Major CPF policy shift on the way

[egghead]

4) With regards to low CPF returns vs EPF returns, take note that our CPF returns are tied directly to CPF's mortgage loan rates. If you want better CPF returns, it means that tens of thousands of homeowners have to pay higher mortgage. Hence, this means CPF interest rates have to be perpetually kept low, very low in fact, or else the number of people defaulting on their housing loan will shoot up.

You got it wrong. CPF mortgage loan rate is tied to CPF OA interest rate; not the other way round as you put it. You did not say what it should be but since you are investor101, I'm sure you are not suggesting HDB loan to be priced below CPF OA rate.

Bank interest rates also are closely linked. If CPF pays so little, banks have little reason to raise their bank savings rate. And if bank savings interest rate is forever near 0%, CPF also has little reason to offer you better returns than their 2.5 to 3% return since you are unlikely to get better returns anywhere else.

Again, you got it wrong. CPF OA is much higher than bank FD because of the 2.5% floor in place. Banks simply cannot match that and have no need to since there is plenty of liquidity due to QE. I'm not aware that banks are competing with CPF for deposit. Perhaps they may need to in the future and then we can see real bank FD rates going higher.

Perhaps we should consider delinking CPF returns from CPF mortgage loan rates. That could be a start to ensure that CPF returns can move up without affecting mortgage interest.

This is already available. I've been paying 1+% for my housing loan for years now. Of course as in everything in life, I gain some (low rates) but at a costs (subjecting to market volatility). The truth is that many of us still choose to take HDB loan.