Most Singaporeans know they can use their Central Provident Fund (CPF) to pay for their home loan, but beyond that, there’s a lot more to understand!
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Choosing between a bank loan or an HDB loan will affect how much CPF you can use
When you opt for an HDB concessionary loan, you can borrow up to 80% of the property price or value, whichever is lower. The remaining 20% can be paid with CPF.
When you choose a bank loan, you can only borrow up to 75% of the property price or value, whichever is lower. Another 20% can be paid with CPF, while 5% must be paid in cash.
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You can now keep up to $20,000 in your CPF Ordinary Account when buying a home
When you use your CPF to buy a home, you no longer need to use all the money in your Ordinary Account (OA) for the purchase. You can now retain $20,000.
Why do this? It provides you with a “safety buffer” in case something goes wrong. If you lose your job, fall ill and can’t work, etc., you can use this money to pay your home loan.
However, you may not have a good reason to keep the full $20,000; an amount sufficient for six months of loan payments will do. We’ll explain in this article.
There is a limit to how much CPF can be used to buy a house
This limit is called the CPF Withdrawal Limit, and it’s determined by the Valuation Limit (VL) of the property you’re buying.
⚠️Note: The Valuation Limit is the lower of the property price or its valuation. If your house costs $350,000 but is valued at $340,000, the VL is $340,000.
The CPF Withdrawal Limit is capped at 120% of the VL. Any amount exceeding this limit must be paid in cash.
You can use CPF to pay for your home loan whether you buy an HDB flat or private property
You can use your CPF to pay the home loan for both HDB flats and private housing. However, the usual restrictions (such as the withdrawal limit in point 3) still apply.
You can use your CPF to pay for stamp duty and legal fees
When buying a property, you need to pay Buyer’s Stamp Duty (BSD). If you’re buying your second or subsequent property, you’ll also need to pay Additional Buyer’s Stamp Duty (ABSD). You can use your CPF to pay for these stamp duties, but there are some restrictions.
First, you can only use funds from your CPF Ordinary Account (OA).
Second, if you are buying a completed property (i.e., it is not under construction), you must first pay the stamp duty in cash. You can then get a reimbursement from your CPF account for this amount.
Note that these stamp duties must be paid within 14 days of signing the Sale and Purchase Agreement.
Finally, if you are buying your second or subsequent property, you must first set aside the Basic Retirement Sum (BRS) before you can use more CPF. You can check your BRS amount on the CPF website based on your age.
For example, if your Basic Retirement Sum is $181,000 and you have $220,000 in your CPF OA, you can only use a further $39,000 from your CPF.
Besides paying for stamp duties, your CPF can also cover legal fees, such as conveyancing fees.
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If you pay your mortgage in cash instead of CPF, you can increase your retirement payouts
You don’t have to use your CPF Ordinary Account (OA) to pay for your home loan. If you are very disciplined, you can pay your mortgage in cash and transfer the funds from your OA to your CPF Special Account (SA).
This will increase your retirement payouts, as your SA grows at 4% per annum, versus just 2.5% for your OA.
Consult a qualified financial planner before deciding to take this step.
When you sell your house, you need to return the CPF you used
When you sell your house, you will need to return the CPF you used, any grants, plus the accrued interest (currently 2.5% per annum) to your CPF account.
However, if you sell your house at a loss for the market price (or even market value), you do not need to top up the difference.
⚠️Note: You can still use the CPF for your next home.
If you wish to keep your sales proceeds in cash, one way is to pay your mortgage in cash instead of using CPF (see point 6).
HDB loan interest rates are based on the CPF interest rate
The interest rate for an HDB concessionary loan is always 0.1% higher than the prevailing CPF interest rate. As the current rate is 2.5%, the HDB loan rate is 2.6%.
This does mean that if you get a higher interest rate from CPF, your HDB loan may also become more expensive. On the other hand, the rate has remained unchanged for a very long time.
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CPF pays for your Home Protection Scheme fees
The Home Protection Scheme (HPS) will pay off your outstanding mortgage in the event of your death, terminal illness, or permanent disability. You are required to be insured under this scheme if you are using your CPF to pay for an HDB flat.
However, if you own an Executive Condominium (EC) or a private property, you will not be covered by HPS. Private property owners can buy similar insurance, called Mortgage Reducing Term Insurance. Buying this is entirely up to them… but they really should.
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