If you are planning to tap on your CPF to purchase a condo or private property in Singapore, you must also know there are certain limitations and regulations to how much of the price/value of the private property can be paid off using CPF funds. As a prospective homebuyer, you must gain a deeper understanding of what it actually means to use your CPF for property purchases before you commit.
This article will be your guide to how one can use CPF to fund their condo or private property purchase and provide insights on whether or not doing so is a good idea from their perspective.
Under the CPF PPS Scheme, all CPF members who are qualified to purchase a private property in Singapore, new, resale or under construction, can utilise their savings in CPF Ordinary Account (OA). However, there are a few exceptions to it.
You will not be eligible to use CPF if:
The monthly contributions by the employee (20%) and employer (17%) go into three types of CPF Accounts:
Ordinary Account (OA) – can be used for property purchase, insurance, investment, and education;
MediSave Account (MA) – can be used for paying hospitalization expenses and medical insurance;
Special Account (SA) – can be used for old age and retirement-related investment;
Retirement Account (RA) – for age 55 & above; can be used after retirement after the age of 65 years.
CPF OA savings earn a guaranteed return up to 2.5% p.a. while other accounts (MA, SA and RA) can earn up to 4% p.a.To enhance your retirement savings, the government of Singapore pays extra interest on the first $60,000 of your total CPF balances (capped at $20,000 for OA).
|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
In case of non-Singaporeans, they can purchase condos and apartments in non-condominium developments.
Many people have this common misconception that they can count on using their CPF savings to full extent, thus reducing the cash outlay needed every month. However, it’s not so.
Since your CPF savings are crucial for your retirement, there are limits on the amount of CPF you can use to pay for your housing purchase – even if you have a sufficient CPF balance in your OA account. Tricky?
That is why you must pay good attention to the guidelines regulating the use of CPF savings. We will understand these rules in detail in the section below.
For a private property home loan, you are able to borrow only up to 75% of the price or value of your house, whichever is lower. You can pay 20% through cash or CPF savings, while the left over 5% needs to be paid in cash.
Different banks may have different eligibility requirements and interest rates differ across banks or financial institutions. Also, the mortgage repayment and any adjustment to the monthly repayment amount is subject to the bank’s approval and terms & conditions.
Also, you can reserve an amount up to $20,000 in your CPF Ordinary Account (OA) as a safety buffer to deal with unexpected life situations such as loss of job, bad health or inability to work. In such situations, you can use the reserved amount (not necessarily the full $20,000) to cover your housing loan payments for at least six months.
So, what decides how much CPF funds can you use to pay for your property? There is a limit to how much CPF money one can use for private residential property purchases. As directed, one can use up to 120% of the Valuation Limit (VL) of your private property with a bank loan. After that, you will have to service the remaining mortgage loan in cash.
There are two kinds of limits that can affect your CPF usage towards property purchase:
The Valuation Limit mainly decides what your CPF housing withdrawal limit will be.
For instance, if a condo’s purchase price is $1,000,000 and its market valuation is $980,000, then the Valuation Limit will be $980,000 and the Withdrawal Limit is $1,176,000 (that is 120% of $980,000).
Simple? Now the amount of CPF you can use will depend on the property type and the type of housing loan you choose.
|Maximum CPF Usage
|Remaining lease covers the youngest buyer till age 95 and beyond
|Remaining lease does not cover the youngest buyer till age 95
|HDB New Flat
|No Limit (can use all OA savings)
|Pro-rated Valuation Limit
|HDB Resale Flat
|Pro-rated Valuation Limit
|HDB Flat (New or Resale) or Private Property
|Valuation Limit & Withdrawal Limit
|Pro-rated Valuation Limit
You should check the remaining lease of your property to determine how much CPF savings can be used. Here’s a closer look at what happens when you buy a private property using a home loan.
When Remaining Lease Covers The Youngest Buyer Till Age 95. In such a case, both Valuation Limit and Withdrawal Limit apply. This means when the total CPF funds withdrawn reaches the VL, every owner must set aside the current Basic Retirement Sum (BRS) of $93,000 in their SA and OA, if below 55 years.
If aged 55 years and above, they will have to meet the BRS in their RA, SA, and OA to be able to withdraw CPF funds any further for servicing the remaining housing loan.
When the CPF usage on the property reaches the Withdrawal Limit, any further usage of CPF savings to service the housing loan is not permissible.
When Remaining Lease Doesn’t Cover The Youngest Buyer Till Age 95. In this case, a pro-rated amount from the Valuation Limit and Withdrawal Limit is applicable.
When the total CPF taken out reaches the pro-rated Valuation Limit, every owner is required to set aside the current Basic Retirement Sum (BRS) of $93,000 in their OA and SA, if below 55 years. If aged 55 years and above, they will have to meet the BRS in their RA, SA, and OA to be able to withdraw CPF funds any further for servicing the remaining housing loan.
However, if the CPF usage on a property reaches their pro-rated Withdrawal Limit, any further usage of CPF savings to service the housing loan is not permissible.
For example, if Mr Lee (40 years) and his wife (35 years) are buying a private property with a remaining lease of 50 years. Since the age of the younger owner (Mr Lee’s wife) plus the remaining lease term of the private property is less than 95 years, the total CPF savings that this couple can use would be pro-rated of the purchase price or value of the property, whichever is lower.
You can use the CPF Housing Usage Calculator to determine the pro-rata percentage.
Irrespective of which group you fall under, the CPF usage for housing will only be permissible if the remaining lease of property at the point of transaction is more than 20 years.
Every Singaporean must be thoughtful about these CPF limits and restrictions when planning to finance their housing loan. You don’t want yourself stuck in a situation where you hit these limit years unexpectedly and then you suddenly realise you barely have enough leftover cash on hand to service your next monthly loan instalment.
Singaporeans have the option to use their CPF OA money to make monthly housing loan instalments of their private property, up to the Valuation Limit or the Withdrawal Limit.
People who have drained all their CPF savings in the initial stages of property purchase but receiving CPF employer contributions every month can still use those contributions for making monthly repayments for a housing loan.
Contact your conveyancing lawyer and tell them that you would like to use your CPF money for monthly repayments of the bank loan. Your lawyer will submit an application to the CPF Board on your behalf. Once activated, you can log in to your CPF account and update the amount to be used from your CPA OA every month.
Even after the age of 55, you can still use some of your CPF funds to make housing loan repayments. The only condition is that you must pledge your property while maintaining the BRS (at least) in your account after any withdrawals. Pledging your property means committing to refund all the CPF funds used along with interest when/if you sell the property.
So, if you are purchasing a condo, the total CPF savings in your Ordinary Account can be utilised to fund your purchase, but do take note of the housing limits discussed in the above section. Once you hit the CPF withdrawal limit, you (and your co-payer) may have to pay the remaining monthly instalments with cash.
A smart move to optimize your housing loan is to pay your monthly loan repayments by using a combination of your CPF savings and cash. This way you will never hit these housing limits and build up enough retirement funds when you leave the CPF unused in your OA. There are other options too. You can get in touch with one of our mortgage consultants to get the best advice.
Read more: How housing loans work in Singapore?
You can indeed use your CPF OA savings towards paying the downpayment of your condo or any other private property. Depending on your loan to value ratio (LTV), if you are going for the maximum home loan quantum of 75% of your purchase price do note that 5% of the purchase price must be paid in cash. You can then choose between using additional cash or fully utilise CPF OA funds to pay the remaining 20%.
When buying a private condo property, you will be subject to the Buyers Stamp Duty (BSD). If you are buying your second or subsequent property, then you will also have to pay the Additional Buyers Stamp Duty (ABSD). All these stamp duties can be paid with the savings in your CPF OA account. Typically, stamp duties are billed within 14 days of exercising the Option to Purchase.
The one and only exception to this rule is the Sellers Stamp Duty (SSD), as it is paid straight from your sales proceeds. SSD only applies to people selling private properties within the first three years of acquisition.
However, some restrictions will follow:
As such, you must ensure your CPF OA account has enough funds to cover stamp duties after using your CPF to make the initial down payment.
Besides paying for stamp duties, CPF can be used for covering legal costs, survey fees, and other costs associated with the purchase and/or construction of the private property. Some law firms may accept payment via CPF while some may not. Take note that sometimes it is better to pay cash than ending up with a more expensive conveyancing law firm that accepts payment through CPF.
Although there is nothing wrong with using your CPF savings to make the initial downpayment for your residential property, there are several strong reasons why you might use your cash and not rely entirely on your OA funds to finance the property purchase.
One important thing homeowners must understand about using CPF is that the CPF monies you have used in purchasing the property (from the down payment to stamp duty to monthly loan instalments) must be paid back along with the accrued interest (2.5 per cent p.a.) upon the sale of that property. The CPF amount used must be returned when you sell your house, whether you sold it for a profit or loss.
Your CPF savings earn higher interest rates than banks that too with zero risks involved. Currently, the OA’s interest rate sits at 2.5% p.a. and 4% p.a. for the SA. This means when you use CPF in buying property, you miss out on the potential interest earned.
Also, the more CPF money you spend on buying a condo, the less you will have in your retirement sum. In fact, you can choose not to pay using CPF and voluntarily divert money from OA to your SA (Special Account) to maximise your retirement funds. You can use SA to invest in retirement-related financial products while benefitting from its higher rate of interest.
On the other hand, opting not to use CPF to pay for your property purchase means you’re pretty much not doing anything in it, unless you’re investing and even then, it needs to earn a larger Return on Investment (ROI) than the CPF OA rate to be worth it.
This means unless are using your on-hand cash into something more lucrative like a business venture or investment (with higher returns than CPF interest rate of 2.5% or 4%), it is okay to use savings in your CPF to pay for your home.
At the end of the day, whether to use your CPF funds and how much CPF funds to use is a financial decision that should be made by individual homeowners based on the property type and loans they are applying for while taking note of their current financial situation.
If you choose to utilise most of your CPF savings to buy a private condo property, it’s important to plan ahead and be aware of their own capabilities in order to make a decision that works for them. Just make sure you have sufficient cash savings and have got suitable investment plans for the future.
Looking for the best mortgage rates in Singapore? Get in touch with our friendly DollarBack Mortgage specialists who can guide and advise you on how to using CPF savings for home purchases and help you secure the ‘right’ housing loan in Singapore.
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