Can I Wipe Out My Cpf

Danielle Fletcher
• Monday, 23 November, 2020
• 7 min read

Starting from August this year, homeowners taking an HDB loan to finance for their home purchase can choose to leave up to $20,000 in their CPF Ordinary Account (OA). In the past, there was no such option, and you had to use all of your available CPF OA funds to pay for your flat before taking an HDB loan.

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$20,000 can provide a pretty comfortable runway of about a year’s worth of installments, without the need to fork out additional cash! While this is a valid use case for keeping some funds in your CPF OA, it is crucial to note that in the event you lost your job or have a major health crisis, you will need other forms of financial buffer for your day-to-day expenses, which your CPF OA cannot help you with.

Obviously, if you choose to leave $20,000 in your CPF OA, your loan quantum increases by that amount. While the risk of over leveraging would be minimal, since the government already has in place rules like the Total Debt Servicing Ratio (DSR), you will need to consider the additional interest you’ll be paying on that $20,000.

Knowing you have $20,000 in your OA isn’t very reassuring if you’re scrimping to save every dollar each month. That option comes with choices we need to make, which can be boiled down to balancing our long-term retirement needs (keeping money in our CPF OA gives us a good foundation to build upon) and our short-term requirements (monthly cashflow and meeting mortgage payments).

After waiting for 4 long years, Heartland Boy will finally be able to collect the keys to his BTO. Once the HDB concessionary loan is approved and processed, the homeowner can transfer the OA funds back to his account.

But before we get there, here are the pros and cons of allowing HDB to wipe out your CPF OA before collection of keys. Serves As Emergency Back-Up Funds Given how fast technology is developing, many jobs will eventually be displaced as the skills of today are gradually rendered obsolete.

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The undeniable truth is that monthly home mortgages will still have to be paid, either via OA funds or cash. This problem is exacerbated by the fact that your OA will accumulate at a slower pace then as the majority of the monthly contribution will be used to pay off the mortgages due.

Therefore, it could only be a couple of months before the unemployed CPF member will have to service his mortgage entirely in cash. Therefore, this becomes a very useful trick to employ as the funds in CPF OA is earning 3.5% (2.5%+ 1% bonus) compared to the cost of HDB loan at 2.6%.

Therefore, in the event that the aforesaid advantages do not materialize, the mortgage can simply instruct HDB to deduct a specific amount in the OA at no additional cost. In other words, any regret that stems out of making such a move is very low when measured in dollar terms.

Eagerly awaiting the day St George Tower TOP (Source: Facebook user, Queen LIM) Depending on one’s risk profile, one may not feel comfortable to be saddled with a bigger debt burden.

Do bear in mind that from the period of Oct 2014 to Sep 2016, 51% of CPF members would have been better off leaving their OA monies in their respective accounts. Conclusion In a future article, Heartland Boy would detail some of the investment products that are eligible under CPF IS Ordinary Account.

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It would be a continuation of this article and provide readers with more knowledge if they decide to execute this CPF Investment Scheme Shield. This ensures that you have complete coverage (structure, renovation, personal belongings) for your cherished home.

Also, if you have any questions and would like to hear from the community (the more experienced folks), feel free to ask us here ! Many of us would think that using ALL of our CPF OA savings to pay for our HDB loan is better.

Because doing so will reduce the loan amount to finance the flat. With a minimum amount of S$20,000 in your CPF OA, you earn a bonus of 1% on your S$20,000.

Which is 0.9% higher than the HDB loan is currently held at 2.6% (as shown in the table above). Scenario 2: If it is LESS than your monthly repayment, then your CPF OA will remain at S$0.

If you fall into scenario 2 (which is most of us), and you lose your job for whatever reason, you have also lost the monthly contribution that comes from your salary which you used to service your HDB loan. Thus, as risk management approach is to ensure there is some rainy CPF OA balance to cover the loan over some time.

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(Source: hative.com)

There is no difference eventually when the accounts converge to form RA at 55 and usually housing loans get to around that age. What the government did is a good first step to offer to citizens who are not as savvy to help build their retirement funds but those in the know (especially in Seedy), knows that we can avoid letting CPFwipeout our OA by purchasing shares prior and transferring them in later on.

I took a HDB loan and this is pegged at 0.1% plus prevailing OA rate so the interest arbitrage issue has no impact on me as my OA will compound faster than my loan interest will ever get. The certainty in this is one of the reasons I took an HDB loan although I pay a slightly higher interest in the earlier years, a cost I willingly take.

Oh, and I might as well clear one of the main misconception that many have when dealing with HDB housing grants. We must know that we are not required to return the government this grants that are given to us, even when we sell our flats.

I believe the misinterpretation comes from the refunding of CPF OA plus accrued interests (if any) when we sell our flats. If you have any questions and would like to hear different perspectives from the experienced folks in our Community, Check out our blog for more unbiased opinions on your personal finance journey.

Starting from August 2018, we do not need to wipe out our CPF OA anymore when taking an HDB loan. Now, we can have the flexibility to leave up to $20,000 in our CPF OA when we take an HDB loan.

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Looking at the above, most couple will choose to go for the lesser monthly loan installment right? Join 46,923 satisfied homeowners who used rental quotation service to find interior designers.

While Singapore's HDB has kept housing prices relatively affordable compared to other urban areas around the world, it's still very difficult for most people to shell out tens of thousands dollars (if not hundreds of thousands) to acquire their residences. For those who are getting an HDB loan, they can pay up to 10% of the home value with the amount saved up in their CPF Ordinary Accounts.

However, none of these methods can actually justify the opportunity cost of withdrawing funds from your CPF account. Normally, CPF Ordinary Accounts provide a guaranteed investment yield of at least 2.5% per year.

If you decide to using your CPF money to replace your down payment, however, you would be foregoing this 2.5%-4% of investment return that is both guaranteed and free. Another reason why withdrawing from you CPF account is that you eventually have to “pay back” the amount when you sell your home.

In this example above, you would be “paying” for the additional S$45,000 that would have been provided by the government had you left your CPF account untouched. On the other hand, withdrawing from your CPF account has real economic consequences that could impact your retirement.

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(Source: feelitcool.com)

One could also argue that using CPF to buy a home now could help save cash that can be invested to earn higher returns than 2.5%-4%. He covers the financial services industry, consumer finance products, budgeting, and investing.

He previously worked in the financial services industry, including at such hedge funds such as Tiger Asia and Chadian Capital. He graduated from Yale University with a Bachelor of Arts degree in Economics with honors, Magna Cum Laude.

His work has been featured on major international media such as CNBC, Bloomberg, CNN, the Straits Times, Today and more. Starting from August 2018, we do not need to wipe out our CPF OA anymore when taking an HDB loan.

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