So I received this question recently:
Hi FH. My outstanding housing loan of about 650K is due for repricing. I’ve been offered 2.7% fixed rate for 2 years, and I need to get back to the bank in about a week’s time if I want to accept the offer.
I’ve in excess of 650K in my CPF OA. I’ve above 55 years old, and next year fund in my SA account will be transferred to my OA account.
My initial reaction is that I should just use my OA fund to completely redeem the housing loan and be done with that. However on further considerations I wonder if that would be the best course of action.
CPF OA gives 2.5% interest. So the additional 0.2% interest payment to the bank is a difference of about 1.3K a year. But if I do not redeem the loan, then 650K may possibly be used to generate returns higher than 2.7%?
I would appreciate if you can give me your general thoughts on this, understanding that you do not have the full financial picture.
Obviously I would not want to take excessive risk on the 650K as the loan would still eventually need to be repaid.
Would you redeem the loan in full? If not would you invest the 650K in CPF OA approved instruments, and if so which would you consider? Or would you take the 650K out from the CPF OA account to invest as there may be more options, such as bond funds, but that would mean I will not be able to return the money back into CPF for the ‘guaranteed’ 2.5% return in future?
What should be the ‘logical’ response in your opinion?
I’m fairly familiar with investing, have quite a fair
