Entering “CPF housing loan,” “can I use CPF to buy a condo,” or “how much CPF can I use for a condo” into a Google search will bring up numerous articles weighing the pros and cons of financing a home with CPF savings. Even HDB flat buyers have likely come across similar articles.
The conventional wisdom for many Singaporeans is to pay for their mortgage in cash and preserve their CPF for retirement. So, should you really use cash or CPF to pay your mortgage?
Interest rates in Singapore were low for a very long time, but the situation has changed, and we are now in a high-interest-rate environment. Does it still make sense to pay your mortgage in cash now? Should you switch to using your CPF savings?
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Various Ways to Pay Your Mortgage—CPF vs. Cash
You can pay your mortgage with cash, savings from your CPF Ordinary Account (CPF OA), or a combination of both.
By paying your loan with your CPF OA savings, you are giving up the returns from the risk-free OA interest rate, which is currently 2.5% per annum.
In addition, those under 55 can earn an extra 1% interest on the first $20,000 of their OA savings, and those aged 55 and above can earn an extra 2% interest on the first $20,000 of their OA savings.
On the other hand, if you pay with cash, you are giving up the potential returns you could have earned by investing that money.
Expenses You Can Pay with CPF
Under the CPF Board’s housing schemes, CPF can be used for both HDB and private property transactions. Funds from the CPF Ordinary Account can also be used for the following transactions:
- Purchasing a new HDB flat, resale HDB flat, or private property, with direct payments to HDB, the developer, or the seller
- Servicing a housing loan or monthly installments
- Paying for stamp duties, legal fees, and other costs related to the purchase or mortgage
- Paying for HDB upgrading costs under the Main Upgrading Programme (MUP) or the Town Council Lift Upgrading Programme (TCLUP)
CPF savings cannot be used for the following expenses:
- Option fee, booking fee, or deposit paid to HDB or the HDB flat seller
- Resale levy
- Construction work, improvements, repairs, or renovations
- Monthly service and conservancy charges
- Non-housing loans (e.g., renovation loans)
- Cash Over Valuation (COV), which is the difference between the purchase price and the valuation price
- Payments reimbursed to the property developer or seller from your personal funds
Paying for an HDB Housing Loan with CPF
When applying for an HDB loan to finance an HDB flat, you need to make a 20% down payment on the purchase price, with the HDB loan ratio going up to 80%. This 20% down payment can be paid using funds from your CPF Ordinary Account.
Since mid-May 2019, the government has implemented new rules for HDB loans. The following withdrawal limits apply if the HDB flat’s lease has not expired by the time the youngest owner using CPF for the mortgage turns 95:
| HDB Flat Type | Loan Type | Maximum CPF Amount Usable |
| New HDB Flat | No Loan | Up to the purchase price of the HDB flat |
| New HDB Flat | HDB Loan | Up to the purchase price of the HDB flat or the loan amount |
| Resale HDB Flat | HDB Loan | Up to the purchase price or valuation of the HDB flat, whichever is lower (if Basic Retirement Sum is not met) |
| Up to the loan amount (if Basic Retirement Sum is met) |
If the lease is not sufficient for the youngest owner using CPF to live until age 95, the maximum amount of CPF OA savings you can use will be pro-rated. You can check the amount available using the CPF housing usage calculator on the CPF Board’s official website.
In addition to CPF withdrawal limits, buyers are also constrained by factors such as the Total Debt Servicing Ratio (TDSR) and the Loan-to-Value (LTV) ratio.
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Paying for a Bank Housing Loan with CPF
CPF can be used to repay bank loans for both HDB flats and private properties. For buyers applying for a bank loan, whether financing an HDB flat or a private property, the CPF withdrawal limits from the previous section will apply.
| Property Type | Loan Type | Maximum CPF Amount Usable |
| HDB Flat or Private Property | Bank Loan | Up to the purchase price or valuation of the property, whichever is lower (if Basic Retirement Sum is not met) |
| Up to 120% of the purchase price or valuation of the property, whichever is lower (if Basic Retirement Sum is met) |
When purchasing a private property or applying for a mortgage from a commercial financial institution (other than HDB), the LTV limit is only 75% of the property’s selling price. At least 5% of the down payment must be paid in cash, and the remaining 20% should be paid through a combination of CPF OA savings and/or cash.
Should You Use Cash or CPF Savings to Repay Your Housing Loan?
1. Using CPF for Housing Means Less Future Savings
A key reason many people forgo using their CPF to buy a condo or HDB flat is the concern that they might not save enough for their retirement fund in the future. You can maximize your retirement funds by voluntarily transferring funds from your Ordinary Account to your Special Account (SA), instead of using them to pay for part of your housing costs.
Although the Special Account can only be used in old age and for investing in retirement-related financial products, its benefit is a higher interest rate. This is because the Singapore government pays extra interest on the first $60,000 of combined balances across both accounts (with a cap of $20,000 from the Ordinary Account).
Based on current CPF interest rates, you can enjoy a 2.5% annual interest rate if you leave your funds in the Ordinary Account, and a 4% annual rate if you transfer them to the Special Account, not including the extra interest.
| Age | Extra Interest |
| Below 55 years old | 1% p.a. on the first $60,000 |
| 55 years old and above | 2% p.a. on the first $30,000, 1% p.a. on the next $30,000 |
Source: CPF Board
Assuming you take this route and transfer funds from your Ordinary Account to your Special Account, you could potentially have a substantial retirement fund of at least $1 million by the time you turn 65, or even 45. This potential windfall is thanks to the compound annual growth rate (CAGR), especially if you consistently maximize the annual mandatory and voluntary contributions of $37,740.
However, if you choose to transfer almost all funds from your Ordinary Account to your Special Account, you will need to pay for your down payment and monthly mortgage installments primarily with cash.
If you have no other sources of retirement funds, there is a stronger reason to preserve your CPF savings and use cash to repay your housing loan. But if you plan to have multiple sources of retirement income and do not need to rely on CPF, you have more freedom to choose whether to use your CPF savings to finance your property, based on your personal preference.
On the other hand, by using CPF to pay your mortgage, you can free up more liquid cash to use for emergency expenses when needed. Additionally, if you invest your cash, you might achieve higher returns than your CPF savings, albeit with higher risk.
Note that a high-interest-rate environment affects investment returns, depending on the type of investment. You can adjust your investment portfolio to take advantage of the high-interest-rate environment.
2. Using CPF for a Condo Leads to Reaching Withdrawal Limits
Another reason not to use your CPF savings to buy a private condo is that you might deplete your Ordinary Account savings and hit the CPF withdrawal limit. A potential risk of automatically repaying your monthly mortgage from your CPF OA is that homebuyers might neglect to check their OA balance.
Once the balance is insufficient, you will receive an email from the CPF Board notifying you that you can no longer make withdrawals from your Ordinary Account. Worse, you might not have enough cash on hand to cover the next month’s mortgage installment, leading to late payments and penalties, or defaulting on your housing loan, resulting in foreclosure.
Differences in Housing Withdrawal Limits When Using CPF for a Condo, Resale HDB, and BTO Flat
If you buy a Build-To-Order (BTO) flat, there is no withdrawal limit. Buyers can use their Ordinary Account to purchase the property and pay the monthly housing loan installments until the money in the account runs out, after which they will need to pay in cash.
However, if you are buying a resale HDB flat or a private property like a condo, there is a cap on the maximum amount of funds you can withdraw from your Ordinary Account for the purchase. This withdrawal limit considers both the principal amount of the mortgage and the interest.
Nevertheless, the withdrawal limit can be waived when you meet the Basic Retirement Sum, which is currently $99,400 (for those turning 55 in 2023). However, note that if you only set aside the Basic Retirement Sum, you will only receive the minimum pension payout each month after retirement.
3. Automatic Housing Loan Repayment via CPF May Lead to Unintentional Savings Depletion
Another potential danger of neglecting to track your housing loan repayment progress is that you might miss opportunities to lower your monthly mortgage installments if you have a commercial bank loan instead of an HDB loan.
This is because the interest rates for housing loans in Singapore change throughout the mortgage term. Typically, housing loans offered by banks only have a fixed coupon rate for the first three to five years.
After that, the loan interest rate will float based on certain financial benchmarks, such as the Singapore Overnight Rate Average (SORA). This means your housing loan interest rate may increase or decrease over time, depending on the economic situation in Singapore and globally.
More importantly, housing loan interest rates in Singapore often rise sharply from the fourth year onwards. Sometimes, financial institutions or mortgage brokers will propose a housing loan package with a low initial coupon rate that eventually increases. These lenders operate on the assumption that buyers are financially savvy enough to refinance their housing loans when interest rates start to rise significantly.
However, when buyers become complacent due to automatic CPF deductions and neglect to monitor their monthly loan installments and the prevailing market interest rates, they might forget to refinance when rates are on an upward trend.
Furthermore, if you do not regularly check the amount being deducted from your CPF Ordinary Account, you might be overpaying. This is not wise for property investors, as higher interest costs will cut into their investment returns when they resell the property after a few years.
4. Using CPF to Buy a Condo Can Lead to Wasting Money
If you use your CPF to buy a house instead of cash, you are wasting money. This is because money in your CPF account earns a higher interest rate than in a bank, with zero risk.
Paying your monthly installments in cash prevents you from wasting money, unless you can invest that money and achieve a higher return on investment (ROI). Therefore, unless you have a more profitable use for your cash on hand, it is better to use it to pay for your housing expenses rather than using the savings in your CPF Ordinary Account. If you want to invest, you should ideally use cash, not CPF.
Typically, we use cash for non-essential luxuries like overseas travel and holidays, dining at high-end restaurants from time to time, jewelry, smart gadgets, or small products. For the financially literate, these things are unnecessary. It is better to live a frugal life now than to live an unaffordable lavish lifestyle and declare bankruptcy later.
However, if you are using your CPF savings because you want to start a business or make an investment with a return rate exceeding the 2.5% or 4.0% CPF interest rates, then using your CPF is justified.
Conclusion: Should You Use CPF to Buy a Private Property?
The government introduced the CPF system with the goal of providing Singaporeans with sufficient retirement funds and ensuring citizens have enough savings for important matters such as education, housing, and healthcare.
However, the CPF Ordinary Account is designed to partially fund home purchases, so there is nothing wrong with using CPF to buy a condo or HDB flat. Whichever payment method you choose, just make sure the choice you make aligns with your financial needs and personal goals.
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