This article was updated on 7 June 2021 to reflect the latest information.
You and your spouse (or spouse to-be) decide to buy a place you can call home. You did the math and your monthly home loan repayments can comfortably be covered with CPF. Years down the line, you suddenly receive a letter informing you that because usage of CPF for your property reached the Valuation Limit or Withdrawal Limit, further usage of your CPF is no longer allowed. You are then required to pay cash in full each month to service your mortgage.
Nightmare scenario? It doesn’t have to be that way if you understand the rules governing the usage of your CPF funds, especially the cap on how much of your CPF monies you can use to repay your loan.
The Limits on Your CPF Usage
A common misconception many people have when planning their home financing is that they count on using their CPF to the fullest extent, reducing their cash outlay required each month. What they commonly miss out or get confused over are the limits placed on how much CPF can be used, even if they have sufficient balances in their CPF.
These rules mean that even if you have enough CPF balances in your Ordinary Account, you would not be able to use these funds once you reach these limits.
Let’s first begin by getting to know two terms:
Valuation Limit (VL): The valuation of your property at the point of purchase or the price you paid for the property, whichever is lower.
Withdrawal Limit (WL): 120% of the Valuation Limit
Simple enough? Now let’s see which of the limits apply to you, based on the type of property you’re buying and type of loan you intend to use.
|Property Type||Loan Type||Maximum CPF Usage|
|Remaining lease covers youngest owner till age 95||Remaining lease does not cover youngest owner till age 95|
|New HDB Flat||HDB Loan||No limit||Pro-rated Valuation Limit|
|Resale HDB Flat||HDB Loan||Valuation Limit||Pro-rated Valuation Limit|
|New or Resale HDB Flat or Private Property||Bank Loan||Valuation Limit and Withdrawal Limit||Pro-rated Valuation Limit|
Using HDB Loan To Buy New HDB Flat
For those who are buying a new HDB flat (Build-To-Order, Sale of Balance Flat or Re-Offer of Balance Flat) and take an HDB concessionary loan, there will be no limits to the amount of CPF you can use if the lease covers the youngest owner until the age of 95. Homeowners can use as much CPF as they have in their Ordinary Account to service their home loan repayments.
However, there are cases of new HDB flats with shorter leases where the remaining lease may not cover the youngest owner till age 95. In these cases, a pro-rated Valuation Limit will apply
Using HDB Loan To Buy Resale Flat (Lease Covers Youngest Owner To Age 95)
The Valuation Limit (VL) will apply. When the total CPF withdrawn by all the owners reaches the VL, they will only be able to use cash for the remainder of their monthly repayments.
Using HDB Loan To Buy A Resale Flat (Lease Doesn’t Cover Youngest Owner To Age 95)
You can use your CPF up to a pro-rated amount from the Valuation Limit (VL). To find out the pro-rata percentage, you can use the CPF Housing Usage Calculator. When the total CPF withdrawn by all the owners reaches the pro-rated VL, they will only be able to use cash for the remainder of their monthly repayments.
Buying Private Property Or Any HDB Flat Using Bank Loan (Lease Covers Youngest Owner To Age 95)
Valuation Limit and Withdrawal Limit applies. This means that when the total CPF withdrawn by all the owners reaches the Valuation Limit, every owner must individually set aside the prevailing Basic Retirement Sum (BRS) in their OA and SA (for those below the age of 55) or their OA, SA, RA (for those 55 and above) if they want to withdraw more CPF to service the outstanding housing loan.
However, once homeowners’ usage of their CPF on this property hits the Withdrawal Limit, no further usage of CPF to service this home loan is allowed.
Buying Private Property Or Any HDB Flat Using Bank Loan (Lease Doesn’t Cover Youngest Owner To Age 95)
A pro-rated amount from the Valuation Limit and Withdrawal Limit applies. To find out the pro-rata percentage, you can use the CPF Housing Usage Calculator.
This means that when the total CPF withdrawn by all the owners reaches their pro-rated Valuation Limit, every owner must individually set aside the prevailing Basic Retirement Sum (BRS) in their OA and SA (for those below the age of 55) or their OA, SA, RA (for those 55 and above) if they want to withdraw more CPF to service the outstanding housing loan.
However, once homeowners’ usage of their CPF on this property hits their pro-rated Withdrawal Limit, no further usage of CPF to service this home loan is allowed.
Will You Reach These Limits?
Because of interest rates over a long tenure, you will almost certainly reach your Valuation Limit at some point and need to repay part of your home loan with cash. The only question is when.
In the case of resale flats where you paid a high Cash Over Valuation price for your property, you might even come up against the Withdrawal Limits. You can use this CPF Housing Withdrawal Limits Calculator that can help you estimate when you will reach the VL or WL.
Another thing to consider is how your CPF contribution rates taper off as you reach the age of 55 and beyond. This can affect your ability to maintain the BRS in your CPF balances, which constricts the continued use of your CPF.
If you are not aware of these rules and planned ahead, you may find yourself years down the road not being able to continue to service your mortgage payments using your CPF and have to cough up cash instead!
What Can You Do About It?
You should take these CPF usage restrictions into consideration when planning your home loan financing. Either buy within your means (from a cashflow perspective) or you need to have a plan to deal with it.
One way is to make your monthly housing loan repayments in CPF as well as cash, so that you never hit these limits.
Another thing you can do is to be aware of when you will hit these CPF withdrawal limits, and have cash stashed away (or investments matured) by then so you can continue to meet your mortgage obligations. This is slightly riskier, because there is a chance your investments do not do as well as expected.
The worst situation is to unexpectedly hit these limits years down the road and be suddenly need to scramble for a large amount of cash each month, perhaps by taking bridging loans to cover your mortgage. You should speak to a mortgage broker to get the best advice.
If you are thinking of getting a home loan or refinancing an existing one, you can get a free quote from our friends at RedBrick and get the best rates across various banks.
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