Home HDB What is CPF accrued interest? How does it affect me?
What is CPF accrued interest? How does it affect me?
Unknown 8:35:00 AM 0
“I pay zero cash every month for my house!”
How often have you heard your friends proudly say this? But is this something to be proud of?
How often have you heard your friends proudly say this? But is this something to be proud of?
Many Singaporeans rely on their CPF Ordinary Account (OA) savings to pay for their house
downpayment and subsequent monthly mortgage. However, these people then get a shock
when it is time to sell their house, because they get back even less than what they expected.
In some instances (and it is more common than you think), some even have to fork out their own
cash to top up their own CPF afterwards!
downpayment and subsequent monthly mortgage. However, these people then get a shock
when it is time to sell their house, because they get back even less than what they expected.
In some instances (and it is more common than you think), some even have to fork out their own
cash to top up their own CPF afterwards!
Imagine this.
Bought 4-room HDB BTO flat 10 years ago for $350,000.
Paid mostly CPF and very little cash.
House is fully paid for within a few years.
Owner now wants to sell it today for $450,000 (slightly below current market rate).
Your profits should be slightly less than $100,000. Correct?
Wrong!
Due to something called CPF ACCRUED INTEREST, the owner would actually end up having to
pay $98,000 back to his OA!
Therefore in this situation, he would have made a LOSS as he even needs to top up a few thousand
dollars using his own cash!
pay $98,000 back to his OA!
Therefore in this situation, he would have made a LOSS as he even needs to top up a few thousand
dollars using his own cash!
What is CPF accrued interest?
While many Singaporeans happily use their CPF to pay off, they forget that they will eventually need
to pay back the interest amount that they would have otherwise earned if they hadn’t used their CPF.
to pay back the interest amount that they would have otherwise earned if they hadn’t used their CPF.
This is because CPF is largely designed for retirement and NOT for someone to use up for their
housing (without repercussions).
housing (without repercussions).
The 2.5% interest rate that we would have earned if our CPF OA savings was left untouched
need to be accounted for.
need to be accounted for.
Another surprising fact: CPF accrued interest continues to compound even if you’ve fully
paid off your flat!
paid off your flat!
Even if you’re not withdrawing more money every month to pay for your mortgage, you are STILL
considered as borrowing from your CPF for as long as you’re still holding on to your flat.
considered as borrowing from your CPF for as long as you’re still holding on to your flat.
How does this affect me?
The most important situation you want to avoid is that of a negative cash sale, where you need to
top up your CPF OA with your own cash, because your proceeds from the sale of your house is not
enough to pay for the accrued interest.
top up your CPF OA with your own cash, because your proceeds from the sale of your house is not
enough to pay for the accrued interest.
To avoid this, there are a few solutions. I will share more in a following article!
Credits:
- https://www.cpf.gov.sg/Members/AboutUs/about-us-info/history-of-cpf
- https://www.cpf.gov.sg/Members/AboutUs/about-us-info/cpf-interest-rates
- https://www.areyouready.sg/YourInfoHub/Pages/News-Calculating-the-Accrued-Interest-on-Your-CPF-Savings-Used-for-Housing.aspx
- https://www.cpf.gov.sg/Members/faq/schemes/Housing/Housing-Scheme?ajsrc=FS&#
- http://thefinance.sg/2017/03/06/negative-hdb-sales/
- https://m.facebook.com/notes/cpf-board/8-things-you-should-know-when-using-cpf-for-property/10154443613615177/
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