If you’re Singaporean or a Permanent Resident planning to buy your first house in Singapore, highly likely you may already have thoughts about using your CPF savings to pay for your house partially or in full. However before you make any decisions, it is very important that you are made aware of these tips.
- CPF Housing Grants Accepted Has To Be Returned With Accrued Interest
A misconception among first-time home buyers who is planning to use their CPF savings to buy a house in Singapore is that the CPF Housing Grants offered are given without any commitments. So the belief is that when they receive the grants, it will actually be a direct deduction off the price of the HDB flat which is not the case.
If you are eligible, have applied and have been approved to receive the grant, what actually happens is that the money will be credited into your CPF account which will be used for the house. In other words, it is money that has been taken from your CPF account which is actually meant for retirement. Thus, it has to be returned plus interest that you could have earned on your CPF had it not been used.
Does that then mean that if you do receive the grant in your CPF account, you can keep it in your account to accumulate interest and not use the money to pay for your house? The answer is an outright no. If you find yourself being confused, feel free to contact us personally so that we are able to explain to your further in detail!
- CPF Money Used To Pay For Your Flat Has To Be Returned With Accrued Interest
Many of you are aware that your CPF savings are crucial when it comes to your retirement or when you have passed away as your nominees will receive your CPF savings in cash. Thus when you use your CPF savings to pay for your house, you are actually taking out the money that could have potentially earned interest if it had not been used. To put it simply, you are borrowing money from your retirement savings to pay for your flat.
Due to this structure, if at any point you decide to sell your house, you will have to return into your CPF account the same amount that was taken out with interest (2.5%). Of course, there are difference of opinions when it comes to this particular topic. Some see it from a positive perspective that at the end of the day, it is still their money that would help towards retirement or their family in case of death. However, there are also some that are not in favor of this procedure of “forced” savings.
However, one important point is that if the sale proceeds after paying off any outstanding mortgage are lower than the sum of principal amount and accrued interest, you will not be required to top up the shortfall as long as the property is sold at or above the current market value. This will also mean that you will not be receiving any cash proceeds after the sale of the house. In other words, the longer you take to return the money back to your CPF account, the less cash proceeds you will get back when you sell it off due to the accrued interest.
Calculation Example (Grants)
Mr and Mrs Tan, both of whom are Singaporeans, had a combined income of $2000 when they bought their first HDB flat – a two-rome resale flat in Sengkang, a non-mature estate.
CPF grant which they are able to receive:
Type of CPF Grants
CPF Grant Amount
HDB House Price
|HDB Flat Price Before Grant||$340,000|
|Additional CPF Housing Grant *Depending on income||$35,000|
|Total CPF Grants||$85,000|
|HDB Flat Price After Grant||$255,000|
As you see from the table above, cost of HDB Flat is $340,00 and after deducting the CPF Grants, the cost is $255,000.
Assuming they sell seven years later, they have to return $85,000 plus accrued interest of 2.5% for seven years or a total of $99,875.
The calculation is similar for any amount of money that is used from CPF. So if you do plan on using your CPF savings to make a home purchase especially if you are first-timers, we would highly suggest that you take some time to do proper planning. If you are unsure of how to go about doing so, feel free to contact us for more information!