6 Misconceptions About Using Your CPF For Housing

Do you fully understand how CPF can be used to offset a portion of your flat purchase? We debunk some of the common myths regarding CPF so you’ll know exactly what to expect when you’re buying a home.

As Singaporeans, we may complain about the large proportion of our income going into our CPF accounts. But when it comes to purchasing a house, it may seem like a godsend — a large pool of funds that can be utilised instantly.

For the uninitiated, buying a property means wiping out your entire CPF funds in all of your accounts and then topping up the extra. But there are so many components of using your CPF that will make you rethink how you will be using them for the property.

For instance, does the grant money from the government need to be paid back to them? Are our CPF funds only available if we take an HDB loan? Here are some misconceptions about using CPF to finance your house that you may have mistakenly believed in, so you don’t continue spreading false news to your peers.

Myth #1 - Grant money has to be returned to the government

The old adage “there’s no free lunch in this world” may hold true, but not when it comes to housing grants.  Housing grants are given by the government to homebuyers based on their income, who they’re living with, size of home and proximity to their parents’ home.

Here are some housing grants available to homebuyers:

• Enhanced Housing Grant (EHG) — up to S$80,000
• Family Grant (FG) — up to S$50,000 for resale flats and up to S$30,000 for ECs
• Proximity Housing Grant (PHG) — up to S$30,000
• Singles Grant — up to S$25,000

Many may have the misconception that the grant money will have to be returned to the government when you sell your home, but that’s not true. You’ll just have to return the grant money back to your CPF account, on top of the accrued interest of 2.5%. This is to ensure that the grant money that you used that was credited to your CPF OA does not lose out the base interest of 2.5% p.a. if you had chosen to leave it in your OA.

Though you’ll have to “pay back” the grant money in full with the accrued interest, the money is ultimately yours to keep.

Myth #2 - I’ll have to top up the difference to CPF even if my  house was sold at a loss

We are no strangers to the fact that you’ll have to return the principal amount with the accrued interest of 2.5% back to your CPF account. This is to ensure that homebuyers don’t use it as a way to withdraw their CPF funds prematurely by buying and selling the house immediately.

But what if you had made a loss from the sale of your home compared to the price you paid? Many believe that you’ll still have to top up the difference to your CPF account with cash.

Contrary to popular belief, the government does not require you to fork out anything that is not part of the cash proceeds from your home. For example, if you bought your house at S$600,000 but sold it at S$550,000 (including the accrued interest), you’ll just have to refund the S$550,000 back to your CPF account, without having to top up the remaining S$50,000.

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Myth #3 - I can take out an HDB housing loan and leave my OA funds untouched

While you may think that you can take an HDB loan and use only cash to finance your loan, you cannot leave your OA funds untouched.

Homebuyers have the option of retaining up to S$20,000 of their available OA funds, and the remaining balance has to be used to pay for the flat purchase before taking up an HDB loan.

CPF Board recommends setting aside the full S$20,000 in your OA. This is so that if any unforeseen financial issues arise, you still have a cushion to fall back on to pay your mortgage so you don’t incur late payment penalties.

Myth #4 - I can wipe out my entire OA to pay for my house

This may seem like it clashes with the above point, but hear us out. Yes, you can wipe out your OA to pay for your house, but it also depends on the house that you’re purchasing.

From 10 May 2019 onwards, the total amount of CPF savings from your OA that can be used to pay for your flat purchase or monthly mortgage will depend on the extent of the remaining lease of the flat that can cover the youngest buyer up to the age of 95. 

Is it a mouthful to digest? You can refer to the table below or HDB’s website.

In most cases, especially if you’re buying a BTO flat or a resale flat that has just reached its Minimum Occupation Period (MOP), you will most likely be able to use all your OA funds to finance your home purchase. However, if there are only a few years left on the lease, you’ll have to check the guidelines to determine how much OA funds you can use.

Myth #5 - I can only use CPF for HDB loans

This is also a widely-believed myth that you should take note of. Many think that CPF can only be used to repay the monthly HDB Concessionary Loans. However, there is no such restriction on bank loans. You can also use your CPF funds to repay your bank loan for your HDB or private property.

However, do take note of the difference in Loan-To-Value (LTV) percentage for HDB and bank loans. You can take up to 85% of the purchase price for HDB loans while you only can take up to 75% for bank loans, meaning you’ll have to foot a higher down payment for a bank vs an HDB loan.

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Myth #6 - I can’t pay for my home loan with my CPF when I reach 55 

When you reach 55, the Retirement Account will be created for you automatically, Your savings from your SA will be transferred first, followed by the savings from your OA to meet the Retirement Sum. Any balance in your OA can be used for your home.

As long as you’re working and earning an income, you will still be able to use your CPF OA savings to finance your housing loan, regardless of whether you meet the applicable Retirement Sum or not. But do note that using your CPF OA contributions will cause your retirement payouts to be lower.

You can apply to reserve your OA savings for your house before it is transferred to your Retirement Account once you hit 55 years old. However, CPF Board will transfer any remaining balance of your reserved OA savings to your RA if:

• No payments are made for your property for six months
• You have not started using your CPF savings for your house for five years
• Your property is sold
• When the purchase of the property is aborted

There may be some CPF housing limits that may still apply, to prevent homeowners from overspending on housing loan repayments at the expense of their retirement savings.

Read these next:
A Complete Guide To CPF LIFE: Facts & Myths
A Complete Guide To CPF In Singapore (2022)
HDB Loan Vs Bank Loan: Which One Should You Go For?
What You Need To Know About The New Housing Loan Rules
How Much Can You Borrow For Your Home Loan?