec 2002 2.50
Jan-Mar 2003 2.50
Apr-Jun 2003 2.50
Jul-Sep 2003 2.50
Oct-Dec 2003 2.50
Jan-Mar 2004 2.50
Apr-Jun 2004 2.50
Jul-Sep 2004 2.50
Oct-Dec 2004 2.50
Jan-Mar 2005 2.50
Apr-Jun 2005 2.50

As we will be looking a time span of ard 30 yrs, i don't think 2.5% will be feasible. Althought I think that even if i used 2.6%, it is still very very under-rated. it only stays at 2.5% for the past 6 years. Looking on, with inflation going to kick in, rates will surely rise. I'm only using an extra 0.01% pt in my calculation.

 

[wmg]

If i had used 2.5%, it will still gives me ard S$21,500. Which is only about S$500 difference. ;-)

 

[wmg]

Of course, I'll be paying more in cash monthly if i had "parked" away $10,000 first. But the extra that i'm paying is only about $23/month. Which is maybe a pair of weekend's movie tickets and pop-corns. At the end of the day, my savings will be more as well as having more funds in cpf, considering that by the time i retire, i will NEED to meet my minimum sum of S$60,000 in cpf.

 

[hice]

wmg,
It is definately more than $23/mth.

U fail to include the $4,200++ which consist of the misc fees such as stamp fees n etc.. These will have to b paid in cash in order to park away tat $10k.

 

[wmg]

In the 5th posting, i forgot to put the value for the cash top-up, if i park away $10,000. It is abt $3400.

The $23/month more is when ($801 - $778). This is only for the monthly instalment.

Fair enough if you are saying total cost incurred, then it'll be $8280 - $3400, i'll still be saving abt $4820 over the long term.

 

[domrai]

Hi WMG,

Appreciate all the effort that you've put in.
I've gone thru the whole process too so trying to figure your numbers out...

My understanding is that the HDB loan is 0.1% higher than your CPF interest. To me, this means that you cannot earn more interest than wat you incurred for your loan. Wat you think?

 

[wmg]

Hi Domrai,

The figures for the payment on the HDB loan is what i got from the calculation at the HDB site (http://www.hdb.gov.sg/hdbvsf/eampu100.nsf/0/Home_Financing.html?open&doc=Financial_Scheme_Mortgage_Loan.htm&topmenu=0).
If i'm not wrong, the interest rate is on outstanding loan. Why we can earn more interest than what i incurred for the loan? It's compounding. This is how "Ah Long" does their job.
So, if i'm right on how HDB calculate their interest payment, then everything will fall into place. What we are paying is only on outstanding loans, but what we are earning is on compounding basis.
Actually i didn't really realise all these too. My friend was getting a flat and asking me to help him on his calculation. Thus i found out IF you can afford to pay some cash upfront and don't mind paying a slightly more monthly instalment, it does good to park some money away.

 

[domrai]

HI WMG,

You are getting "compounding" interest for the 10k that's parked away.
But don forget you are also getting "compounding" interest on the HDB loan for the 10K that you chose not to pay up 1st...

 

[ace88]

Hi!

Lets say if I got more cash now and wish to pay up more on my HDB loan. Nextime when I sell the flat, the cash which I pay up (in a lump sum now), can I take out as cash after the sale? or it all goes back and stuck in CPF a/c?

Thanks!

 

[wmg]

Hi Domrai,

I was wondering how do you calculate the "compounding" interest on the $10K that i choose not to pay for upfront?

(For the sake of simple calculation, no further inlay into CPF, funds available will be $0 for the next 30 yrs. Rate stays at minimum 2.5% and no inflation)

As per calculated from the HDB site, if i used FULL $60k available from combined CPF, I will need to pay $0 cash up front, and $778/month (cash) for 30 yrs before it's fully paid-up. With $0 in CPF, 30yrs later, I'll still have $0 in CPF.
Total cost = $60,000 + ($778 x 12 x 30) = $340,080 - $0 = $340,080

If i had used $50k instead, i will need to pay abt $4200 -$4300 cash up front, and $801/month (cash) for 30 yrs before it's fully paid-up. With $10K back in CPF, earning 2.5%, I will have abt $21,500 in CPF.
Total cost = $50,000 + $4,300 + ($801 x 12 x 30) = $342,660 - $21,500 (CPF) = $321,160.

Did i leave out anything?


Jade,

I suppose your qn will be "If i pay more in cash and have a smaller loan using CPF monies, am i able to get cash back when i sell the flat or will everything be going back into CPF?"

If this is the scenario, the amt that is going back into CPF will only be the portion that you "owed" when you took out from CPF (+ interest @ 2.5% P.A)
(For simple calculation, you borrowed from "Charity Bank", that don't charge you any interest for your loan.)
Initial price of flat $180,000. $60K from CPF, $80,000 from "Charity Bank" and $40K cash.

15 yrs later, you want to sell your flat. Sale price is $280,000.
$280,000 - $80,000 (bank loan) - $88,200 (initial $60K from CPF + interest of 2.5% P.A for 15 yrs) = $111,800.
You will be able to get back cash of abt $111,800.

The above is just the concept in its simplest form.

 

[key_word07]

I olso find it better to pack away some $$ of our CPF ordinary saving if we have more than enough to pay off the 20% downpayment. A lot of my friends are doing that and they share with me their tots..Imagine..if you wipe everything off your CPF..which means you left nothing in CPF liao. What if either one of you out of jobs (retrench) or what worst..both out of job? if really this happen..at least you can still service your housing loan with the "park aside" money of your CPF in rainy days.And i agree with let's plan...we need saving for retirement isn't it?? imagine wipe out everything in cpf..use up every cents of your ordinary account for your monthly instalment..how much you really left in CPF by the age of 55??

 

[key_word07]

My husband-to-be is a financial consultant. If you need any advice from him. Can always email me for his contact. Thanks.

 

[ace88]

Lets Plan,

ok.. thanks.. i think i understand liao.

 

[wmg]

Jade,

no prob. if you are getting hdb flat for the 1st time, although it may be good to go with hdb loan, you may want to see private loan too. but the latter is only IF (BIG BIG IF) you are very confident of being able to repay watever monthly repayment. for people who falls under this category, the savings from private loans will be very very much better.
i would suggest asking ard from both private and from hdb, doing your maths and discussing the pros and cons before deciding taking the loan from where.

can let me know if you need more info, no prob.

 

[chat]

If I am not mistaken, before you can take the loan from HDB, they will deduct your full amount from CPF first before giving you the loan.

As for the cash you pay for your HDB flats... when you sell.. what you pay by CPF goes back to CPF... as for what you pay in cash... should be able to take back.

 

[pinktiles]

Hi everyone
for my personal opinion,
take time to scout for good resale flat(the bigger the better).Get the 30K/40K grant.
HDB loan is still best.2.6% concessionary rate.Signing up with the bank is like throwing ur life to the DEVIL!wahhahaha...Use the HDB loan while u still can. HDB will slowly phase it out.

 

[flipfreak]

nvr dump all ur money into ur flat. end of the day, it is less liquid than your cash. and imagine having to downgrade when u retire becaused u dun have enough in ur cpf to retire comfortably. that is wads happening rite now.

 

[vvbbb]

hi all,

Want to confirm one thing abt buying new WIS flat, is there a ceiling salary of $8k combined? What if exceed?

 

[sharon__joseph]

vivi,
yes, there is a 8k ceiling if u r buying directly fr HDB like WIS.. exceed 8k cannot buy lor, can only buy resale.. but i heard that if u r like 5% more, still can try try..

 

[happielee]

Hi Vivi,
Yes it is true,if there is a combined $8k you cannot apply for new flat.
However,the calculation is based on fixed mthly salary and does not include car/travel allowances or others.
For e.g. if you have a salary of $5k (CPF not deducted yet) but out of which only $3k is basic and the rest is dependent of mthly allowance or performance. That can be the case.

 

[reismion]

let hdb wipe all our cpf out. bo bian. our flat is so ex...

 

[sillyporean]

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.

Now, one wonders why cpf never take the trouble to educate everyone on these significant details.

 

[slog]

Silly76, why is S$128.5K compounded at 2.5% (and for how long - 3o yrs?)? So there is only a diff of paying S$5K more if we drag payment over 30 yrs based on your scenario?

I got a new flat for about S$285K in the Aug05 ballot. Under the fiance-fiancee scheme, we had to pay only 5% downpayment in Dec 06 ( I used the S$2K option fee to offset a bit against the 5%) and the other 5% is payable when we collect the keys (prob 08). I am pretty sure I want to take a 30 year loan because a HDB loan period can be shortened but not lengthened without penalty right.

I am quite confused after your post if it is really a good idea now to pay up asap or if I should continue in the 30 year loan method? The intention is to sell after 5 years if not, to rent out.

Thanks

 

[cactus_79]

It may not be wise to pay down your HDB loan if banks are offering higher than 2.6% for OA $ of cash fixed deposits.

 

[sspl]

i agree, as if u lose ur job one day)touchwood), u have enuff money to buffer for the time being before u can look for a new job.. and also, if u decide to refinance ur loan term to shorter period, excess amt in ur cpf helps alot..

scenario, my client have abt 100k in oa, he dwn paymnet abt 50k, balance 30k in investment, balance 20k for cpf 2.5% returns and also monthly deduction.. after 5 years, decide to re finace to short term of 10 yrs as u may not to wking by the time u reach 50, imagine ur hse is stil not paid up? so he is paying his monthly deduc of ard 2k, imagine if u wipe out all ur cpf initially..

think twice carefully, not jus the interest, but if u are able to sustain in the long term, as from now, its not advisable to take 30 yrs term if ur age is abt 30 now, u have to see if u wil be wking by then..

 

[cactus_79]

I think if you have outstandng loans of any sort, it's good to still keep a buffer of amount in cash savings equivalent to 6 months of the family's expenses (including monthly instalement payments) before you paydown any loan. This is in the event of loss of job. Jobs are so insecure these days. Of course, if you are bonded to your job, then perhaps just 50% of 6 months of expenses is sufficient.

 

[cactus_79]

Lately, banks offer fixed deposits using CPF ordinary account monies. I think UOB was one of them. The rates were 3.08% pa, I think, for 12 months. Not sure about the other banks and if banks still offer this product now.
If you have sufficent $ in CPF orindary account, it may not be wise to pay down your housing loan which only attracts 2.6% interest. If you were to invest in the bank's fd rates for OA $, you earn a net of about 0.4%pa!

 

[slog]

Thanks for the useful advice, Sspl and Cactus79.
Any comments about how the privatisation of HDB in 2008 is going to affect our housing loan or the loan rates?

 

[cactus_79]

I suspect it would impact the new flats more than the housing loan/loan rates.

The trend is moving towards the design, build, and sell scheme (like the debut in Tampines). It's going to cause prices to go up. I think property prices will go up, all things being equal. Valuation of HDB flats is approved by HDB. HDB valuation affects valuation of private property (which must be pegged at a premuim). So I think property prices will go up across the board.

With the CPF rate cuts as singaporeans grow older (btw, cpf contribution during our parents' time was 50%!!!), singaporeans will be forced to work longer and longer to pay off our "higher" housing loans due to higher property prices.

I'm sure that singaporeans will be able to borrow $ easily, but loan rates may or may not stay the same.

But the effect I think is to have Singaporeans work till retirement age. That's been the Govt's policy thus far.. their emphasis at our workforce being Singapore's only resource, emphasis on retraining and constant learning, raising of retirement age, raising of age for subsidies..the better educated/highly paid singaporeans don't benefit from 2.6% pa concessionary housing loan, or CPF grant when they buy resale flat, and tehy can't buy new flat from HDB.. these pple dun benefit from Govt's subsidies and have to spend more time to pay off their loans.

 

[sspl]

i agree tat propert prices wil go up since govt mentioned tt economy is picking up( becos gst gg to increase and petrol and all)..

that whys we must be cash liquid, in order not to incur any debts in our old age, as we have loans to payoff.. if u have extra $, do chk out guaranteed returns besides investment and all, so tt u wil have extra cash to contribute to cpf acc to earn extra interest in ur sa and medi acc for future use..

 

[sillyporean]

Slog Singapore,

It really depends on you, if you want to pay up as soon as possible or to stretch the mortgage to 30 years.

In my case, my flat cost 127.5k. As there is sufficient balance in my OA to pay up for the flat one shot, I did not take a mortgage.

Please remember at age 55, your CPF contribution falls drastically.

 

[cactus_79]

Contributions to Ordinary Accounts start decreasing when we hit 35/36 years old. More contributions go towards Medisave and Special accounts as we age.

 

[slog]

Silly76, thanks for your response.

As you paid up using the $ in your OA, later when you sell your flat, you have to pay back this amount plus 2.5% interest (which is what you would have earned if you didn't "borrow" from the OA)...is that correct?

Also, does anyone know if hdb loans can be lengthened? Read on renotalk thread that it can but I remember reading here that can't.

 

[slog]

Hi cactus79, thanks for your detailed response. I was wondering if the privatisation might impact on existing flats which are secured by a hdb loan. I have friends who used to think that HDB was more lenient than banks who would foreclose if you fell behind in payments but with HDB being privatised, I suppose hdb would be no different too.

Other than price increase, do you think that interest rates might increase too from 2.6% when hdb is privatised?

 

[cactus_79]

Hi Slog, I think once HDB is privitised, it would be less lenient than banks. But dun think it would be as strict as some banks out there too.


Privitisation may be like how public hospitals are now - restructured and not private. Hospitals like SGH and NUH still follow government policies largely (ie. subsidies to pple staying in B1 and below wards)..

The concessionary interest rate is presently pegged at 0.1% above CPF OA interest rate. I think interest rates will remain at 0.1% above CPF OA interest rate. Meaning, if OA Interest rate increases to 3%, it will be 3.1%. I dun think it will be pegged at more than 0.1% above CPF OA interest rate.

 

[cactus_79]

Hi Slog,

You wil have to repay into your CPF account the $ from your OA used to pay towards the housing plus 2.5% pa interest or the prevailing interest at the point of sale of HDB flat. IN the event your house is sold for less than the principal amount plus interest, you only need to pay back the nett proceeds from sale.

 

[cactus_79]

Actually, this CPF OA thing is very interesting.
Assume we don't use CPF OA to buy house, and instead leave it in our OA, we get to earn 2.5% pa interest for doing nothing. If we use cash instead to buy house, it's good cos cash is unlikely going to earn 2.5% pa interest in any banks... (average out fixed deposits over several years)..

Then of course, houses are so ex .. how to buy using cash only? And also, we pay with cash, we have no liquidity.

 

[sillyporean]

I beg to differ. I doubt we can ever touch our CPF OA balance in our lifetime. No point sinking cash into HDB flats. If you have 200k cash, might as well use it to start a biz or something and break out of the rat race.

 

[cactus_79]

Hi Silly76,

I see wisdom in your analysis. CPF OA can be used for kids' education but that's limited to local teritiary... CPF OA can be used to buy CPF approved shares but not everyone buys shares... CPF OA can be used to invest in CPF approved investments (ie. investment products offered by banks).. but none of the above would require the bulk of our CPF OAs monies apart from payment towards housing.

I guess pple who envision that they would stay short-term in their first property would try not to touch their CPF OA .. and would not apply those monies towards the payment of housing.

I say this cos pple's 1st home tends to be cheaper than the 2nd. The 2nd home tends to be better situated cos have kids (ie. near very good primary schools, childcare facilities, easy access to public transport so parents won't have to be drivers. ) and may be bigger, cos of kids (ie. 3 bedrooms). Some pple also aspire to give their children a good growing up environment and may feel that HDB is not a good enough place for kids... (of course, that's not to say that kids growing up in HDB estates are underprivilged or that kids growing up in private property will be very fortunate).

So some pple choose to use cash towards 1st home.. and let their CPF OAs build up in value.. towards their 2nd home.

 

[sillyporean]

30 year mortgages

Unlike the early 90s, there is no more thing such as job security these days. A corporation can shed it's headcount in a snap of finger.

One must be very confident that he or she can hold on to a same paying job for the next 30 years, taking into account of economic downturns.

One will at least experience 3 economic downturn in the span of 30 years. As you age, your market value drops correspondingly. If you start your mortgage at 30, you will still have the same commitments when you are 60.

Nobody can certain that will not be furture changes to the current CPF contribution rates.

These are considerations one should take when signing on the dotted line...

 

[cactus_79]

The best is to buy a home truly within means (ie. not what the banks would loan us based on current age and income, but our actual working timeframe).

In the past, pple would move house cos property prices appreciated and changing houses meant making a profit. These days, unlikely to be so. It's actually loss-making to move house most of the time (ie. agents' commission, cost of house-movers, furniture, renovation, legal fees and stamp duty).

It's best not to overcommit, esp when there's a possibility of retrenchment.

 

[sillyporean]

cactus79,

I share your sentiments

 

[sillyporean]

.Bankers' conspiracy

Ever asked yourself, what is the main business of a bank?

Creating demand for debt at what ever interest rates the borrower is willing to pay. Interest payments collected from "performing" loans is the source of revenue for banks.

A non performing loan, is one which the borrower has defaulted on paying the principal and the interest.

.The greatest secret of banking

Creating credit out of thin air and lending it out at interest.

How is this possible? Thru fractional reserve banking. It's the heart and core of the banking license.

If a bank has a fractional reserve ratio of 10%, a deposit of $1,000, will allow the bank to create a loan porfolio of $10,000. Commonly known, as the money multiplier effect.

The bank loans out the $9,000 as interest bearing debt on money it just created out thin air.

Now you start to realise that banking is indeed very profitable.

Savings account depositors are paid 1.75% pa interest on their deposits.

.Which is the most profitable type of loans?

Unsercured loans: Credit cards and overdraft.

The banks would gladly allow you to rollover your credit card debt and overdraft by paying the minimum as the interest is compounding at an exponential rate.

Despite increases in defaults on credit card debts, banks are more then willing to write off the debts as the interest earnings is extremely profitable.

.Now the interesting part

A person declaring to be a bankrupt is not necessary a bad thing for the bank.

If you are the bank owner, and you have been eyeing on a property or business that one of your debtors owns. What you do? Foreclose on his or her loans. By foreclosing on his or her loans, effectively forces the property or the business to sold on the market at firesale price. You can buy up everything for the price of a dime. You would also have the first hand information on the actual value of the assets that you are acquiring.

.Business cycle

Now, think of this. First you inflate the money the money supply and make loans at extremely low interest rates.

Then after ten years, you shrink the money supply, and increase the interest rates.

What do you think will happen???

This is commonly known as the business cycle...

.The Gold standard

Previously, the US dollar was backed by gold. 1 ounce of gold fetched $35USD. In 1971, the gold backing of the US dollar was removed. The USD was allowed to free float and the value determine by "market forces".

Effectively, what this means is that the US dollar is "fiat" money, a legal tender that is a promise to pay by the United States government. Paper currency without gold backing, but legal tender by decree of law.

By removing the backing of gold from the USD, you can print as much money as you want, and the market will find a value for it.

Well, the United States government did not take any chances.

In 1974, the United States brokered a deal with Saudi Arabia, leader of OPEC, to priced oil exclusively in US dollars.

.The implications

The US dollar is now backed by "blackgold". A demand for oil, will create a demand for the USD, as it's now priced exclusively in USD.

Commonly known as the Petrodollar.

This was beginning of the alliance between United States and Saudi Arabia, which was to sow the seeds for 911.

.Pay in full or take loan?

You decide...

 

[cactus_79]

Very interesting post.

Unfortunately, in Singapore, it's not easy for every young couple to pay in full. Personally, I would rather take a bank loan than to get a parental loan.. cos emotional obligations may be very very burdensome in the future... Paying in full in good, but if that's not possible, then limit the loan amount and try to pre-pay early. If not, don't buy.. just rent. That's what I'm going to do.