These days, CPF may as well stand for Causing Persistent Fights. Nothing sours the mood faster than bringing up this sore topic. The only way to make it worse is to discuss how CPF is used for home loans. Here’s some clarity on the common issues:
1. You can only use your CPF for HDB loans
You can use your CPF Ordinary Account (CPF OA) funds for both HDB loans and private bank loans. Note that you’re subject to the same restrictions, such as withdrawal limits (see point 6), whether you use CPF for HDB or bank loans.
2. If you sell your house at a loss, you have to top up the difference to CPF
You do need to return the money used from CPF, when you sell your house. This is to prevent people from extracting their CPF via a loophole (e.g. buy a house and then sell it, so you effectively withdraw your CPF money).
However, you only need to refund the principal amount used, plus any interest you would have gotten. If for some reason you sell your house at a loss, you don’t need to top up the difference.
For example, if you’re required to refund $600,000 to your CPF (inclusive of the interest you would have accrued), but sell your flat for just $580,000, you would just need to return $580,000.
3. Once you are turn 55, you can no longer pay for your house with CPF
If you’re still working and earn an income, you can pay for your housing loan through your CPF OA contributions. This is regardless of whether you meet the Basic Retirement Sum.
If you’re not working, you can use any excess amounts after setting aside the Basic Retirement Sum to pay for your house.
On top of this, note that you can reserve savings to pay for your house in your OA. For example, say you need to set aside $161,000 for your minimum sum – you can put $80,500 in your minimum sum, and set aside the other half to keep paying for your house.
However, you should talk to qualified financial advisor before doing this (setting aside money this way will cause your retirement pay outs to be lower).
4. You must use all your CPF OA when buying a house
This is no longer true for HDB flats. As of August last year, buyers can now set aside up to $20,000 in their OA, when buying a flat (private property buyers still can’t, however).
Many of the financial advisors we spoke to suggested setting aside six months of your mortgage repayments or $20,000, whichever is higher. This ensures your home loan remains paid during emergencies, such as retrenchment.
5. You can always use your CPF to pay for conveyancing fees
Not really, this is a bit of a half-truth.
Conveyancing fees tend to cost around $2,500 to $3,000, and are incurred when purchasing a house or refinancing. Now with some law firms, you can pay for these fees with your CPF. However, it’s not true of all law firms. You’ll have to check with the law firm in question.
To compound the issue, only some law firms will be accepted by your bank. It’s a bit of annoying search process, to find a law firm that’s cheaper, accepted by the bank, and also lets you pay through CPF. We suggest you ask a mortgage broker to do it for you (it’s free).
This is not an issue with HDB properties, as you can just use HDB’s appointed law firm (whoever they may be at the time), and it’s always payable through CPF.
6. You always use all of your CPF to pay for the house
There is a withdrawal limit of 120 per cent of your home’s Valuation Limit (VL). The VL is the lower of your property valuation or purchase price, at the time you bought it.
For example, say you purchase your property at $600,000, while the valuation was $580,000. Your VL is thus $580,000. Your withdrawal limit is thus $696,000. Once you have withdrawn $696,000 for your house, any outstanding amount will have to be paid in cash.
Don’t assume this will never happen. Remember that, after factoring in interest rates, it’s quite possible to end up hitting the 7withdrawal limit.
7. Your CPF can / cannot be used to pay stamp duties
This one is a common source of confusion, with different people claiming both to be true. To clarify:
For taxes such as Buyers Stamp Duty (BSD) or Additional Buyers Stamp Duty (ABSD), you can be reimbursed from your CPF OA. But you pay the stamp duties first, and apply to get it out of your CPF later. That means you must have the cash ready when the stamp duties are due (within two weeks of concluding the sale).
For properties that are under construction, however, you can pay the stamp duties directly from your CPF.
What most confuses you about using your CPF for housing? Voice your thoughts in our comments section or on our Facebook community page.
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