HDB flat buyers in Singapore have two options for financing their flat purchases. The first option is to take out a bank loan, and the second option is to take out a HDB housing loan. Both options have distinct characteristics in terms of the loan-to-value (LTV) limit, interest rate, loan tenure, required down payment, and use of CPF funds.
Since the introduction of the Public Housing Scheme in 1968, Singaporeans have been allowed to use their CPF Ordinary Account (OA) savings to finance their mortgages for HDB flats. However, the amount of CPF funds that must be used differs depending on whether you intend to take a private bank loan or an HDB housing loan.
For buyers taking a bank loan, the maximum LTV is currently 75%, which means a minimum downpayment of 25% is required. At least 5% of the purchase price must be paid in cash, while the remaining 20% can be paid using CPF OA savings and/or cash. There is no requirement to fully utilise your CPF OA savings before taking the loan.
If you are still comparing financing options or planning your long-term housing affordability, platforms like Cashew can help you better visualise your cash flow, mortgage commitments and retirement projections. Buyers who are still evaluating loan options may also benefit from speaking to a mortgage specialist such as Redbrick Mortgage Advisory to compare bank and HDB loan packages before committing.
For buyers taking an HDB housing loan, the maximum LTV is also currently 75%, which means a minimum downpayment of 25% is required. Buyers can use CPF OA savings, cash, or a combination of both for the downpayment. However, buyers taking an HDB loan can only retain up to $20,000 each in their CPF OA, with the remainder generally required to be used towards the flat purchase before the HDB loan is disbursed.
Before August 2018, flat buyers taking an HDB housing loan had to fully utilise their CPF OA savings, regardless of whether they could pay more in cash or preferred to keep some savings untouched. This meant younger buyers, in particular, could miss out on earning the extra 1% CPF interest on the first $60,000 of combined CPF balances (capped at $20,000 for OA balances).
To improve retirement adequacy and provide more flexibility, since August 2018 buyers taking an HDB housing loan have been allowed to retain up to $20,000 in their CPF OA.
This raises an important question for flat buyers: should you fully utilise your CPF OA savings, retain the allowed $20,000, or explore ways to keep even more CPF funds invested for retirement?
Read Also: Step-By-Step Guide On How To Apply For The CPF Housing Scheme To Use CPF To Pay For Our Housing Loan
What Are Your Options If You Were To Take An HDB Housing Loan?
If you take an HDB concessionary loan, the current maximum LTV is 75% for both new and resale HDB flats, with a maximum loan tenure of 25 years.
You can use a combination of cash and CPF savings for the required 25% downpayment. However, if you are taking an HDB loan, you can only retain up to $20,000 each in your CPF OA before the remaining OA savings are used for the flat purchase.
With that in mind, here are three broad options to consider.
Option 1: Wipe Out Entire CPF Savings
The first option is to fully utilise your CPF OA savings towards the purchase of your HDB flat, including the downpayment, stamp duties, legal fees and other related costs.
In some cases, this may not even be optional. For example, if you are buying a flat worth $300,000, the required 25% downpayment would amount to $75,000. If you only have $30,000 in cash and $45,000 in your CPF OA, you would likely need to fully utilise your CPF savings to meet the minimum upfront payment.
Alternatively, some buyers may intentionally use more CPF savings to afford a more expensive flat or reduce the amount of cash needed upfront.
For example, if you have $100,000 in your OA and use $75,000 for the downpayment, you could potentially purchase a $300,000 flat with a $225,000 HDB loan. But if you choose to use the full $100,000 instead, you could potentially purchase a more expensive flat of $400,000 while maintaining the same LTV ratio.
Another reason to fully utilise CPF OA savings is to reduce your loan amount and total interest paid over time.
For example, assuming an HDB concessionary interest rate of 2.6% over 25 years:
- A $250,000 loan would cost roughly $340,500 in total repayments, including about $90,500 in interest.
- A $200,000 loan would cost roughly $272,400 in total repayments, including about $72,400 in interest.
This translates to an interest saving of about $18,100 over the loan tenure.
Finally, if you already have at least $60,000 combined across your CPF Special Account (SA) and MediSave Account (MA), you may still qualify for the extra 1% CPF interest without retaining funds in your OA. In such cases, fully utilising your OA may have less impact on your overall CPF interest earned.
This approach may suit buyers who prioritise reducing debt quickly and are confident they can rebuild their CPF balances steadily over time through future CPF contributions.
Source: HDB
Lastly, if you were to have a combined CPF balance of at least $60,000 in your Special Account (SA) and Medisave Account (MA), then you would be able to fully enjoy the extra 1% interest that the Government pays to boost your retirement savings. Therefore, you would not lose out on the extra 1% interest, which was the intent of allowing you to keep your first $20,000 in your OA.
This option of using your entire OA savings might be viable if you wish to clear your loan quickly and believe that your earnings would outpace the monthly payment to grow your OA savings over time.
Option 2: Retain Up To The Allowed $20,000 In OA
The second option, especially if you do not have at least $60,000 in combined savings in your Special Account and MediSave Account, is to consider keeping up to $20,000 in your OA savings.
The flexibility of allowing flat buyers to retain up to $20,000 each in their OA, was first announced in August 2018. Before that, flat buyers taking up the HDB housing loan had to use their entire OA savings before HDB determines the loan amount. This was done to allow CPF members to take advantage of the extra 1% interest paid on their first $60,000 combined CPF savings (capped at $20,000 for OA). The additional interest goes towards your Special Account (SA) or Retirement Account (RA) to enhance your retirement savings. This is especially beneficial for young home buyers who may not have sufficient CPF savings in their SA and MA to benefit from the higher interest.
By retaining $20,000 in your OA, you can continue earning up to 3.5% interest on that portion of your savings. Since the HDB concessionary loan rate is currently 2.6%, some buyers may prefer to retain their OA savings rather than reduce their loan amount further.
Retaining some CPF OA savings can also act as an emergency buffer during periods of unemployment or income disruption. Instead of relying entirely on cash savings, you can use your OA balances to continue servicing your housing loan if needed.
For example, a couple who collectively retain $40,000 in their CPF OA and have a monthly HDB loan instalment of around $2,000 could potentially cover close to 20 months of mortgage payments using their retained OA balances alone.
For buyers who value liquidity and financial flexibility, retaining the allowed $20,000 may offer a useful balance between minimising debt and maintaining a financial safety net.
Read Also: Why You Should Not Be Rushing To Pay Back Your Housing Loan Using Your CPF Savings
Option 3: Keep More Than $20,000 In OA
The third option is relevant for buyers who wish to preserve and grow a larger portion of their CPF savings over the long term.
While HDB loan rules allow buyers to retain up to $20,000 directly in their OA, some buyers explore ways to preserve additional CPF balances through long-term retirement planning.
One common approach is transferring OA balances into the CPF Special Account (SA), where funds earn a higher long-term interest rate of 4% per annum. However, OA-to-SA transfers are irreversible, which means the funds can no longer be used for housing.
Another approach involves using the CPF Investment Scheme (CPFIS) to invest CPF OA balances above the first $20,000. Some buyers use CPFIS-approved investment products, including unit trusts and low-cost investment portfolios, to preserve or potentially grow their CPF savings over the long term. You can choose to retain more of your OA savings by transferring them to your SA. This will allow you to earn 4% interest compared to the 2.5% on OA savings. However, do note that the transfer is irreversible. It could be an option if you wish to follow the 1M65Movement in maximising your retirement savings, by topping up your Full Retirement Sum (FRS) limit in your SA.
Alternatively, you could also take advantage of the CPF Investment Scheme (CPFIS) to invest any amount beyond the first $20,000 in your OA (and $40,000 in your SA). Additionally, through your CPFIS-OA, you can invest up to 35% and 10% of your investible savings in stocks and gold, respectively. You can also invest your OA savings in CPFIS-approved funds that are available from Endowus to achieve a higher rate of return in the long run. Doing this effectively “shields” the pot of money from your HDB flat purchase.
Read Also: Pros And Cons of Using CPF Or Cash To Pay For Your Home Loan
The article was first published on 7 July 2022 and has been updated with the latest information
