MOP, cash on hand, high demand of flat these days, and best still, 1 million dollar value HDB unit. These are all the push factors that seem to linger in someone with a house ready to sell. A high ticket transaction with a big responsibility behind it. Then comes another factor of feeling secure with this life-changing decision coming from your agent.
You sell your HDB flat so you can clear your debt faster and easier. In the mean time I will find for you a rental flat.
-infamous house agent
Before going on in this possible life-changing decision, you must very well understand where would your financial standing be after the sales. And for many, if you have committed to selling your house for opening a business, investment opportunity, clearing of debt, etc. you would be in for a rude awakening after seeing the cash on hand.
Part 1 of Housing Option
Before even thinking about making the sale for cash, you must first plan what needs to be done. And by this, we mean your housing option. Are you renting? Are you purchasing another housing unit?
With rent, depending on location, it may cost for a room to be a few hundred per month to few thousand per unit every month. And if you are looking into a big debt to be cleared, would you be able to sustain a few months before seeing the negative balance on your card and empty bank account again?
Verdict: Selling your house and planning to rent still costs money. Housing is in demand indeed but will you be getting one as easy as how you are selling it?
Cash on Hand
Thinking of selling today and using that cold hard cash in a month’s time? Another rude awakening awaits sadly. House sellers have to wait for an average of 2 to 3 months after confirmation. Should the deal go through, would your current finance allow you to move on to your next house? As how we shared, rent requires money, in fact, most would require a downpayment or advance as low as 6 months to secure. And purchasing your next house with the current finance situation is not an option.
Amount to receive after housing sales
It seems like simple math to minus your current total outstanding against how much your house value is. Many would feel that it is the best thing to do because it clears everything in one go with no hassle but have you really put a thought into how much would you be actually receiving for selling your house?
Here are some things we gathered that will affect the total amount to be received after selling your house. Assumption based on 4 room.
Home type: 4-room
Purchase Price: $375,000
Grant: Approx. $40,000
Sale Price: $500,000
Payment: 10% from CPF OA
Loan: 25 years (HDB)
Home Loan Balance: $270,000 (After 5 years)
#1 Offset your Home Loan
The amount of the home loan (remaining $270,000) would be taken from your sales proceed.
Returning of OA amount
After the offset, the amount to be deducted from proceeds would be the amount you ‘borrowed’ from CPF. Based on the initial amount of 10% of the Purchase Price, this would be up to $37,500.
Interest owed to CPF
For allowing you to use ‘their’ money, CPF will charge an interest of 2.5%. It is also another way to put it as the amount you would have earned if you did not touch the money in OA CPF. This would amount to $5,100.
Amount used from OA to pay miscellaneous
Most if not some would have tapped into our ‘own’ money in the CPF OA to pay Stamp Duty and other charges. This will amount to $9,000 and with interest, it will amount to $10,200 in total.
Money used monthly from CPF OA
Say your decision to sell your house is once it MOP, you would have stayed there for 5 years. Through these 5 years, it’s only normal for us to be using our OA CPF to be paying for the house, hence, that will total $102,000 ($1,700 / month for 4-room) and with interest, it will be an additional $8000.
Grants you received and their interest
Happy that you received quite a high grant amount? Well, now it’s time to return it. Say you received an amount of $40,000 plus interest which equates to $5,500.
Paying the person who provides service
Yes, last but not least, the agent that has assisted you with paperwork, finding the best buyer, etc. A commission of about 1% to 2% would normally be provided. That would be approximately $5,000 – $10,000.
Balance: $16,700 – $11,700
Part 2 of the housing option
And once you have sold your house, it will most probably leave you with an option to purchase another house for your family to stay in. Whatever your choice, if its to downgrade or maintain the room type, you will be expected to pay a resale levy of at least $40,000, leaving you with negative sales balance.
So the main verdict would be that though in the market you would have seen some housing selling for a good price, you must know there are underlying things to note and the amount you expect to use to pay your debt would not be there.
Living in Singapore means the government would have already looked into such things and as such, even the finance institution would offer certain repayment programs to settle your debts.
There would be pros and cons to going for certain repayment programs so we strongly recommend for you meet a neutral party to assist you in making a comparison for all the repayment schemes available.
* Pointers and amount are based on assumptions and readily available rates found on the HDB website. For a better breakdown of your intention to sell, we recommend you to meet up with a housing agent and present the amount they provide to us for a better comparison between selling your house and available repayment program to settle your debt.