New to home ownership? If you are thinking of using your Central Provident Fund (CPF) to pay for your house, then you have got to know these 10 things.
1. You can use your Ordinary Account funds to buy public and private housing
You probably already know this but the only savings you can use to purchase a house in your CPF are those in your Ordinary Account.
Your Ordinary Account savings can be used to:
- Finance all or part of the purchase price
- Service monthly housing loan instalments
- Pay the stamp duty, legal fees, and other related cost such as those for flat upgrading
All CPF members are eligible to use their CPF savings to buy a HDB or private property UNLESS you are:
- buying a property with a remaining lease of less than 30 years; or
- one with a remaining lease of less than 60 years and your age plus the remaining lease of the HDB flat is less than 80 years.
2. There may also be limits to how much you can withdraw
To ensure you have enough savings for your retirement, there are limits to how much CPF savings you can use for HDB flats:
As for private property, it works similar to buying a HDB flat with a bank loan – you need to have enough set aside for retirement and the Withdrawal Limit is the maximum amount of CPF you can use for it.
Do note that the amount of CPF you can use is lower if you are buying a property with a remaining lease of 30 to 59 years. More information here.
3. You can use your Ordinary Account savings only if you are the co-owner of the house
Thinking of helping your parents pay off their housing loan with your CPF savings? It’s not possible to transfer your Ordinary Account savings to their Ordinary Account to pay for it.
You have to be the co-owner of the house to use your Ordinary Account funds to service the housing loan.
4. There is a House Protection Scheme for HDB flats
As long as you are using your CPF to service your monthly HDB flat instalments, you need to be insured under the House Protection Scheme (HPS).
The HPS is a mortgage-reducing insurance that you will have to pay for. It ensures that members will not lose their HDB flat if their co-owner is no longer able to service their share of the housing loan due to death, terminal illness, or total permanent disability.
HPS insures members up to age 65 or until the housing loans are paid up, whichever is earlier.
Your HPS premium will be automatically deducted from your Ordinary Account. In the event of a shortfall, you can pay by cash or use your co-owner’s (spouse, parent, child, or sibling) Ordinary Account savings. Calculate the HPS premium that you will have to pay here.
5. Your Ordinary Account doesn’t exist just to pay for your house
Do remember that the primary purpose of the CPF is to ensure you have enough for your retirement.
With that said, besides housing, your Ordinary Account savings can be used for education and investment as well.
Please ensure you have enough planned for all your needs. Any excess can be transferred to your Special Account to earn higher compounding interest.
6. You can use your CPF to buy more than one property
You can use your CPF savings, up to the Valuation Limit, for your second or subsequent property with a remaining lease of at least 60 years that is bought on or after 1 July 2006. You also have meet some conditions based on your age to ensure you have enough retirement savings.
Do note that if you are an existing HDB flat owner and want to buy a second HDB flat, you will need to sell off your current one within six months after receiving the keys to the second HDB flat.
7. As a HDB flat buyer, you can choose between a HDB loan and a bank loan
A lot of people would pick a HDB concessionary loan by default because of its fixed interest rate, pegged at 0.1% above the Ordinary Account interest rate. But what many people don’t bother to find out is that the fixed interest rate is usually higher than that of bank loans.
With that said, what’s good about a HDB loan is that it doesn’t require any cash downpayment and the loan amount is up to 90% of the purchase price (compared to a bank loan’s usual 80%).
HDB also allows capital repayment of your outstanding loan or adjustment to your monthly repayment amount. For bank loans, you will need to seek the financier’s approval, subject to terms and conditions.
8. You can refinance your HDB loan with a bank loan
If you find that your HDB housing loan interest rate is too high, you may consider refinancing it with a bank loan instead.
However, there’s a risk that market fluctuations can cause bank loan interest rates to go up higher than the HDB loan fixed interest rate. Also, if you refinance your HDB housing loan with a bank, you cannot refinance that loan with HDB anymore.
9. You have to return the amount you withdrew from your CPF upon selling your house
It’s surprising that some first-time homeowners are not aware of this. We have heard of cases whereby homeowners want to sell off their house to finance debts only to find that most of the money has to go back to their CPF.
10. If you have money just sitting in the bank, pay off your housing loan as fast as you can
Why pay more interest when you don’t have to?
As mentioned earlier, HDB loan interest rate is pretty high, especially as it compounds over 30 years. But the good thing is, you can make partial or full repayment easily whenever you can afford to. By paying off your HBD loan in advance, you pay less interest, shortening your loan duration significantly.