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Voluntary CPF Housing Refund: Is It Worthwhile?

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The rising financial literacy among Singaporeans has equipped them with the knowledge to make well-informed decisions that align with their financial objectives. As CPF members gain a deeper understanding of the intricacies of their CPF accounts, they are increasingly exploring advanced strategies such as a voluntary CPF housing refund.

Some view voluntary housing refunds as a strategic tool to increase liquidity and fortify their financial positions regardless of economic uncertainties.

This financial strategy allows homeowners to unlock funds tied up in their CPF accounts, but is it worthwhile? In this article, we’ll delve into the intricacies of the Voluntary CPF Housing Refund, exploring its advantages and disadvantages to help you make an informed decision.

What is a Voluntary CPF Housing Refund?

Since a substantial part of your monthly salary goes to your CPF account, you may tap into your CPF Ordinary Account (OA) funds to finance your home purchase. You can use OA funds for housing-related purposes, including paying for the downpayment, stamp duties, legal fees, and monthly mortgage repayments.

But here’s a thing about using CPF monies for housing. If you choose to sell your house, you must refund all the money withdrawn from your CPF OA plus the accrued CPF interest. It is what you would have earned as interest if the money stayed in your CPF OA.

If you sell your house below its market value and the amount you have to refund is more than your sale proceeds in cash, you are responsible for paying back all the money you took out of your CPF account plus accrued interest. That means you have to top-up cash to make up for the shortfall.

However, if there is a negative cash sale and the amount you have to refund to your CPF funds is more than your sale proceeds in cash, CPF will write off the additional amount. That means you’ll not have to fork out any cash above the sales proceeds from your HDB flats. It only applies if you sell your property at market value or above.

Now, Voluntary Housing Refund is a scheme that allows you to repay the CPF savings used for home purchases in cash, even if you don’t plan to sell it right away. You can make full or partial cash refunds whenever you want, up to the total amount you originally took out for the property plus the accrued interest. The refunded amount goes back to your OA, giving you flexibility in managing your CPF savings.

In recent years, this financial strategy has gained popularity and has contributed to a noticeable surge in Singaporeans opting for voluntary CPF housing refunds. The numbers have tripled in the past year. But what drives this trend? Let’s find out.

Why should you consider making a voluntary housing refund? [The Pros]

There are many benefits of making a voluntary CPF refund while still living in your home. Let’s look at some reasons below:

#1 Reduced CPF refund obligation upon property sale

The sooner you initiate your housing refunds, the lower the amount you need to reimburse into your CPF OA upon selling or transferring your property. The mandatory refund includes the principal amount utilised for the property payment and the accrued interest.

By refunding your CPF savings, you decelerate the growth of accrued interest on the CPF amount withdrawn while also minimising financial obligations upon property transactions. This interest reduction is a strategic move to optimise your long-term savings and foster a more financially advantageous position.

#2 Boost to retirement savings

Making a voluntary CPF housing refund allows members to continue to earn interest in the CPF accounts, contributing to a large retirement nest egg. The total sum of your voluntary housing refund directly correlates with the potential expansion of your retirement savings. It can benefit those looking to maximise their retirement corpus for a more financially secure post-work life.

#3 More cash in hand for downpayment and renovation funds for your next home purchase

Initiating a voluntary housing refund to your CPF OA not only reduces your outstanding balance but also curtails the growth of accrued interest. This strategic move ensures a more substantial cash reserve when selling your home while minimising the risk of miscalculations in future property purchases.

Avoiding potential shortfalls, such as insufficient cash reserves for downpayment, cash over valuation (COV), stamp duties, or renovation costs, safeguards your seamless transition to a new home and fortifies the overall success of your relocation plan.

#4 Alternative investment opportunities

Refunded CPF funds provide greater flexibility and diversity in making investment choices outside the CPF framework. That could include ventures in financial markets, real estate, or other avenues that may offer potentially higher returns than CPF interest rates.

#5 Re-utilise CPF savings

Refunding your CPF savings into your CPF OA opens avenues for strategic financial decisions. These funds become versatile and available for reuse (subject to calculation and limits) in any CPF-approved schemes, including OA, SA, and MA.

Why should you refrain from paying back your CPF housing loan? [The Cons]

While there are certain benefits to refunding your CPF savings, it might not be the best option for everyone. Let’s discuss why a voluntary CPF housing refund may not be a good idea for some individuals:

1. Reduced liquidity

Refunding CPF funds ties up liquidity for other purposes, such as emergencies, home renovations, or investments outside the CPF framework. This lack of immediate access to funds may pose challenges in unforeseen circumstances. Additionally, you can only withdraw the money you put into your CPF when you turn 55.

2. Impact on property value

Refunding CPF funds may affect the property’s perceived value, potentially influencing its resale value. Buyers often consider the availability of CPF funds as a financing option, and a lower CPF balance could impact the property’s attractiveness in the market.

3. Complex decision-making

Deciding whether to refund CPF funds is complex and requires careful consideration of individual financial goals, risk tolerance, and investment strategies. It is advisable to seek professional financial advice to navigate the complexities and make an informed decision.

Is it mandatory to refund the housing grant when opting for a voluntary housing refund?

When buying an HDB flat, individuals may have received housing grants. These grants are directly deposited into their CPF OA and contributed to their OA funds. You’ll have to refund all the housing grants used for home purchases with any accrued interest.

However, if you’ve received housing grants exceeding $30,000, a portion may be directed to your Special Account/Retirement Account and MediSave Account.

You can utilise the savings credited to these accounts for approved purposes under various CPF schemes. It helps you to support your healthcare and retirement needs. To check the specific amounts, refer to your Homeownership Dashboard.

Let’s break down Voluntary CPF Housing Refunds with an example:

Imagine you bought a BTO flat for $400,000 and got a CPF housing grant of $25,000. To make the downpayment, you used $40,000 from your CPF OA.

If you decide to sell your house after ten years, you must return the $65,000 CPF monies plus the accrued interest for those ten years. A 2.5% compound interest adds up to $83,205.50, which eats up your cash proceeds.

However, if you decide to refund your CPF monies earlier, say in five years, the total comes to $73,541.53. While it’s still a significant amount, the difference is almost $10,000.

Moreover, you could earn an extra $10,000 in interest in those five years by refunding earlier. It is more attractive than traditional savings accounts, especially if you prefer low-risk investments.

Even if you can’t pay back the full amount, consider a partial refund. That will help you to decrease the interest you owe. So, if you sell your house later on, the amount you’ll need to give back will be less.

Making CPF housing refunds after 55

If you are 55 years old and above, the financial strategy of voluntary CPF housing refunds takes on added significance. In this scenario, any voluntary housing refunds will be first directed to your CPF Retirement Account (RA) to meet your group’s Full Retirement Sum (FRS), or $198,800 (as of 2023).

Even if you intend to pledge your property, you must keep the Basic Retirement Sum (BRS), or $99,400 (as of 2023), in your CPF RA.

This strategic move enhances retirement preparedness while ensuring consistent monthly payouts (or a reliable income) in your golden years.

Any refunds surpassing the FRS ($198,800, as of 2023) within your RA remain accessible in your CPF OA and/or SA, underscoring the multifaceted benefits of CPF housing refunds after 55.

What if you are about to turn 55?

Once you’ve secured the FRS in your Special Account, consider a strategic move: transform your cash savings, which are likely earning minimal interest in your bank account, into Special Account funds. It allows your money to potentially earn more within the CPF framework post-retirement while maintaining the flexibility of withdrawal akin to using an ATM.

By making this conversion, you optimise your financial assets for potential growth while preserving accessibility. Here is how to do that:

  • Implementing a Special Account Shielding Hack directs your voluntary housing refunds to contribute towards achieving your FRS in your Retirement Account by the age of 55.
  • Enjoy the remaining balance in your Special Account as per your needs.

How much voluntary housing refund should I make?

Now that you have explored the pros and cons of a CPF voluntary housing refund, let’s see how much voluntary housing refund you should make.

If you have used your CPF monies for home purchases, you have the flexibility to refund any amount, up to the total principal withdrawn plus any accrued interest.

Instead of searching for an online calculator to determine the total amount you have to refund, you can simply log into the CPF portal and check under the Homeownership dashboard. It shows the net amount used for home purchases and the accrued interest. Their sum is the total amount you need to refund to your CPF OA when you sell your property.

Be prepared for potential surprises when selling your home, particularly if you’ve utilised a significant portion of your CPF OA funds for downpayment and monthly home loan instalments. The amount you need to refund may catch you off guard, emphasising the importance of careful financial planning and awareness of the CPF refund obligations tied to your property.

So, the crucial question remains: how much should you refund?

The answer is straightforward – refund as much as is reasonably feasible. While there’s no minimum limit, the maximum is the total sum owed with accrued interest. However, striking the right balance is essential.

If you pay less, the compound interest might not be enticing, and if you’re over 55, the funds will be directed to your Retirement Account.

On the other hand, paying too much may leave you short of cash for essential expenses like stamp duty or downpayment when purchasing a new property. It’s about finding the optimal refund amount that aligns with your financial goals and upcoming property endeavours.

Note: After effecting a voluntary housing refund, you can continue utilising your CPF OA savings for the same property as long as there is an outstanding loan.

How can I make a voluntary CPF housing refund?

There are two ways to pay back your CPF housing loan:

1. Use myCPF digital services website

  • Open the CPF voluntary housing refund online form.
  • Read and accept the disclaimer by clicking the checkbox.
  • Click “Start” and log in using your Singpass.
  • Choose a payment method.
  • Select a property, input a refund amount, and click “Next.”
  • Read and accept the declaration by clicking the checkbox, then click “Confirm.”
  • Complete the process by making the payment.

2. Use the CPF Mobile app

  • Log in to the CPF Mobile app using your Singpass
  • Choose “Services” from the menu
  • Click on “Voluntary Housing Refund” and proceed by clicking “Continue”
  • Choose the specific property for the refund, enter the refund amount, and click “Next”
  • Review and accept the agreement, then click “Next”
  • Select your preferred payment method
  • Complete the process by making the payment

To track the progress of your voluntary housing refund application, check the My Activities section online. Once the application is successfully processed, the refunded amount will be deposited into your CPF account.

You can see the transaction details in your 15-month Transaction History through myCPF digital services or the CPF Mobile app using your Singpass. Additionally, you’ll receive an email notification after your application processing is complete.

So, should I make a voluntary CPF housing refund?

Buying a home is costly and typically involves a lot of time and effort. With careful planning, the CPF Voluntary Housing Refund can be a strategic tool to avoid costly mistakes or last-minute realisations about affordability.

This scheme also safeguards your savings for a home purchase, allowing it to grow risk-free and faster at 2.5% within your CPF OA. That leaves you with more money for your next home purchase.

You can use your OA balances for the same property even after making a voluntary housing refund. It offers a safety net in case of financial challenges and the need to reduce your outstanding home loan. Please note that using OA funds is cost-free for HDB properties. However, for private properties, legal costs may be involved.

Moreover, making a voluntary housing refund is just one aspect of optimising extra funds. You can consider repaying your home loan to lower your monthly financial commitments or explore the opportunity to invest the surplus cash for potential returns. This way, you’re making strategic financial decisions that align with your goals and provide flexibility to your homeownership journey.

Below are the considerations to help you assess whether making a voluntary CPF housing refund is the right move for you:

1. Your current financial situation: Assess your financial health, including outstanding debts, emergency fund adequacy, and short-term financial goals. Ensure that refunding CPF funds aligns with your overall financial well-being.

2. Your long-term goals: Consider your long-term financial goals, especially those related to homeownership, retirement, and wealth accumulation. Evaluate whether a Voluntary CPF Housing Refund supports these objectives.

3. Your risk tolerance: Evaluate your risk tolerance and comfort level with reduced liquidity. If you prioritise flexibility and immediate access to funds, a Voluntary CPF Housing Refund might not be the ideal choice.

Seek advice from financial professionals who can provide personalised insights based on your situation. Financial advisors or mortgage experts can help you understand the implications of a voluntary CPF housing refund and its alignment with your financial goals.

Final Thoughts

The voluntary CPF housing refund presents an intriguing financial option for homeowners in Singapore. The decision to make a voluntary CPF housing refund is multifaceted and should be part of a well-thought-out financial plan.

It is essential to weigh the pros and cons carefully. While it offers potential interest savings and increased retirement funds, it comes with the trade-offs of reduced liquidity and potential impacts on property value.

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