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This is part of a trial service to help home buyers through the process of buying and selling HDB flats using CPF savings.
Before deciding to buy a larger or more costly flat, it's important to determine why you're doing so and if upgrading is the only option.
For some, you could be looking for a bigger living space, a preferred location, a form of property investment or even an 'upgrade' in lifestyle. However, every choice comes with trade-offs and careful planning is required to ensure that upgrading does not compromise your retirement needs.
An important question to ask yourself is whether your reason for upgrading is worth the costs and risks that come with it. Consider if you have the means to do so after you have fully evaluated the implications.
Banks are gradually offering home loans which are pegged to Singapore Overnight Rate Average (SORA). The 3-month compounded SORA has been increasing steadily since 2022 and average interest rates will likely remain high in the coming months as a result of the continuous interest rate hikes by the United States Central Bank.
What this means for you is that you may see higher monthly instalments for your housing loan over time. It is crucial to exercise extra prudence in borrowing and to maintain an emergency fund as a backup for any unexpected events in a heightened interest rate environment. It is also important to exercise caution in taking on new financial commitments.
Do note that whether you buy your next flat or sell your existing one first, the Loan- to-Value limits remain the same i.e., up to 80% for an HDB loan and 75% for a bank loan.
There are exciting plans to develop these urban areas into the Punggol Digital District and the Jurong Lake District, creating vibrant communities for living and working.
James and Mary have shortlisted 2 properties that fit their dream home criteria.
Upon the sale of their flat, they are able to utilise $431,000* of the sales proceeds to purchase their next flat.
The breakdown below shows the capital James and Mary have to purchase their next flat.
*Proceeds include cash proceeds from the sale of the flat + CPF refunds from previous flat sale
**This amount is inclusive of
James and Mary currently earn an monthly income of $2,700 each.
If the couple purchases the 5-room flat at Jurong East, their monthly instalment*** would be approximately $150 each.
If the couple purchases the 5-room flat at Ang Mo Kio, their monthly instalment*** would be approximately $550 each.
***This is based on the following assumptions:
If the couple purchases the more affordable 5-room flat at Jurong East, James will receive an estimated monthly payout of ~$2,200 to $2,300**** from age 65.
If the couple purchases the costlier 5 room flat at Ang Mo Kio, James will receive an estimated lower monthly payout of ~$1400 to $1,500**** from age 65.
****This is based on the following assumptions:
It is important to buy a home that you can afford and adopt the right mortgage repayment strategy so that you can preserve savings in your Ordinary Account for your retirement.
Are you looking to buy a new or resale HDB flat? You may be looking to upgrade to a larger (and more costly) flat for a variety of reasons. While doing so, it is important to buy a flat within your financial means and also consider your retirement needs.
Joint tenancy
If you or your co-owners decide to sell your share of the property, you would need to convert the joint tenancy to a tenancy-in-common first.
Tenancy-in-common
If you hold the property under tenancy-in-common, you are able to sell your share in the property.
Similar to a sale of the entire property, you will be also be required to refund the principal amount of CPF used and the accrued interest (P+I) based on your respective proportions.
You might need to fork out additional cash to refund to your CPF account if you use more CPF monies than your share of property. This is to ensure that CPF members who had used more CPF savings than their share of property will still have sufficient CPF savings for their retirement and housing needs.
When selling our flat, we tend to overlook the costs involved, and may overestimate our total proceeds received in cash. Besides paying off the outstanding home loan, we also have to refund the CPF principal amount used plus accrued interest, and to pay for expenses such as your agent's commission and sale-related administrative and legal fees. It is also possible not to have any cash proceeds despite selling your flat at a higher price!
Let's take a look from the context of John and Sarah to help us make a more informed choice when it comes to our own flat sale.
When John and Sarah got the keys to their HDB flat 5 years ago in 2017, they purchased it at $240,000. The breakdown of the costs is as follows:
John and Sarah sold their flat at $520,000. Upon settling the outstanding loan, making the required CPF refunds and other costs involved, they received balance sales proceeds of $234,000. The breakdown is as follows:
*Selling price includes the option monies received from buyer
When you pay your monthly instalments to HDB or banks, only the principal amount gets deducted from your outstanding loan balance. The interest is paid to HDB or banks for granting you the loan.
In this case, you may notice that despite paying approximately $59,000* in monthly instalments so far, only 56%($33,000/$59,000) goes towards paying off the principal amount. The remaining sum of $26,000 are interest expenses that do not reduce your overall loan balance.
Do take note of the above, so as to be more informed of where your monthly instalments are going to!
*$59,000 is the sum of the total monthly instalments paid over 5 years, based on a HDB loan of $216,000 and a 25 year loan tenure
While upgrading your flat, it is important to ensure that your retirement needs are taken care of as well. While it may not be top of mind when buying your home, your housing purchase has a significant impact on your ability to pursue the purposeful retirement you are dreaming of.
Find out how you can ensure your retirement needs are not compromised while upgrading your flat.