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CPF Accrued Interest – Will it return to haunt me if i use it to finance my property?

Updated: Sep 6, 2020

CPF Accrued Interest affecting HDB property owners

Recently, i have read articles citing the negative impact that results when CPF is used to finance a property long term.

The articles call for HDB owners to sell their homes and restructure into private properties before they enter into a ‘negative’ sale scenario where low/no cash proceeds are returned to their pockets when they sell. 

The resultant impact of CPF Accrued Interest on their funds used for a property.

Let’s examine the possibilities of such scenarios and it’s real impact on Singapore property owners.

Before we start, let’s establish the required information.

1. CPF pays you 2.5% per annum for funds in your Ordinary Account. 

2. When you use your CPF for financing a property, you stop earning the 2.5% interest on the sum used. 

3. When you sell the property, the 2.5% interest that you were supposed to have earned during the years you used your CPF, have to be paid back to your CPF. By you. On top of the sum you had used initially. 

4. When you sell your property, the sales proceeds are paid out in the following order – Bank first, CPF second and the excess back to you in cash.

5. I’ll refrain on commenting on the extra 1% CPF pays, Special Account 4% returns etc in this post (We’ll discuss it in another post.)

Alright? Let’s dive in! Don’t hold your breath.

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Understanding macro and micro policies and regulations will help accelerate your retirement plans!

So.. because of interest accrual on your CPF funds, you may encounter a scenario where upon the sale of your property, all the proceeds go back into your CPF account and you are left with nothing in cash.

This can be a problem if you are intending to buy another property and have not been saving up enough in cash.

You are then CPF rich and Cash poor.

And facing the hurdle of putting down a minimum of 5% cash for your next property.

A $1m home will require you to put down $50,000 in cash before you are allowed to touch your CPF funds and draw on a bank loan for the remainder. 

To illustrate further, let’s take an example of a married couple who had bought their HDB 20 years ago and utilised 200K in CPF back then and another 200K in CPF to service their bank loan throughout the 20 years till today.

Assuming they were to sell it at $530K today, they would have insufficient sales proceeds to refund to CPF the accrued interest plus principal sum used and would get zero dollars back in cash.


Banks have the first bite of the sales proceeds, CPF has the second right and finally any excess is yours to pocket.

In this case, there are insufficient funds left over AFTER CPF has taken its bite. 

CPF Accrued Interest. How it affects HDB owners

On the bright side though, the scenario above might not happen for 2 reasons. 

1. Over 20 years, there is usually significant capital appreciation for the property that would result in a profit with size-able cash proceeds for the owner.

(Provided of course that the property wasn’t one with a very short tenure remaining in the first place OR has depreciated significantly due to other reasons.)

2. A married couple with 200K in CPF to use for properties, would typically be in their early to mid 30s.

And with 20 years passed, they would now be in their early to mid 50s and will be able to draw out their CPF for use in a few years time when they reach 55. (Although it isn't a great idea to wait that long to upgrade)

Hence, access to the 5% cash should not be an issue if proper real estate financial planning was done by a professional property wealth planner earlier on. 

The typical negative or zero cash scenarios can happen often due to poor capital appreciation of a property, owners being forced into a sale situation due to financial difficulties at the bottom of a market cycle or if the owner had taken out additional equity loans that increased his outstanding loan amount today. 

Another Possibility:

If the couple mentioned above did not have much cash savings and are looking to sell their HDB and buy a $1.2m condominium, they would require a minimum of 5% cash ($60,000).

Due to their situation above, they are caught in a predicament and unable to proceed with the purchase despite being CPF rich (More than $400K was refunded back to their CPF when they sold the HDB).

The bottomline is, the longer you have used your CPF for a property, the less cash proceeds you will get back when you finally sell. 

However, if you have been prudent in your monthly cash savings, and have held your property for a considerable amount of time (Given that properties generally appreciate over time with inflation and market cycles), you will likely turn out fine.

That said, if you have the intention of owning multiple income generating properties, it is always good to start early and sooner while you are young so that you will be able to obtain the most cash and loans to build a larger property portfolio. 

And if you are wondering, yes it is still a good idea for building wealth through properties given our government policies and macro-outlook in the long term.

Recommended additional readings:

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Stuart Chng, Senior Associate Executive Director of OrangeTee & Tie, is a renowned leader and personality in the real estate industry.

He adores music and can play a few instruments decently without upsetting his neighbours. When not doing so, he enjoys pillow fighting with his son and coming up with silly puns which barely amuses his wife.

Professionally, he is a licensed real estate agent, investor, team leader, speaker and columnist for several property newsletters and blogs and is often quoted in media interviews on 938FM, Channel 8, PropertyReport, PropertyGuru and other publications.

Throughout his career, he has helped many clients grow their wealth through selecting great property investments and managing their portfolios actively. Read his clients' reviews here.

Stuart has also coached many top million dollar producing agents from different real estate agencies in Singapore. Read his agents' reviews here.

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