Is Paying Down Your Home Loan By Cash Or CPF A Better Option Today?

should i pay down my housing mortgage loan with cash or cpf?
Cash or CPF? The perpetual debate between using both sources of financing for your housing loan

Hello there!

It's been awhile since I wrote as life became alot busier recently since Phase 2 of Circuit Breaker.

To begin, I hope you are happy with the overall election results regardless of which side you are on.

The last 2 weeks seemed to have distant our fellow countrymen quite a bit and it is time to set aside differences, let our nation's psyche heal and focus on getting through the storm together.

Even if we disagree with some of the policies of the ruling party today, we must now rally behind the very people who are working for Singapore's and consequently our future even if they are imperfect at times (Who isn't anyway?).

Singapore property market trend outlook
Majulah Singapura - I may complain about our country from time to time but I always count my lucky stars to be born here.

Aside from the elections hype, the month of June and 1st half of July has been incredible for my team as we had expected.

Property buyers returned en masse to resume their upgrading and investment plans while they have a window to do physical property viewings and inspections.

Sales volume has shot up to a monthly record high and hopefully helps grease the economic wheels of the entire real estate industry, where thousands of jobs are at stake.

Fingers crossed, we do not get into a second lock down which impacts our economy further and jeopardize many more livelihoods.

pay home loan in cash or in cpf
"Always hope for the best but plan for the worst"

What is interesting to note in the past month is that more buyers are interested in layouts with a study and are more willing to stretch their budgets for an additional bedroom if finances allow.

I guess this reflects the commonly agreed notion that the work from home culture is here to stay.

Now, on to our main topic..


Is Paying Down Your Home Loan By Cash Or CPF A Better Option Today?

One of the common questions I get recently from my readers whom I have helped with refinancing to lower interest rate packages (As low as 1.1%!), is this - Should i pay down my home loan installments with cash or CPF?

Whether you own a public or private property, you can opt to use your CPF Ordinary Account (OA) and/or cash to service your monthly loan installments.

Some of you might be wondering why home buyers would use cash instead of CPF to pay down their loans when we have all heard the saying - Cash in hand is king.

Let me explain why.

real estate market outlook housing loan huttons group

Benefits of paying your housing loan installments in cash

For those who are entertaining the thought of upgrading from an HDB flat or private property, paying down your mortgage in cash helps to prevent negative cash sale in the future.

This is a scenario where, upon selling your property, you are required to refund all your proceeds to CPF, leaving no cash in hand to foot the deposit for your next property.

For example:

Say you buy a flat for $350,000, using a bank loan.

You use $70,000 from your CPF for the initial down payment.

Over the next five years, you pay around $1,120 monthly for the home loan using your CPF.

In total, you would have used $137,200 from your CPF.

However, when you resell your flat after five years, you must refund this amount, plus the

interest it would have accrued (2.5 per cent per annum for OA), to your CPF; which comes up to roughly $155,200+.