A 110 square metre 5-room flat in (so called ulu) Punggol is a place I call home.
Time really flies and in the blink of an eye, I realised that I have slept in this North-East corner of Singapore for the best part of the past 1,000 days. I still recall the days when I yearned for my own humble abode and yes, 3 years down the road, I am still immensely grateful of this opportunity.
Even at the expense of going into debt for the best part of 30 years.
The BTO flat costs $340,000 and after wiping out our CPF OA accounts the moment we got our hands on the keys, we signed a contract agreeing to service a mortgage of around $255,000 for 30 years.
3 years on, the needle has hardly moved. The balance stands at $238,000.
We have probably paid around $36,000 but the outstanding debt has only gone down by $17,000. Basically, slightly more than half of our payments had gone into servicing the interest. This is one good example of how compounding, even at 2.5% could work against you.
Fulfilling My Part Of The Bargain
Another thing that I am wonderfully grateful for is my relationship with the Mrs.
We have a rather “equal or balanced” relationship, which from my observations lately, is quite rare. A little bit of generalisation here, but men tend to either veer on the side of MCPs who dominate decisions or hen-pecked husbands who accept everything their unreasonable wives throw at them.
One thing the Mrs and I agreed on 3 years ago was to split the burden of the mortgage equally. $500/month for each person didn’t appear taxing at all since the monthly contributions to our CPF OA account then easily exceeded that amount.
However, things have slightly changed with my decision to quarter-retire and become self-employed. With no compulsory contributions to my CPF accounts, my balances are slowly being decimated by the mortgage payments.
Although it’s possible for the Mrs to take on the bulk of the burden (since she’s still making compulsory contributions to the OA account), that isn’t exactly very fair.
I am rather adamant that I should shoulder my fair share of responsibility.
Use CPF Or Cash?
With no credits and only debits, my entire CPF balances is threatening to dip below $50,000 in the next few months. Which is not good, since my intention is to maintain the balances at $60,000 in the long run to ensure that I don’t lose out on the Extra Interest provided by the government.
To do that, I could periodically perform a voluntary contribution and the money would be allocated to the three different CPF accounts (specific allocation varies with age), similar to an employee. That way, I can continue to service my mortgage using my CPF OA account.
However, increasingly, I am more predisposed to the alternative of servicing my portion of the mortgage using cash.
Topping up using a voluntary contribution means that monies will flow to my Special Account. That pool of money isn’t liquid and wouldn’t provide cash flow to me for at least another 25 years, which isn’t ideal to my aspirations of early semi-retirement.
To maximise my Extra Interest, I could do a one-time Voluntary Contribution, and thereafter, service my mortgage in cash. The OA balances would serve as emergency cash, only to be utilised if I run out of freelance work and is in dire financial straits.
The latter seems to be a more efficient model. Readers who have a different opinion, please drop a comment!
Otherwise, it’s likely I will pop by one of the CPF branches in the next few days to formalise the above arrangement.