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.