Saturday, July 22, 2006
[RealEdge] TodayOnline: Home Financing Case Study:
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| Home Financing Case Study: Weekend July 22, 2006 Mr Tan bought an HDB flat at a purchase price of $200,000, a discount from its valuation of $210,000. As such, the Valuation Limit, which is the lower of the valuation and purchase price, is $200,000. He can use his CPF savings for the downpayment and instalments up to the valuation limit or $200,000 without any restriction. If he takes a 30-year bank loan of $160,000 (80 per cent of purchase price) and assuming an annual average interest rate of 3.5 per cent, his monthly instalment works out to $718.47. As he has already used $30,000 in his CPF account for the downpayment, he can use $170,000 of his CPF to pay his monthly instalments given the Valuation Limit of $200,000. Using $170,000 divided by the monthly instalment of $718.47, he would reach his Valuation Limit in 236.6 months, or 19.7 years. This means that on the 237th month, if he does not have enough in his CPF to meet the CPF Minimum Sum cash component, he can no longer use his CPF funds to pay for the monthly instalments. If Mr Tan took up a 30-year housing loan thinking he can use his CPF savings to pay for all the loan instalments, he might be in for a rude shock. The last 137 months, or 11.4 years of his loan, may have to be paid for in cash. What's more, if Mr Tan plans to buy a property financed by a bank loan from 2008 onwards, the CPF Withdrawal Limit would be reduced to 120 per cent or even lower, aggravating his problem. | |
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// posted by Shajahan @ 4:49 PM 