Retirement checklist: Property planning for future financial security

CONSIDER INTEREST RATES

Another consideration – whether to take a fixed or a floating rate loan.

According to MoneySmart, most customers end up choosing floating rates, as rates are only fixed for a limited period.

“And if interest rates are on an increasing trend, then you know in two to three years time, the corresponding fixed rates will also end up being higher. You benefit by having a certain period of time where you have certainty in terms of your rates and your monthly payments, but eventually after that, it will go back to a floating rate,” said Mr Nair.

Because loan rates will change, experts say it is important to think of refinancing or repricing home loans after the lock-in period.

“It’s good practice to regularly review what our current mortgage is compared to the mortgages that are out there in the market,” said Mr Tan Chin Yu, a client adviser at Providend.

“Especially when interest rates are low, there’s a good chance that what you have in the market might be better than what you have and that can result in savings over the long run. Although, it is also important to note that you might incur penalties, and there could be other fees involved when you choose to reprice or refinance, especially if you are still within the current lock-in period of your existing loan.”

In Singapore, CPF is an additional avenue to finance property. The money in the CPF Ordinary Account can be used to pay for property downpayment, service the housing loan, and cover stamp duties and legal fees.

Those buying HDB flats can also use it to pay for their home protection scheme insurance premiums.

The amount of CPF that can be used depends on several factors, such as whether it is an HDB or bank loan, whether CPF is being used to service more than one property, as well as the property’s remaining lease.

However, the more CPF money used on property means there may be less for retirement.

It all boils down to each person’s investment choices, said Mr Tan.

“If you have this cash sitting in the bank that is giving you a lower rate of return than what CPF is giving you, then it’s better to use the cash to pay for your housing, leave your CPF untouched and let it grow at that guaranteed 2.5 per cent (interest rate).

“But if you are investing this cash reliably and getting a return higher than what the CPF Ordinary Account is giving you, then you can consider using your CPF to pay for housing, and then in turn using this cash to invest and at some point in the future use it for your retirement as well.”

As one nears retirement and their house is fully paid up, they may end up being asset rich but cash poor, cautioned experts.