Know Your CPF Withdrawal Limit Before You Wreck Your Mortgage

If you don't have enough money when you hit the CPF withdrawal limit, you could end up taking expensive bridging loans to cover your mortgage.

The CPF makes mortgage repayments easy, and many Singaporeans may never pay anything in cash for their flats. However, this doesn’t mean you don’t need to track the cost. If you don’t know how much you’re paying, you could run out of money in your CPF. Even if you have enough, you need to be aware of your withdrawal limit.

Do You Know How Much CPF Money You’ve Spent On Your Flat?

When you take an HDB loan, up to 90 per cent of the flat’s price is loaned to you. This may be more or less, depending on factors like your income and credit score. The remaining 10 per cent can come from your CPF, in cash, or a combination thereof.

So on a S$350,000 flat, you would need at least S$35,000 that can be paid via cash, CPF, or a combination of the two.

Unsurprisingly, most people choose to pay the whole amount with their CPF.

Next, there is the issue of conveyancing fees (legal paperwork). This varies based on the price of your flat. You can check the fees on the HDB website, but for a $350,000 flat, the fee will be around $1,200. This can be paid via the CPF, and since most Singaporeans don’t anticipate these fees, that’s where it will come from.

This means S$36,200 is taken from your CPF Ordinary Account (OA) as soon as you’ve bought the flat.

After the purchase, you need to pay for the mortgage. At 2.6 per cent for 25 years, this is S$1,430 subtracted from your OA each month. That’s about S$429,000 over 25 years or $114,000 over the original loan amount.

In brief, buying a flat can eliminate a huge portion of your CPF savings. And when we do not pay for the flat in cash, it’s easy to forget about how much we’re spending. This is where the CPF withdrawal limit becomes important.

What is the CPF Withdrawal Limit?

First, some good news for you. If you bought a Built to Order (BTO) flat, this doesn’t apply to you. You can go right on using your CPF until it runs out, at which point you will have to pay in cash.

But if you bought a Design, Build, and Sell Scheme (DBSS) flat, or a resale flat, there are limits to how much of your CPF you can spend on housing.

If you are using an HDB loan, you can only use an amount up to the Valuation Limit (VL). The VL is the lower of the official valuation, or the purchase price, at the time the property was bought.

For example, say you purchase a resale flat at S$500,000. The valuation is S$470,000 (it is not uncommon to pay above the valuation, especially for resale flats in mature districts). This means that, once you have spent S$470,000 from your CPF, you will have to take over payments in cash unless you meet certain requirements*.

If you use a bank loan, the withdrawal limit is 120 per cent of your property valuation. So if your property costs S$500,000, you will be able to withdraw up to a maximum of S$600,000.

*An exception can be made if you are able to meet the basic retirement sum. See the CPF website for more details.

What Does This Mean For You?

Most people will not hit the withdrawal limit. However, it is possible to hit this limit, such as if you pay a high Cash Over Valuation (COV). Remember that the limit is based on the lower of the purchase price or valuation - so if you pay for S$500,000 for a S$450,000 flat, your limit is S$450,000.

In addition, don’t forget the interest rate on your mortgage. This is 2.6 per cent for HDB Concessionary Loans, and around 1.3 per cent for bank loans (as of September 2016). Note that bank loan rates can fluctuate.

With a combination of COV and interest rates, it is sometimes possible to hit the withdrawal limits.

You need to be ready when this happens. If you do not have sufficient savings when you hit the limit, you could end up taking expensive bridging loans to cover your mortgage. Remember that, even if you have money left in your CPF, you may not be allowed to use it when you’ve hit the withdrawal limit.

Even if you’ve automated your home loan repayments, it’s important to track your CPF expenses. This is not just to know when you’re hitting the withdrawal limit, but also in case your mortgage is too expensive - it is possible to refinance your home loan into a cheaper one. Speak to a mortgage broker for more details; this is often free.

In the off chance that you must take a loan, because you’ve hit the withdrawal limit, be sure to compare to find the cheapest options. You can find the lowest personal loan interest rates on SingSaver.com.sg.

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