Things you MUST know about using CPF for Housing Loan

Repayment of CPF Housing Loan’s Accrued Interest

How your Housing Loan work?

  • You decided to buy a home for $500,000.
  • As you do not have the full $500,000, you decided to take on a $400,000 loan from CPF (CPF Board) to buy the house (80% loan quantum).
  • The remaining $100,000 you will pay with your savings (personal + CPF Account).
  • Every month, when part of your salary is credited into your CPF Ordinary Account, it is used to pay down your CPF loan (mortgage).

What this means is

  • CPF Board is essentially acting as a bank, lending you CPF’s own money so that you can buy your home.
  • Banks charge customers interest for borrowing money. In CPF’s case, they charge you an interest of 2.6% annually.
  • Thereafter, every month the part of your salary that goes into your CPF Ordinary Account and then channeled to pay for your mortgage, will accumulate accrued interest payable when you sell your house.

CPF Interest

Money in your CPF account earns an interest every year.

The interest is compounded yearly.

This interest is important because it is additional money to your CPF savings or future retirement.

The prevailing interest rate for CPF Ordinary Account now is 2.5%*

*additional 1% for first $20,000 in Ordinary Account

CPF Housing Loan

Only your Ordinary Account (OA) is allowed to be utilised to help pay for your house.

It is called a ‘Loan’ because you are loaning the amount it from CPF.

The CPF Housing Loan interest is the sum of ‘prevailing CPF Ordinary Account interest rate (2.5% currently)’ PLUS 0.1%.

The current housing loan interest rate now is 2.6%

Accrued Interest

It is the difference in interest between you leaving your money in your CPF accounts and you withdrawing out the money for paying your Housing Loan (or other approved purposes).

Returning of Accrued Interest

Because you withdrew it to pay for eg; your house, you denied your CPF money from earning the CPF interest.

This shortfall needs to be filled up to ensure you have sufficient CPF savings for your future.

Thus when you sell your house, the total amount you withdraw from your CPF PLUS the accrued interest will be taken and returned to your CPF account – AUTOMATICALLY.

However, it is still your money inside your CPF account.

Double Interest Payment?

You may feel like you are paying 2 sets of interest

  • CPF Housing Loan Interest, set at OA interest (2.5%) + 0.1%
  • 2.5% accrued interest on money you’ve withdrawn.

Another way to look at it is: Housing Loan + Forced Saving Account

You support your Housing Loan via your CPF account.

After you sold your house, CPF transfer part of your profit into your CPF account (saving account).

You can still use your profit to pay for your next housing.

Reducing Accrued Interest

CPF offers you the option to reduce the amount of accrued interest you accumulate with CPF.

If you have extra money with no place to invest them for returns, you can consider using them to pay down your CPF accrued interest.

This has 2 benefits

  • When you sell your house in the future, less proceeds will be channeled back to your CPF accounts – you get to keep more cash profits in your personal bank account!
  • The money you put into your CPF account also will start to earn CPF interest of up to 3.5%#. This money is paid by CPF Board to you.
    #2.5% on all Ordinary Account money, extra 1% on first $20,000 in Ordinary Account.

Profit less than Accrued Interest?

If the profits you made from selling your house is less than the accrued interest accumulated, you DO NOT have to top up the difference in cash.

Instead, you will just be left with no profits in your personal pocket.

Scenario 1: Accrued Interest ($40k) > Profits from Selling of House ($30k)

  • All profits will be used to cover the CPF accrued interest you have accumulated.
  • Any outstanding accrued interest not paid will continue to accrued interest ($10k will continue to accumulate accrued interest). You will need to pay them in the future.
  • You DO NOT NEED to TOP UP CASH to cover the difference ($10k), unless you wish to. If you do, the amount of accrued interest will be reduced.

Scenario 2: Accrued Interest ($40k) = Profits from Selling House ($40k)

  • All profits will be used to cover the CPF accrued interest you have accumulated.
  • You will receive no cash profit made from selling the house.

Scenario 3: Accrued Interest ($40k) < Profits from Selling House ($60k)

  • $40k of your profits will be used to cover the CPF accrued interest.
  • The remaining profits ($20k) will be given to you in cash.


Also read: CPF Schemes Singaporeans should be aware of


PS: We have manage to obtain the above information from CPF website.

Article by Chee Siang