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Should I use CPF OA to pay my HDB loan or leave it to earn 2.5%?

I have a chunk in my CPF OA and I'm paying my HDB loan partly in cash. Some say keep OA untouched to earn the 2.5% interest and pay loan in cash, others say wipe the loan faster. My head is spinning, what actually makes sense?

Anonymous asker ·Asked on 20 days ago ·489 views ·3 answers

[Question] Should I use CPF OA to pay my HDB loan or leave it to earn 2.5%?
I have a chunk in my CPF OA and I'm paying my HDB loan partly in cash. Some say keep OA untouched to earn the 2.5% interest and pay loan in cash, others say wipe the loan faster. My head is spinning, what actually makes sense?

[Answer 1 | Property Agent Fiona · Best Answer]
The clean way to think about it: OA earns 2.5% guaranteed. Your HDB loan charges 2.6% (0.1% above OA rate). So paying the loan with OA "saves" you a net 0.1%, basically nothing. The real question is what your cash can do instead. If you'd otherwise let cash rot in a savings account at near zero, then paying the loan in cash and leaving OA to compound at 2.5% is smart, your OA becomes a low-risk fixed-income bucket. But if you have high-interest debt, or you invest that cash at a confident 4%+, the calculus shifts. Personally I keep OA growing at 2.5% and service the loan in cash I'd otherwise not invest, because that 2.5% compounding untouched for decades is quietly powerful. Just never leave OA so low that you can't cover a few months of instalments if you lose your job.

[Answer 2 | Salaryman Desmond]
Don't forget the accrued interest rule. If you use OA for housing and later sell, you must refund the amount used PLUS the 2.5% interest it would have earned, back into your CPF. It's not lost, but it means less cash proceeds on sale. People forget this and get a shock at completion. Factor it if you might sell.

[Answer 3 | BTO Newlywed Jia Hui]
I keep a full OA buffer precisely for job-loss insurance. During a retrenchment scare, knowing my OA could cover 12 months of instalments let me sleep. That peace of mind is worth more than optimising 0.1%. Cash is king when you're out of work, but OA servicing your roof is a close second.

Source: ASK https://sg.a-sk.org/q/bk2-sg-cpf-oa-pay-housing-or-invest

This page contains personal experience shared by users about Finance, not professional advice. For important decisions, please consult a qualified professional or official channel.

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Property Agent Fiona Beginner First-hand experience Licensed agent focusing on condo rental, help expats and locals not kena cheated by unrealistic asking price.

The clean way to think about it: OA earns 2.5% guaranteed. Your HDB loan charges 2.6% (0.1% above OA rate). So paying the loan with OA "saves" you a net 0.1%, basically nothing. The real question is what your cash can do instead. If you'd otherwise let cash rot in a savings account at near zero, then paying the loan in cash and leaving OA to compound at 2.5% is smart, your OA becomes a low-risk fixed-income bucket. But if you have high-interest debt, or you invest that cash at a confident 4%+, the calculus shifts. Personally I keep OA growing at 2.5% and service the loan in cash I'd otherwise not invest, because that 2.5% compounding untouched for decades is quietly powerful. Just never leave OA so low that you can't cover a few months of instalments if you lose your job.

Salaryman Desmond Beginner First-hand experience Middle manager in MNC, survived a few restructurings, can share how to handle toxic boss and stay employable.

Don't forget the accrued interest rule. If you use OA for housing and later sell, you must refund the amount used PLUS the 2.5% interest it would have earned, back into your CPF. It's not lost, but it means less cash proceeds on sale. People forget this and get a shock at completion. Factor it if you might sell.

Anonymous contributor Beginner First-hand experience

I keep a full OA buffer precisely for job-loss insurance. During a retrenchment scare, knowing my OA could cover 12 months of instalments let me sleep. That peace of mind is worth more than optimising 0.1%. Cash is king when you're out of work, but OA servicing your roof is a close second.

Should I use CPF OA to pay my HDB loan or leave it to earn 2.5%?

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