Most of us tap on our CPF when we buy our homes, be it a HDB flat or private property. In fact, many homeowners not only use our CPF monies for the downpayment but also for our monthly mortgage repayments. This is advantageous when we are paying off our mortgage as we have more cash in hand by using our CPF. However, when it is time to sell off our home, we will need to repay CPF with our sales proceeds.
In 2020, about 13% of CPF members who sold their property were unable to fully refund their CPF monies. So what happens when we sell our home but are unable to repay our CPF in full?
When Do We Have To Repay CPF And Why Would We Be Unable To Repay In Full?
Assuming we had used any amount of our CPF during the purchase of our home, we would need to repay CPF the amount used when we sell our home. This is also known as the housing refund. This amount of CPF used includes the principal amount we used and the accrued interest.
The only instance when we do not need to refund CPF during a property sale is when we are selling the property of a deceased person. The property will form part of the deceased’s estate and will not be covered under CPF nomination.
If we choose not to sell our home within our lifetime, we will not have to repay CPF.
Barring unfortunate circumstances, most of us would not choose to sell our homes for anything less than what we paid for. So why would we be unable to repay CPF in full?
When we sell our property, the sales process will be used to pay off 1) our outstanding housing loan and 2) refund our CPF monies used for the property, including accrued interest. Accrued interest accumulates at 2.5% – the interest rate of our Ordinary Accounts.
Let’s take an example where we took a $300,000 housing loan from HDB at 2.6% with a month repayment of about $1,360 (25 years tenure). We paid the mortgage fully with CPF and then sell our home after 10 years. At this point, we would have a loan balance of about $202,680 and we would have paid a total of $163,320 for mortgage. The amount we would need to refund to CPF is $209,060 (163,320 in principal and $45,740 in accrued interest). In order fully repay our CPF and our outstanding loan, we would need to sell the house for $411,740 and above.
Note: these figures are theoretical calculations. For accurate figures regarding your own property purchase, please check CPF’s website.
In this scenario, assuming our original purchase price for our home was $330,000, we would have to wait for our home to appreciate to $411,740, almost 25% over 10 years before being able to fully refund CPF and pay off our outstanding loan. If we did not use CPF, we would be able to keep any sales proceeds above $366,000 (which covers our outstanding loan and recoups our cash repayments) as profits.
Additionally, if we have used CPF for stamp duty, downpayment and other related costs, these would have to be refunded to CPF as well. Our CPF housing grant monies would also have to be refunded. You can read more in our article – What Happens To Your CPF Grant Monies When You Sell Your House?
Valuation Is Crucial When We Are Unable To Repay Our CPF In Full
If we are unable to repay our CPF in full, CPF only requires us to top-up the difference in cash if we sold our home for below market valuation.
According to CPF, “if the selling price (including the option monies) after paying the outstanding housing loan is not enough to fully refund your P+I, you do not need to top up the shortfall in cash, provided the property is sold at market value.” This applies to both resale HDB flats and private property.
For example, we and the buyer have agreed on a selling price of $400,000 for the property. However, the valuation for the property is $420,000. We had purchased the property for $330,000 and serviced the mortgage payments for 10 years with CPF. While we had made a profit on paper, we would have to top-up the shortfall in the CPF refund of principal and accrued interest in cash ($411,740-$400,000=$11,740). This is because we sold below market value.
On the other hand, if the valuation was $400,000, we would not have to top-up the shortfall in CPF refund. Thus, valuation is crucial when we are unable to repay our CPF in full.
While private property sellers can avoid situations where they sell below market value by doing a valuation beforehand, HDB flat sellers have to agree on a selling price before obtaining the valuation from HDB. As an HDB valuation can only be requested by a buyer, HDB sellers may end up in an unlikely situation where they sell for below market valuation.
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