Typing “CPF housing loan”, “Can I use CPF to buy condo” or “How much CPF can I use for condo” into Google Search throws up tons of articles weighing the pros and cons of financing your home with your CPF savings. Even if you are someone buying an HDB flat, you might have taken a quick peek at these articles.
Conventional wisdom has had many Singaporeans opting to repay their home loans in cash while holding on to their CPF funds for retirement. So comes the question: should you use cash or your CPF savings to pay off your housing loan?
For a long time, interest rates in Singapore remained low. But now, the tables have turned and we are in a high interest rate environment. Does it still make sense to pay off your loan in cash, or should you turn to your CPF savings? Let’s find out.
More than One Way to Pay Your Home Loan: CPF vs Cash
There are a few main ways you can pay the instalments on your home loan via cash or your CPF Ordinary Account (OA) savings. You can also opt for a combination of the two by paying using mixture of cash and CPF.
By using your CPF OA savings, you are forgoing the practically risk-free OA interest rate, which is currently 2.5% p.a.
In addition, those under 55 are entitled to an additional 1% on their first $20,000 worth of OA savings. Meanwhile, those aged 55 and above are entitled to an additional 2% on their first $20,000 worth of OA savings.
On the other hand, if you pay in cash, you could be forgoing returns you might be receiving on that money if you invested it.
What Can You Pay for Using CPF
Under the CPF Board’s Housing Scheme, you can use your CPF funds to pay for HDB flats or private residential housing. The funds in your CPF OA can also be used for the following types of transactions:
- Direct payment of new and resale HDB flats or private residential property to the HDB, developer or seller
- Repayment of housing loan or monthly instalments
- Payment of stamp duty, legal fees, and other costs related to purchase or mortgage
- Payment of upgrading costs for your HDB flat under the HDB Main Upgrading Programme (MUP) or Town Council Lift Upgrading Programme (TCLUP)
You cannot pay for the following using your CPF savings:
- Option fees, booking fees, deposit to HDB/HDB sellers
- HDB resale levy
- Construction works, improvements, repairs, or renovations
- Monthly service and conservancy charges
- Non-housing loans (e.g. renovation loans)
- Cash over Valuation (COV); portion of purchase price above valuation price
- Reimbursement of payments made to property developers or sellers out of personal funds
Paying HDB Home Loan with CPF
When you take an HDB loan to finance your HDB flat, you need to pay a 20% downpayment based on the home’s purchase price, while up to 80% can be borrowed from HDB. This 20% downpayment can be paid with monies from your CPF OA account.
Since mid-May 2019, new rules have been implemented for HDB-granted loans. If the youngest owner using CPF to pay is covered by the HDB lease until the age of 95, the following withdrawal limits apply:
| Type of flat | Type of loan | Maximum amount of CPF that can be used |
| New HDB flat | No loan | Up to the purchase price of the flat |
| New HDB flat | HDB loan | Up to the purchase price of the flat or housing loan amount |
| Resale HDB flat | HDB loan | Up to the purchase price or valuation price of the flat, whichever is lower (if you cannot set aside the Basic Retirement Sum)
Or, up to the housing loan amount (if you can set aside the Basic Retirement Sum) |
If the lease does not cover the youngest owner using CPF till the age of 95, the maximum amount of CPF OA savings that can be used will be pro-rated. You can check the amount available to you by using the CPF housing usage calculator.
Other than the CPF withdrawal limits, buyers are also limited by factors such as the Total Debt Servicing Ratio (TDSR) and Loan to Value (LTV) ratio.
Paying Bank Home Loan with CPF
CPF funds can be used to repay bank loans for both HDB and private property. For buyers taking out a bank loan, regardless if you’re financing an HDB flat or private property, the CPF withdrawal limits in the previous section will apply.
| Type of flat | Type of loan | Maximum amount of CPF that can be used |
| HDB flat/private property | Bank loan | Up to the purchase price or valuation price of the flat, whichever is lower (if you cannot set aside the Basic Retirement Sum)
Or, up to an additional 20% of the purchase price or valuation price of the flat, whichever is lower (if you can set aside the Basic Retirement Sum) |
When buying private housing or taking out a mortgage loan from a commercial, financial institution (not HDB), the maximum LTV limit only amounts to 75% of the home’s selling price. Of which, at least 5% of the down payment must be made in cash. The remaining 20% should be paid with a combination of savings in your OA and/or cash.
Which Should You Use to Repay Your Home Loan, Cash or CPF Savings?
1. Using CPF to Buy a Home Means Lower Savings in the Future
One key reason you may pass up on using your CPF to buy a condo or HDB flat is that you lose out on having a larger retirement fund in the future. Instead of partly paying for a house, you can maximise your retirement funds by voluntarily diverting money from your OA to your Special Account (SA).
While your SA can only be used in old age and investing in retirement-related financial products, it benefits from a higher interest rate. This is because the Singapore government pays extra interest on the first $60,000 of your combined balances (capped at $20,000 for OA).
Based on current CPF interest rates, you could be earning 2.5% p.a. if you leave your funds in your OA, and 4% p.a. if you transfer your money to your Special Account (SA). This does not include additional interest.
| Age | Extra interest |
| Below 55 years old | 1% per annum on the first $60,000 |
| 55 years old and above | 2% per annum on the first $30,000, 1% per annum on the next $30,000 |
Say you took this route and shifted monies in your OA to SA, it’s possible to get a hefty retirement fund of at least $1 million when you reach 65 years old or even 45 years old. This potential huge windfall is thanks to the compound annual growth rate (CAGR), especially if you consistently maximised the mandatory and voluntary contributions of $37,740 per annum.
But if you choose to shift nearly all your money from your OA to SA, you will need to fund your property purchase mainly in cash when paying the down payment and servicing the monthly mortgage instalments.
In the absence of other sources of retirement money, there is a stronger case for preserving one’s CPF savings and using cash to repay one’s home loan. However, if you plan on having multiple sources of retirement income and do not need to rely on CPF payouts, you will have more latitude to use your CPF savings for financing your property, if you wish.
On the other hand, by using CPF to pay, you can free up more liquid cash in hand, enabling you to use it for emergency expenses, if needed. Also, you could possibly use your cash to invest and possibly receive higher returns than you would on your CPF savings, albeit at a higher risk.
Just note that the high interest rate environment will affect your returns depending on the types of investments you are making, and you will need to adjust your portfolio in order to capitalise on it.
2. Hitting Withdrawal Limit for Using CPF to Buy Condo
Another reason why you shouldn’t use your CPF savings to buy a private condo is that you can deplete your OA to the point of hitting the CPF withdrawal limit. A possible risk for automatically repaying the monthly housing loan instalment via CPF OA is that the home buyer may neglect to check how much money remains in their OA.
In this situation, you don’t want to get mail from the Central Provident Fund informing you that you can no longer use your OA for hitting the cap. And to make matters worse, you then realise you barely have enough leftover cash on hand to service your next monthly mortgage instalment. This could lead to late payments, which in turn will result in penalties, or worse, your home might get foreclosed if you default on repaying your housing loan.
Housing Withdrawal Limit Difference When Using CPF to Buy a Condo, Resale HDB and BTO Flat
If you bought a BTO flat, the withdrawal cap doesn’t apply to you. You can use your OA to pay for your property purchase and monthly housing loan instalments until the money in the OA runs out. After that, you need to pay in cash.
But if you bought a resale HDB flat or private property like a condo, there is a ceiling on the maximum amount you can take from the OA to fund your home purchase. This withdrawal limit also considers not just the principal amount of the mortgage but the interest you pay as well.
Nonetheless, you can be exempt from the limit when you meet the Basic Retirement Sum, currently at $99,400 (for those who turn 55 in 2023). However, please note that if you only set aside the Basic Retirement Sum, you will only be entitled to the lowest monthly lifelong payout when you retire.
3. Automatic Housing Loan Repayment via CPF Can Lead to Missed Savings
Another potential danger of neglecting to keep track of your housing loan repayments is that you could miss chances to lower your monthly mortgage instalments if you took a loan from a commercial bank instead of HDB.
This is because there are no housing loans in Singapore, wherein the interest rate doesn’t change over the entire tenure of the mortgage. Typically, housing loans offered by banks here only have a fixed coupon for the first three years or five years.
Thereafter, it shifts to a floating rate based on some financial benchmarks like the Singapore Overnight Rate Average (SORA). For the layperson, this means the interest rate of your housing loan can increase or fall over time depending on the local and global economic situation.
More importantly, please keep in mind that the interest rates of housing loans in Singapore usually increase sharply starting from the fourth year. Sometimes, financial institutions or mortgage brokers will suggest a housing loan package with a low coupon that eventually increases. These lenders are doing so on the assumption that you are financially literate enough to refinance your home loan when the interest rates start increasing significantly.
However, when you neglect to monitor your monthly loan instalments and the prevailing interest rates in the market due to being fully complacent on the automatic CPF deduction, you may forget to refinance when interest rates are on the uptrend.
Additionally, if you don’t frequently check how much is getting deducted from your CPF OA, then it’s possible that you could have been paying more than you ought to. This is a bad move for property investors, as the higher interest cost will slash your earnings when you resell your home after holding it for several years.
4. Using CPF to Buy Condo Can Result in Wasted Money
If you tap your CPF to buy a home instead of using cash, you are wasting money. This is because money stashed in your CPF accounts earns higher interest rates than banks, and comes with zero risks.
Paying your monthly instalments in cash prevents money wastage unless you have a business or venture that earns a larger Return on Investment (ROI). So unless you have a more lucrative use for your on-hand cash, it’s better to utilize it to pay for your home instead of utilising your savings in your CPF OA. And if you want to invest, you should ideally use cash, not CPF.
Oftentimes, we use cash to finance inessential luxuries, such as overseas trips and holidays, eating out frequently at fancy restaurants, jewellery or the latest gadgets and gizmos for your smart home. For the financially literate, these things are understood as unnecessary; it’s better to live frugally now than lead a luxurious lifestyle you cannot afford and declare bankruptcy later on.
But if you are tapping your CPF savings because your cash on hand is used for business ventures or investments with stellar returns surpassing the CPF interest rate of 2.5% or 4.0%, then continue to do so.
So Should You Use Your CPF to Buy Private Property?
When the government established CPF, their aim was to provide a sufficient retirement nest egg for Singaporeans, as well as ensure citizens have enough savings for important stuff such as education, housing and healthcare.
But the CPF OA is intended to partly fund home purchases, so there’s really nothing wrong with using your CPF to buy a condo or an HDB flat. Whatever you choose, make sure those choices are in line with your financial needs and goals. Good luck!
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