Purchasing a property is a hefty responsibility and needs careful planning of your resources.
It is expensive to own a home in Singapore, but thankfully, you can use the savings in your CPF Ordinary Account (OA) to pay for your property.
However, you should note that while you can use your CPF funds, you have to pay back the money and its accrued interest when you sell your property.
You can also start paying back what you owe before then. This article will guide you on how to pay back CPF housing loan if you have already used these funds to purchase a home and want to settle your debts when you have some spare cash.
As mentioned, you can use your CPF savings for a housing downpayment or monthly installments.
However, while it is technically your money, you still owe that money to your CPF, and you’re required to pay it back. A CPF housing refund allows you to pay back the money you owe to your CPF account once you sell your home.
This amount you owe is not just the principal. You also owe interest, which is compounded at 2.5% per annum until you repay the CPF funds you used for your housing.
To know how to pay back CPF housing loan, you can log in to your CPF Portal to see how much principal you owe, plus the accrued interest under the Home Ownership dashboard.
If took a housing loan with HDB, you’re also required to repay this amount to your CPF OA. Housing grants are mandated to be paid to your CPF, so if you have used this money to fund your housing, you have to refund it – plus the interest.
This means that once you have sold your home, and have received the sales proceeds from the buyer, you have to make a full refund (principal and CPF accrued interest) to your account.
However, if you’re wondering how to pay back CPF housing loan, there is another way to do it – through a voluntary CPF housing refund.
A voluntary CPF housing refund allows you to repay the CPF savings you used for housing without waiting to sell your home.
In other words, while you still own your home, you can still make voluntary refunds to your CPF account.
Doing so has tons of benefits, which we will look at in detail below.
Here are some reasons why you should consider making a voluntary refund.
As mentioned, the interest on your CPF withdrawal for housing is compounded at 2.5% per annum until you make the refund – which is higher than what banks would charge for housing loans.
This means the more you delay paying your CPF housing loan, the more interest you accrue that you will eventually have to pay.
However, this also means that when your money is in your CPF, you earn a 2.5% interest rate paid to you by the government. This rate is higher for your Special Account, MediSave account and Retirement Account.
When you sell your property, you’re required to repay your CPF after settling your existing home loan, if any.
For most people, once they sell a home, they are likely going to purchase a new home. The downpayment for your new home is usually financed from the sales proceeds of your old home.
But don’t forget – you also have to pay your CPF housing loan back.
This can be pretty stressful as you have to take out an additional loan to fund your downpayment.
If you pay back your CPF housing loan voluntarily, you can be certain of more cash after you get your sales proceeds, which can go into financing your new home.
In addition, if your old property sells for less than you anticipated and you need funds, you can withdraw again from your CPF to fund your new property – especially if you’re below 55 years old.
This is because you can still withdraw from your CPF OA once you make your refund.
Now that you know more about how to pay back housing loan, you are probably wondering how much of a refund you can make. This is especially if you have daily expenses and outstanding loans to worry about.
When it comes to CPF housing refunds, you can make refunds capped at the principal withdrawn plus accrued interest.
Note that the earlier you make your repayments, the less you will be required to refund when you sell or transfer your property. The mandatory refund amount includes the funds used to pay for the property and any interest you would have earned if the funds had remained in your CPF account.
You can choose to pay your voluntary housing refund in a lump sum. Or you can pay it off monthly, or whenever you have spare funds available.
While there are strong benefits to paying back your CPF housing loan, it might not be suitable for everyone.
If you have spare cash, it’s recommended you actually pay back your housing loan as the interest you accrue on it may be higher than that of banks.
But if any of the following situations apply to you, a voluntary refund might not be suitable.
If you have insufficient funds after meeting your daily expenses and other loans, it may be unwise to refund your CPF housing loan at this point.
A voluntary refund is a better option for those who have extra cash on hand or are saving towards the refund.
When you make the normal voluntary CPF contributions, you qualify for task relief. However, a CPF voluntary housing refund doesn’t qualify you for tax relief.
If you’re looking to enjoy some tax relief, a voluntary housing refund might not be the best option.
If you don’t wish to sell your home and want to leave it as an inheritance for your children for instance, there may be no need for an immediate refund to your CPF account.
Let’s say you want to make investments with the cash you have on hand, and anticipate the returns from your investment to be higher than the 2.5% interest rate you will get. In that case, there may be no urgency to refund your CPF housing loan immediately.
Once you turn 55, there is a minimum Basic Retirement Sum that you should have in your account. The amount increases annually in tandem with inflation and the cost of living.
When you are above 55 years of age, you can still make a voluntary housing refund. Anyone can make the refund anytime so long as they are still the property owners.
However, there is a notable difference. When you make the refund, the refunded funds will first be used to meet your group’s Full Retirement Sum (FRS) to assist you in achieving your retirement needs. The FRS would offer you monthly payouts during your retirement.
Any other monies you receive after achieving the FRS in your Retirement Account will stay in your CPF OA or SA.
If you’re considering how to pay CPF housing loan voluntarily, you can do easily in these steps:
If you’re using the CPF app, follow these steps:
Keep in mind if you have a withdrawal limit set to your PayNow or eNETS, you won’t be able to make payments above that amount. To make higher payments, you’ll have to increase your limit.
Refunds made through OCBC PayAnyone or PayNow using a QR code are immediately visible in your transaction history.
By the next working day of the payment date, the eNETS refunds made will appear in your transaction history.
So you have a good idea of how to pay back CPF housing loan, as well as the pros and cons of doing so. Now, you can decide if it’s a good option for you based on your circumstances.
There is always a way to repay your CPF or determine the right time to sell your property. Before deciding anything, it is worth trying to understand the situation you’re about to enter and its potential disadvantages.
If you plan carefully, making voluntary housing refunds regularly will give you optimum results when you finally sell your home.
Contact CreditMaster to get help with your financial obligations, as we specialise in handling your debts and helping you make an informed decision.
We have been in the business for a long time, so you can be assured of our professionalism.
Contact us today to speak to one of our loan specialists, or apply for a loan now.