Why you should use cash and NOT CPF to buy your flat or condo
Updated: Aug 18
It is very common to see Singapore citizens using their CPF savings as much as possible, in whatever ways they can, especially when buying a condo or HDB flat. Even though there is no right or wrong to this approach, question is, should you be using your CPF to pay off your home mortgage?
Before we explore that question, let's address the most common question most of us have, "What can we use our CPF savings for?"
Well, apart from selected government-approved insurance and investment schemes, your CPF OA (Ordinary Account) can be tapped to pay for other related fees incurred when buying a residential property, such as stamp duty on mortgage, stamp duty on Option to Purchase (OTP), Additional Buyer's Stamp Duty (ABSD), conveyancing legal fees, caveat registration fees, title search fees and the Home Protection Scheme (HPS) insurance.
So, now that we know what we can pay for using our CPF OA, let's explore our options as to whether it is advisable to pay for our HDB flat or condo using CPF.
Benefits of Paying with cash
More savings for your retirement.
When you pay your home mortgage with CPF, you tend to lose out on a larger retirement fund for your future. So, instead of paying your home mortgage using your CPF OA and incurring accrued interest while at it, it is wiser to transfer that amount to your CPF SA (Special Account) instead. (Just take note that this is an IRREVERSIBLE move).
Although your SA can only be used in your old age, it provides you with a high-interest rate of 4% per annum (as of 4th May 2021). On top of that, the government also pays an extra interest on the first $60,000 of your combined balance (capped at $20,000 for OA).
If you choose to do this, you can easily fulfil the Basic Retirement Sum for your Retirement Account (RA) without having to top up. So, to achieve this worry-free retirement, you just need to be more frugal so that you can pay your mortgage with cash.
Lower chances of missed savings
If you pay your home mortgage with cash, you'll be in better control of your finances as you are aware of how much goes out to the repayment of your home loan. Especially if you have taken a Bank Loan. Interest rates are not stagnant throughout your loan tenure, so you have to be diligent and refinance so as to enjoy better rates, therefore, higher savings.
So, if you have opted for an auto-payment via your CPF OA, chances are, you might miss out on this opportunity to refinance as you're not aware of the amount that you've been paying every month. (Unless you diligently check every month, then it is ok).
If you are well aware of your financial portfolio and have investments that reap higher returns (more than 4% per annum), then it is fine for you to use their CPF OA to pay for your mortgage without worry. Basically, just be aware of the opportunity costs of using your CPF such as sacrificing the risk-free CPF interest rates and the need to return the accrued interest to your CPF account when you dispose of the property.
All views expressed on this site are my own and do not represent the opinions of any entity whatsoever with which I have been, and now, or will be affiliated. The information contained in this website is for general guidance on matters of interest only. The application and impact of laws can vary widely based on the specific facts involved. Given the changing nature of laws, rules and regulations, there may be delays, omissions or inaccuracies in information contained in this site.