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22-10-2012, 01:52 PM
Mental accounting. I used to pay my home loan from my CPF-OA, even though I have enough cash to service the monthly mortgage. The logic was that "I cannot touch my CPF-OA anyway" and it was "better to have cash on hand rather than stuck in the illiquid property".
Recently I realised that the home loan was charged at 1.1-1.3% pa, while CPF-OA is giving 2.5-3.5% pa. I stopped my CPF payments, and immediately got 1.4% pa return by a few clicks of the mouse.
In fact, if I want to take this to an extreme, I can cash out a term loan on the equity in my house (effectively borrowing say, $100k) at 1.2% and deposit into my CPF for guaranteed 2.5% (3.5% for the first $20k). If the SIBOR or bank interest rate goes up, I will just use my CPF-OA to do capital repayment.
YMMV, this post is not a recommendation to act in any way.
Recently I realised that the home loan was charged at 1.1-1.3% pa, while CPF-OA is giving 2.5-3.5% pa. I stopped my CPF payments, and immediately got 1.4% pa return by a few clicks of the mouse.
In fact, if I want to take this to an extreme, I can cash out a term loan on the equity in my house (effectively borrowing say, $100k) at 1.2% and deposit into my CPF for guaranteed 2.5% (3.5% for the first $20k). If the SIBOR or bank interest rate goes up, I will just use my CPF-OA to do capital repayment.
YMMV, this post is not a recommendation to act in any way.