Planning to use your CPF savings to buy a house?
How much of your Ordinary Account (OA) savings in your Central Provident Fund (CPF) account can you use if you’re buying a house in Singapore?
To avoid any dashed expectations and potential issues in your financial cashflows, make sure you familiarise yourself with the two important limits when it comes to using your CPF savings – the Valuation Limit and the Withdrawal Limit.
Valuation Limit (VL)
The VL refers to the purchase price or the value of the property, whichever is lower.
For instance, if you purchase a resale flat for $500,000, but Housing Development Board (HDB) values it at only $480,000, your VL is $480,000.
Withdrawal Limit (WL)
The WL is the maximum amount of CPF savings you can use to pay for the property. In general, this is 120% of your VL.
For instance, your WL would be $576,000 for a property with a VL of $480,000.
Sometimes, different limits apply
The rules can however be different, depending on the type of property you buy, and type of loan you are getting.
If you are using a HDB loan to buy a Build-to-Order (BTO) flat, there are no limits. You can use your CPF savings to pay for the entire purchase – if you wish to.
If you are using a bank loan to buy a BTO flat, resale flat or private property, your WL would be 120% of your VL.
If however you are using a HDB loan to buy a resale flat, your WL is lower, at just 100% of your VL. Should the VL be lower than the purchase price, you will have to pay the difference with cash.
Read this to find out if a HDB loan or a bank loan is more suitable for you.
Imagine that you want to buy a 5-room resale flat for $500,000. Assume also that HDB has valued the flat for $500,000.
You have received a quote for a bank loan of 2.2% p.a., compared to HDB’s 2.5% p.a. The interest rate matters because it controls how quickly your loan grows. A larger interest rate means you pay more. Why pay more? You decide to take out a bank loan.
Valuation limit (VL): $500,000
Withdrawal limit: 120% x VL = $600,000
Purchase price: $500,000
Down payment: 25% x valuation = $125,000
Remainder: $500,000 - $125,000 = $375,000
You decide to pay the first 5% of the down payment in cash, and the remaining 20% with CPF. (Note: you can choose between using cash and CPF for the remaining 20% payment.)
You also decided to take out a bank loan of $375,000 for 25 years. At of 75% of the purchase price, this is the maximum bank loan you can take.
Using a; home loan calculator for HDB flats, your monthly mortgage is $1,627. You pay for this using your CPF monies.
This means that you will reach your VL of $500,000 after the 15th year of loan (assuming OA interest rates remain at 2.5%, by the 15th year you will have accumulated close to $400,000 in CPF payments and over $100,000 in CPF accrued interest).
To continue using your CPF-OA monies to repay the loan until it reaches your WL of $600,000, you will need to:
- Set aside the Basic Retirement Sum (BRS) in your ordinary and special CPF accounts if you are below 55; or
- Set aside the BRS in your retirement, special, and ordinary CPF accounts if you are 55 or older.
Once you hit your WL, you will need to service the remainder of your loan in cash.
Find out what buying a home means to your financial health
Speak to our Wealth Planning Manager today for a financial health check and how you can better plan your finances.