July 26, 2021

Categories: Finance

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Buying a home will likely be one of the biggest (and most expensive) financial decisions you make in your life. In Singapore, we are able to use our CPF savings to finance our home purchase. Before we start looking at how much you can use from your CPF, let us first understand what are the expenses or areas that it cannot be channelled towards.

Your CPF savings are not allowed to be used to pay for:

  • Purchase price that is above market valuation for resale properties;
  • Minimum downpayment in cash for taking out a bank loan;
  • Home renovation cost; and
  • Your property agent’s commission.

The amount from your CPF that can be used is also dependent on a few factors such as the duration of the remaining lease of your property, type of property you are buying, and the type of housing loan you are taking to finance the purchase1.

This brings us to the next question to consider: Should you use money from your CPF Ordinary Account to make lump sum payment for your home?

The answer is yes and no. It is definitely a viable option for people who are cash-strapped due to the expenses of immediate needs, and hence it would make sense to maximise the OA funds for their house payments. However, there is a trade-off when you utilise your CPF savings to finance your home: The lesser you have in your CPF, the lesser you have for your retirement.

With so many competitive and attractive mortgage rates out there in the market, you may want to reconsider using your CPF. Keeping your money in the OA will at least allow you to earn the base interest rate of 2.5% per annum. Those with a healthy cash flow can also consider transferring money from their Ordinary Account to the Special Account to earn additional 1.5 % interest each year. This is also an irreversible decision, so be sure to think it through carefully!

The above scenario could be one of the reasons accounting for this interesting observance. In its latest report, the CPF Board noted that the amount withdrawn from the Ordinary Account for housing continued to fall, to S$17.3 billion in 2020 from S$19.3 billion in 2018 and S$17.8 billion in 2019.2

Do keep in mind that CPF is designed as a savings scheme to fund your retirement needs. Hence, the more you use now, the less you will have left for later on. As with all important financial decisions, it would be wise to balance your current needs against future ones. Speak with an experienced mortgage specialist to see what works out best for your unique situation.

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