Buying a HDB is not “up only”.
Firstly, it’s possible to make a loss on your HDB flat. Secondly, even if you breakeven, you may not end up with any cash in hand. In fact, earlier this year, the Business Times reported that more people were not able to fully repay CPF after selling their property in 2020.
“eh, I have to repay CPF when I sell my property?!”
Yes, you do. You’ll have to “repay” the principle and any CPF grants plus interest .
And yes, #nofreelunch. There’s an interest on the principle and grants you enjoyed too. But by “repay”, I mean you’ll need to repay the monies back into your CPF Ordinary Account, so relax, technically it still goes back to you.
This article will explore the CPF Accrued Interest in greater detail, help you figure out how much accrued interest you need to pay back and how this sum will affect your next property move.
But first;
What is CPF Accrued Interest?
CPF accrued interest refers to the interest that your principal amount would have earned in your CPF Ordinary Account (OA), in the same duration. At the point of writing, CPF OA interest is 2.5% per annum.
If the money was in your OA and you were earning interest off it, you’d be a happy Singaporean. However, compound interest works both ways.
In the case of CPF Accrued Interest from your property purchase, the longer the duration between your purchase and sales date, the more accrued interest you’d have to refund back into your CPF OA when you sell your property.
If you don’t plan to sell your property, this shouldn’t worry you. However, if you plan to downgrade your property during your retirement then you should take this into consideration.
Why must I pay back?!
Your CPF monies is meant to fund your retirement.
After you reach 55, your CPF OA and Special Account (SA) balance will be combined into one Retirement Account (RA).
Did you know that according to the CPF trends statistics in 2020, about 46% of CPF members aged 55 didn’t meet the Basic Retirement Sum! It’s no wonder CPF wants to make sure that you pay back the amount.
So instead of leaving a loophole where folks can “cash out” when they sell their property, CPF requires you to put back the funds you used to finance your house.
The funds you “pay back” will go into your CPF OA and will make up your RA when you hit 55.
“Okay…so how much do I need to pay back?”
How do I Calculate my CPF Accrued Interest?
The CPF accrued interest rate will be calculated based on the total of your principal, housing grants, stamp duties, legal fees and any home protection scheme premiums. Basically, it’s calculated on all the CPF monies you used to finance your house.
The interest is calculated monthly and compounded annually, and it will start from the day you take out the funds till the day you sell your property.
You can calculate it manually or just log into your CPF account to check your CPF accrued interest.
If you’re doing this as an exercise to plan for your future, good on you! You can use this compound interest calculator to calculate your CPF accrued interest.
How to check how much you need to refund when you sell your house?
- Log in to your CPF account
- Hover at the “My CPF” tab,
- click on “Home Ownership”
- You should see your principal and CPF accrued interest.
“okay, I get it. But wait, what if…”
What if my sales proceed cannot cover the refund amount?
If you sold the property at or above market value, you’ll NOT need to top up the shortfall.
But any option fees you had received from the buy will be considered as part of the selling price, and you’ll need to refund that back into your CPF account. Else, your property transaction will not be completed.
Here’s an explanation from CPF:
“But what happens if I very suay and had to sell below market value?”
In this case, you’ll need to refund your option fees as it still makes up the selling price, and top up the shortfall with cash.
So, if you think you can try to sell your property for cheap and “save” on the difference on your refund, think again.
Can I reduce my CPF Accrued Interest so that I get more cash when I sell my house?
Yes you can.
Two popular ways to do so are:
- Pay off home loan instalments using cash
If you’re using cash instead of your CPF funds to pay your home loan instalments, this portion will not be taken into consideration as part of your principal and no interest would be accrued.
- Do a Voluntary Housing Refund
You can choose to refund cash into to your CPF account periodically to reduce the total amount that you’ll need to pay back when you sell your property.
It’s a good idea to do the above because there’s a twofold benefit – you reduce the amount of CPF funds and accrued interest that you’ll have to pay back eventually and let your CPF funds do the hard work of compounding the interest instead.
You can do so by logging into CPF website or via the CPF Mobile app. For detailed instructions, refer to this.
How to check how much cash I can get if I sell my house?
You can either manually minus off your remaining home loan, CPF principal amount, CPF accrued interest (as shown on your CPF Home Ownership dashboard) and other costs and fees (eg. agent fee and legal fee), or use HDB’s Sales Proceed calculator to find out.
If you’re looking for ways to “monetise” your property, Alvin shared 4 ways you can get get cash from your house during retirement.
Is it a better idea to pay for your house in cash?
This is a highly debatable topic.
But really, it depends on your financial situation.
If you’re cash rich, it could be a better idea because you do not have to touch your CPF funds which can continue earning the CPF OA interest and you don’t have to deal with the headache of calculating how much you owe CPF later.
That said, if you’re confident that you can grow your cash at a higher rate than the 2.5% offered in OA, then you might want to use your CPF funds to finance your house.
However, most of us are not cash rich nor confident…
Using your CPF to finance your house will take some pressure off, and leaves you with more liquid assets in the short term. That said, you should decide what’s the best way to manage your home loan repayment and do your voluntary cash refund periodically.
If you’re here because you’re thinking of investing in properties, why not join Jeff at his upcoming webinar? He’ll be sharing how he built a property portfolio from scratch, and how you can do it too. Learn more here
Frequently Asked Questions about CPF Accrued Interest
Here’re some FAQs, if you have more questions leave them in the comments below!
Do I have to pay back accrued interest?
Yes.
How much? Read this section.
What happens to my CPF accrued interest?
After being deducted from the sales of your property along side with your principle and any CPF grants you enjoyed during your point of purchase, it’ll be deposited back into your CPF account.
You can use it for your next home purchase, retirement or healthcare needs in future.
If you’re 55 years old or above, then the amount will be used to cover your Full Retirement Sum in your RA. Any balance amount will be paid out to you in cash within a week of being credited into your CPF account. You can also choose to keep the remainder in CPF.
Does CPF accrue interest compound?
Yes it does.
The longer the duration between your purchase and sales date, the more accrued interest you’d have to refund back into your CPF OA.
What happens to CPF accrued interest if I die?
The need to refund the amount for your property purchase will be automatically waived.
