Pros & Cons Of Using CPF For HDB Or Condo Loan Installments

As much as buying a home is one of your life’s most significant financial commitments, paying it off is possibly the longest loan repayment (stretching from 25 to 30 years) you will undertake.

You can take up an HDB concessionary loan or bank home loan for financing. You can also choose how you want to repay your home loan: via your Central Provident Fund (CPF) savings or cash, based on your preference. When using CPF savings to make housing payments, only CPF funds from the CPF OA (Ordinary Account) will be used to pay for your home loan.

What can my CPF savings be used for when it comes to housing?

You may use CPF OA savings to pay for the home loan’s initial downpayment, monthly repayments (for both HDB and bank loans) and stamp duties. You may also use your CPF to pay the legal fees.

The leftover portion of the purchase price (after the downpayment) not covered by the home loan may also be paid using CPF or cash. Homeowners paying their home loan with CPF can pay the Home Protection Scheme (HPS) premium (for HDB flats only) with their CPF savings.

Please note that stamp duty, legal fees, Home Protection Scheme (HPS) fees and other administrative charges are usually paid upfront and reimbursed later by CPF Board for resale properties. So, you will have to set aside cash for this before you receive the reimbursement.

Did You Know? According to CPF Board, around 800,000 homeowners actively use their CPF funds to pay off their home loans in Singapore each year.

How much CPF can be used for a HDB or condo downpayment and monthly installments?

The amount of CPF OA one can use for their housing depends on the type of housing loan and property purchased. For instance, if you buy a new HDB flat (BTO) with a HDB loan, there is no limit to how much CPF savings you can use. If you are taking a bank loan for a condo, the limit is 120% of the property valuation.

A portion of your home’s downpayment may still be paid in cash

Depending on the type of house your purchase and the home loan you take, you may still need to fork out some cash to pay the downpayment of your home.

Type of property purchased	Type of loan	Payment distribution
HDB flat	HDB loan	15% downpayment, can be fully paid with CPF
HDB flat	75% Bank loan	25% downpayment, up to 20% in CPF and a minimum of 5% in cash
Private property	75% Bank loan	25% downpayment, up to 20% in CPF and a minimum of 5% in cash

In other words, you can use CPF to pay the bigger portion of the downpayment when taking up a bank loan, but still, some part (at least 5%) needs to be paid in cash.

CPF can be used up to the Withdrawal Limit (WL)

There is a limit to how much CPF money one can use for purchasing private property. One can use up to 120% of the Valuation Limit (VL) of the property when taking up a bank loan. You will need to service the remaining mortgage loan in cash.

Please note that there are two types of limits that affect your CPF usage for property purchase:

First, Valuation Limit (VL) indicates the purchase price or valuation of the property at the time of purchase, whichever is lower.

Second is the Withdrawal Limit (WL) – the maximum CPF that can be used to buy a property. Right now, it is capped at 120% of the Valuation Limit.

The Valuation Limit mainly decides what your CPF housing withdrawal limit will be.

The amount of CPF OA one can use for their housing depends on the type of housing loan and property purchased. For instance, if you buy a new HDB flat (BTO) with an HDB loan, there is no limit to how much CPF savings you can use. If you are taking a bank loan, the limit is 120% of the property valuation.

Type of loan	Type of property	Withdrawal limit	Additional req.
HDB loan	HDB BTO flat	No limit	N.A.
HDB loan	HDB resale flat	Valuation Limit (VL)	Can withdraw above VL up to loan amount if CPF BRS is met
Bank loan	BTO flat Resale flat Private property	Valuation limit + Withdrawal limit (120% of VL)	Can withdraw above VL up to WL if CPF BRS is met

You can retain $20,000 in your OA

The CPF Board allows you to retain up to $20,000 in your OA if you take an HDB loan. The amount will work as a safety buffer to deal with unforeseen circumstances like job loss, bad health or inability to work and also earn risk-free interest. This reserved amount (not necessarily the full $20,000) can be used for unexpected life situations to pay your housing loan repayments for at least the next six months.

Homebuyers taking a bank loan can choose to preserve any amount in their OA savings. Although not compulsory, we still recommend retaining at least $20,000 for peace of mind.

Advantages of using CPF for housing loan installments

1. Enjoy higher liquidity with more cash on hand for other expenses

When homeowners pay their home loans with CPF, they can keep a larger portion of their salaries for other purposes. For example, when you use a 20% CPF contribution from your salary for home loan repayment, you are still left with 80% of your salary for other expenses.

It also gives you more flexibility to spend your cash in any manner, including renovation, education, better furnishings, staycations/holidays, groceries and medical emergencies.

Conversely, when you use cash for home loan repayment, which is 20% of your monthly salary, you would still need to contribute 20% of your salary to CPF. This means you are left with less money (only 60% of your salary) to spend on other household necessities.

Having more liquid cash on hand from using CPF for home loans will mean having more disposable income and more opportunities for investments. You can invest in different instruments, such as REITS, stocks, forex, cryptocurrency, etc., that may provide higher potential returns. You can pay off part of your monthly repayments with the profits gained from these investments.

2. Estimate your housing loan expenditure regardless of the market conditions

With the fixed HDB loan interest rate, homeowners are able to better plan their home expenses.

Unlike the fixed interest rates offered by banks, which keep deviating year-on-year, the HDB loan interest rate has been fixed at 2.6% for the past few years and will likely remain the same moving forward until future revisions to the CPF interest rate.

Therefore, hypothetically considering the HDB loans to be more stable, homebuyers can calculate their housing expenditure using a fixed 2.6% interest rate – disregarding the market volatility.

3. Use CPF for paying their home loan during their retirement years instead of personal savings

Once you reach the legal age (55 years) to start receiving your CPF payouts, you can continue paying for your home loan using CPF if you want. By doing so, you will not need to fork out your hard cash to pay your housing loan.

Upon reaching the withdrawal age of 55 years, your CPF payouts will come primarily from CPF RA (Retirement Account), which is made up of funds in your CPF SA (Special Account), followed by the CPF OA until it reaches the basic retirement sum.

Your home loan repayments can be made from the remaining amount in your CPF Ordinary Account. After the age of 55 years, you can also pay using cash for your HDB housing loan.

Please note that if you continue to work full-time even after 55, your CPF contributions will continue to go into your OA, SA and Medisave account.

Disadvantages of using CPF for housing loan instalments

There are certain consequences of using CPF to pay for your housing loan.

1. Less CPF affects your future CPF retirement savings and payouts

For individuals who use only CPF to save for retirement or believe in the 1M65 movement, using cash for paying off a home loan is a smart decision. It is because using CPF for a housing loan will deplete the compounding power of your CPF funds.

If you are not looking at alternative retirement savings plans other than CPF, using cash to pay your home loan is a good option.

In a low-interest rate environment, it is hard to find a risk-free investment that yields higher returns than CPF OA’s 2.5%. Only if you are actively investing in alternative instruments that can give you higher returns than 2.5% at an acceptable risk level should you consider taking out money from your CPF funds.

2. Refund the sum used from CPF with accrued interest upon the sale of the property

CPF homeowners in Singapore must refund the full amount of CPF monies used to buy a property along with accrued interest (currently at 2.5% a year) that they would have earned if those funds were held in their CPF account.

This means, the more you withdraw from your CPF savings and the longer the money is out of the account, the more you will need to fork out to replenish your CPF OA in the future if and when you sell the property. The refund can be used for your next property purchase or set aside for your retirement needs.

The accrued interest on CPF funds as well as on a bank or HDB loan – especially in an increasing mortgage rate environment – can often accumulate rather quickly.

Your home sale proceeds would first cover your outstanding home loan, followed by the CPF refund used for the purchase.

If the sale proceeds are insufficient to fully refund the used CPF OA funds and the accrued interest, this is often dubbed as a “negative cash sale”. So, keep track of the principal amount you took from your OA plus the accrued interest.

If you sell below the market value of a property in a negative sale, you will have to top-up the difference in the CPF refund of the principal amount and accrued interest in cash. This is paid out of your own pocket if you sell the property at a loss.

How to adjust your CPF payments for your housing loan?

At times, you may need to vary the amount of CPF funds used for home loan repayment.

If the property is financed using a bank loan, submit an online form on CPF’s website for HDB flats or private property. If the flat is financed using an HDB loan, submit a form at any HDB Branch Office.

Follow the below steps to make changes to your CPF payments for your home loans.

Step 1: Log in to your CPF personal page

Select the property type here and log in with Singpass

Step 2: Follow the on-screen prompts

For HDB flat: adjust your CPF deductions at the HDB website. Click the appropriate link to get to that page and submit the required changes.

For private property: follow the on-screen prompts for further instructions and make your changes as required.

Step 2: Confirm your changes and submit

Confirm and submit all changes once you have made the required adjustments. Go through the terms and conditions. Save or take a print for records.

Final Thoughts

Paying your housing loan with your CPF funds won’t require forking money out of your pocket, but it does result in a hefty accrued interest you will have to pay back later.

At Dollarback Mortgage, we ensure that you practice financial prudence before making any big decisions regarding your money. Our team of talented mortgage consultants give you the best and most realistic advice on what portion of CPF and cash you should use to repay your home loan, depending on your financial health.