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Financing Residential Property With CPF

Singapore property price as compared to other properties around the world is one of the most expensive. The government introduced ways to make housing more affordable and one way is by using CPF to pay for part of the property or monthly mortgage instalment. Owners do not have to come up with as much cash as before. Even for monthly loan repayment, it is much lesser if CPF is used. Many owners are wondering if they should really take out the money in CPF or keep it in their CPF account to accumulate interest. I will be sharing with you how to decide if you should use CPF for your property. This article will be geared towards private property owners rather than HDB owners but the concept is similar.

How Much CPF Can You Use?

Property Downpayment for CPF

Private Property
Outstanding Property Loan Loan Term ≤ 30 Years, (Loan Term + Age) ≤ 65 Loan Term > 30 Years, (Loan Term + Age) > 65
0 80% LTV, 5% Strictly Cash, 15% Cash/CPF 60% LTV, 10% Strictly Cash, 30% Cash/CPF
1 50% LTV, 25% Strictly Cash, 25% Cash/CPF 30% LTV, 25% Strictly Cash, 45% Cash/CPF
2 or more 40% LTV, 25% Strictly Cash, 35% Cash/CPF 20% LTV, 25% Strictly Cash, 55% Cash/CPF

Source: MoneySense.gov.sg Buying a home

The table’s first column shows outstanding property loan. Ask yourself how many outstanding loans do you have at the moment? If you have a property with a loan that is not fully paid, it would be counted as 1 outstanding property loan. However, if you are going to sell your current property and buy another, the bank would take it that you have 0 outstanding property loan.

The table’s second column is for owners who are getting a loan with a loan term less than or equals to 30 years. You will also fall into this category if your (age + loan term) is lesser or equals to 65 years. These two conditions must satisfy for you to be in this category. If you have a loan of 20 years, but the (loan term + your age) is 69 years, you will fall in the table’s third column.

The table’s third column is for owners who are getting a loan with a loan term longer than 30 years. If your (loan term + age) is more than 65 you will fall into this category as well. Note that the maximum loan term is 35 years and the maximum (loan term + age) is 75 years.

Strictly cash means that out of the total amount that certain percentage needs to be cash. The remainder can be either funded through loan or CPF.

Amount Of CPF Usable For Mortgage Payment

Employee’s Age(Years) Allocation Rates from 1 Jan 2016 (for monthly wages ≥ $750)
Ordinary Account (% of wage) Special Account (% of wage) Medisave Account (% of wage)
35 and below 23 6 8
Above 35 to 45 21 7 9
Above 45 to 50 19 8 10
Above 50 to 55 15 11.5 10.5
Above 55 to 60 12 3.5 10.5
Above 60 to 65 3.5 2.5 10.5
Above 65 1 1 10.5
Maximum salary taken into consideration is $6,000

Source: CPF Contribution and Allocation Rates

You will only be able to use your Ordinary Account(OA) for loan repayment. Note that the maximum salary taken into consideration is $6,000, this means that if you are 34 years old earning $10,000 only $6,000 will be taken into consideration. Which means your monthly contribution into OA is $1,380.

Interest Rate That CPF is Paying

OA pays an interest of 2.5% per annum while Special Account(SA), Medisave Account(MA) and Retirement Account(RA) pay an interest of 4%. An additional 1% interest can be earned for the first $60,000 of CPF balance with $20,000 from OA and $40,000 from other accounts. We will not take into account the additional 1% interest in this article.

When Should You NOT USE CPF For Property?

If you are someone who has spare cash but do not know what to do with those spare cash. You should use your spare cash to pay for the property rather than using your CPF to pay for your property. This is because CPF gives you an interest of 2.5% p.a. When you use CPF rather than your own cash, it means that you lose out on the 2.5% interest that you could be earning.

Furthermore, with current low mortgage interest rates. You are actually saving on interest! CPF is giving you a 2.5% interest rate while the bank is charging you a 2% interest. You are actually using the interest rates to your advantage.

CPF Accrued Interest Aka CPF Loan

CPF requires you to pay back whatever interest that you should have been earning when you took out your CPF. This means that you do not earn the 2.5% interest and at the same time you need to fork out 2.5% interest from your earnings to put it back into CPF account. It is true that ultimately CPF is still your money but you have already lost out on the 2.5% interest that the government should have paid you. If you want to check your CPF accrued interest you can go to the CPF website. Login with your SingPass and click on my cpf > go to My Statement> check under Section C.

When Should You USE CPF For Property?

Very simple, if your investment can give you a better return than 2.5%, you should use your CPF money. In this way, you can invest your cash to give you a much better return. If you have calculated that this investment property is able to give you a return much higher than 2.5%, you can safely use your CPF money. If you have limited cash on hand, the only way is to use CPF to fund for your property.

Conclusion

The use of CPF is a controversial topic, where individuals need to weight the importance of different factors to make a right decision. Usually, for homeowners who have spare cash and do not do investments, I would recommend using cash to pay for your property. Keep the CPF and let it accumulate interest. Let’s say one day you do not have enough cash, you can always switch to CPF for your monthly payment. Your CPF can act as a safety net for you.

For investors, view using CPF as per taking a loan from CPF with interest of 2.5%. It would be okay to use your CPF if your investment can get a better return of more than 2.5%. Cash is also much more flexible as compare to CPF money, some individuals may be more comfortable having more money by their side or are in need of cash for personal reasons.

Singapore real estate quiz

Should You Use CPF to Pay Your Loan Quiz

Start this quiz whenever you are confident!

What is the maximum CPF can you use if you have 0 outstanding property loan, your loan term is 20 years and you are currently 30 years old?
15%
20%
5%
40%

Correct!

Wrong!

How much amount of wages will go to your OA if you are 50 years old?
21%
19%
15%
12%

Correct!

Wrong!

What is the interest rate that CPF board is paying for your OA?
2.5%
4%
3%
4.5%

Correct!

Wrong!

I am someone who has cash but does not do investment, financially, should I use my CPF for my property?
Yes
No

Correct!

Wrong!

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