When buying a home in Singapore, you are likely to need a loan to finance the purchase. This can be from a bank or HDB.
However, both options do not always offer the entire purchase amount. Banks, for instance, offer up to 75% of the purchase price. You’ll need to pay the remaining 25% with cash or your CPF Ordinary Account (OA) savings.
But bearing in mind that CPF savings are meant for retirement, using these savings for your home purchase means you are borrowing from your retirement funds. As such, the borrowed amount would need to be refunded.
Here, we’ll discuss more on CPF and how to pay back CPF housing loan.
What Is CPF?
The Central Provident Fund (CPF) is a mandatory social security savings scheme in Singapore for retirement, healthcare, and housing needs.
It is funded from contributions made by you and your employer. These contributions are channelled to three accounts: the OA, MediSave Account, and Special Account.
For lower-earning and senior citizen contributors, the Singapore government supplements their savings through the Workfare scheme and top-ups to their MediSave accounts, respectively.
Once you’re 55 years old, the funds in your CPF OA and Special Account are transferred to a new Retirement Account (RA) from which you can start withdrawing to meet your basic living needs.
If you were born after 1953, you can receive the funds as monthly payouts, but only if you meet the payout eligibility age of 65 years.
Using Your CPF Savings To Buy Property
As mentioned, you can use your CPF OA savings to pay for the downpayment of your new home, which may be a HDB flat or private residential property.
The funds can also be used to finance the housing loan taken, the stamp and legal fees, property purchase, Home Protection Scheme premiums (for HDB flats only), the purchase of vacant land (for private properties only), and the loan taken for the construction of your home.
In addition, if you set up an emergency fund with CPF, you can use it to pay for the monthly housing installments in case of an emergency.
However, there’s a limit to the amount of CPF OA savings you can use. This is because once you use these funds, your initial retirement funds will be reduced, which is why you need to refund your CPF housing loan used.
This refund will be in terms of the:
- Principal amount used for downpayment
- Monthly installments used for your mortgage repayment
- Accrued interest
When it comes to accrued interest, when you borrow from your CPF savings, no interest will be charged.
However, the funds you save in a CPF account earn an interest of 2.5% per annum. When you make a refund, you will need to include the interest the borrowed funds would have earned had you not borrowed them in the first place.
This ensures that you have more for your retirement.
Why You Should Make A Voluntary Refund
Here are two reasons you should make a CPF voluntary housing refund:
To Finance The Purchase Of Your Next Home
Let’s treat your CPF funds like a normal loan. As with any loan, making regular payments lowers the total amount you owe the lender, including interest.
Similarly, when you repay CPF used for housing, you will restock your account and have more ready funds when you eventually sell your home and buy a new one. The ready funds will help you finance the purchase of this new home.
In other words, if you do not make a refund, you will not have enough funds to either purchase, renovate, or finance costs such as the stamp duty of purchasing a property.
To Prevent Interests From Accumulating
The CPF interest rate is 2.5% per annum. When you borrow from your CPF funds, you’ll have to pay the interest when you make a CPF housing refund after you turn 55. As you can imagine, this interest can accumulate significantly over time.
For example, let’s say you want to purchase a home worth $380,000. You borrow a loan from the bank and get 75% of the purchase price leaving you with a deficit of 25%.
Of this 25%, 5% is the downpayment, which is equal to $19,000. When the downpayment is added to the related fee such as stamp duty and legal fees worth $10,000, the total adds up to $29,000, which can be settled with CPF OA savings.
With an interest rate of 2.5% per annum, in three years, this amount ($29,000) will have accrued an interest of ($29,000 x 2.5%) /100% = $(725) x 3, which is $2,175.
Imagine how much interest you’ll have accumulated in five years before you can sell the property or at the end of a 25-year loan tenure.
Paying back the accrued interest plus the principal amount and monthly installment can make a sizeable dent in your finances.
Even if you sell the property after the Minimum Occupation Period (MOP), the amount you’d be left with after paying the loan would not be substantial to help you meet other financial needs.
But you can prevent this from happening by repaying your CPF used for housing. This will lower the amount plus interest owed significantly.
In addition, the funds in your CPF OA have a chance to earn enough interest to help you purchase your new home in future. We will discuss how to pay back CPF accrued interest later on.
Nevertheless, when you make a voluntary refund when you are 55 years old or older, the amount will be used to meet the Full Retirement Sum (FRS) for your retirement needs, which you can get as payouts. Any amount refunded after you satisfy the FRS will be in your Special Account or OA.
How Much Voluntary Housing Refund To Make
You may return any amount on your CPF housing refund up to the full principal sum, including the housing grant you withdrew for the property and any accrued interest. The housing grant reimbursement will be transferred to your OA.
However, if the total amount of your housing grant exceeds $30,000, some of it may be credited to your Special and MediSave Accounts. You can then use these funds for permissible purposes as directed by the CPF-approved programmes.
You can also check the amount you can refund through your Homeownership dashboard on the CPF website.
If you are in urgent need of financial assistance, Credit 21 is here to help. We are one of Singapore’s best licensed money lenders. We offer customised loan packages and flexible terms that fit your financial situation.
How Much CPF Housing Refund Can You Make
If you made a voluntary refund and are wondering whether you still need to make a CPF refund after selling the property, refer to these two scenarios:
- Suppose, while making your voluntary refund, you refunded your entire CPF savings, housing grant, and accrued interest withdrawn for the property. In that case, no more refund will be needed once you sell the property.
- If you made a partial refund of the CPF savings plus interest during the voluntary refund, then you’ll need to settle the balance plus interest upon the sale of your property.
The sales proceeds from your property are used to settle the outstanding housing loan, CPF refund, and other sale expenses such as the stamp duty.
For more information, click here.
How To Pay Back CPF Housing Loan
There are two ways to repay your CPF housing loan and the accrued interest:
Online Through The CPF Website
Here, you’ll need your banking app, payment app, or authentication token. Then follow these steps:
- Check out the disclaimer and click the checkbox if you agree.
- Press “Start”.
- Sign in with your Singpass.
- Pick a mode of payment.
- Choose a property and specify a refund amount.
- Press “Next”.
- Go over the statement, check the box, and select “Confirm” if you agree.
- Make the refund.
Remember that you’ll need to fill in all the fields in this form unless stated otherwise.
Through Your CPF Mobile App
- Use your Singpass to access the CPF mobile app.
- Select “Services”.
- Select “Voluntary Housing Refund”.
- Choose the property, enter a return amount, and then press “Next”.
- Read the contract and click the checkbox if you agree.
- Select “Next”.
- Choose a payment method.
- Make the refund.
The refunded funds will be applied to the principal amount withdrawn for your property and any accumulated interest.
How To View Your CPF Voluntary Housing Refund Application Status
You can track the progress of your online application and view the funds credited to your account through “My Activities” on your CPF profile.
You will also be notified via email, SMS, or WhatsApp once your application has been processed.
You can also view your transaction history for the last 15 months by logging in to myCPF digital services or your CPF mobile app using your Singpass.
Refund Your CPF Housing Loan To Retire With More
Retirement savings ensure you live a comfortable life by catering for your housing, medical care, and other basic living needs. This is why you should ensure you have more funds when you retire.
Refunding your CPF funds can reduce your debt burden, finance a housing purchase, and allow your funds to grow accrued interest.
Now that we have shown you how to pay back CPF housing loan, you can see making a refund is pretty easy and will only take a few minutes. So don’t wait till the refund requirements become unmanageable – make a refund early.
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