Singapore-based financial blog that aims to educate people on personal finance, investments, retirement and their Central Provident Fund (CPF) matters.

Wednesday, 13 May 2015

Repay the Accrued Interest from my CPF Home Loan?

20:48 Posted by cheez , 10 comments
Today's post is an answer to the question: Why do I have to return the into my CPF the accrued interest I would have gotten from my CPF home loan?
This question is posted by one of our readers.
We would like to thank him/her for reading and interacting with us by posting a question for us to answer.

MORE LINKS
Accrued Interest More than Housing Profits?
CPF +1% Interest for those age 55 & Above
5 Financial Things to do in your 20s
Singapore Finance Minister on Personal Finance Part 2
Reducing CPF Housing Accrued Interest
CPF +1% Interest for those age Below 55

If you have any more questions regarding this topic, feel free to comment, ask us, or email us.
We would love to hear from you on how you think about this topics or other things that you would like more details/clarity on.

1) What is the Accrued Interest?
The CPF Housing Loan Accrued Interest is the interest that you would have accumulated if you had not used the money in your CPF Ordinary Account (OA) to pay for your monthly mortgage.
However, the accrued interest DOES NOT belong to the CPF. It belongs to you.
The accrued interest goes back into your CPF OA account.

2) Why do I have to return the Accrued Interest?
Assuming you did not used your CPF to buy your house, the monthly contribution into your CPF would have collected an annual 2.5% interest inside your OA. The "returning of CPF principal + accrued interest' is so that your CPF OA account is able to fully reflect the amount that should had been inside if you did not use it to buy a house.
I would say there are 2 big reasons for this:
       a) Keep the money inside CPF at a high level so that you can hit your minimum sum.
       b) Discipline, because people tend to spend the extra cash once they profit from selling a house, thus if a portion of it went into a place that they cannot withdraw and spend, the money is thus saved. 

3) Am I Paying Double Interest via CPF Home Loan?
In a way, yes. You are paying interest to the CPF at a rate of 2.5% + 0.1% (base OA interest rate + 0.1%). In addition, you are also required to top back your OA to the "would-be amount" if you did not use your CPF to pay for your mortgage (OA rate of currently 2.5%).
BUT, you can also consider it as a mortgage loan + forced savings.
You pay your monthly mortgage, and upon selling your house, it automatically helps you transfer some of your money away into a savings plan (forced savings), which you can use for a range of different purposes depending on your age and schemes available.
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10 comments:

  1. Understand that the accrued interest have to paid back when we the property that is used to finance is sold. So if the property is not sold, the amount of OA used will still be incurring accrued interest, in this case can we settle the amount to our CPF OA account using cash to stop it from accruing interest?

    ReplyDelete
    Replies
    1. Hi Bluelite,

      My apologies for this late reply. Please find below the link regarding your question.
      http://investmentstab.blogspot.sg/2015/10/reducingpreventing-cpf-housing-loans.html
      Thank you for your question and thank you for your support!
      We hope to see you asking us more questions in the future!
      Thank you :D

      Delete


  2. [www.omj.ca] offer private loans, commercial Business and Personal loan, with a
    minimum annual interest rate for the period from 1 year to 15 years of maturity anywhere in the world. Their loans are well insured for maximum security.
    you can take a look at this website please: home financing

    ReplyDelete
  3. Hey Thanks for sharing this informative blog it seems very helpful, i was looking for same kind of content about Home Loan

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  4. Thank you for sharing such great information. It was very informative and has help me in finding out more detail about Home Loan!

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  5. Read your post its really informative and keep updating with newer post on housing loan interest

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  6. Read your blog its really informative and helpful keep updating with newer post on Home loan

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  7. Thanks for sharing. If we have accrued interest in CPF, what are the methods to repay this accrued interest before the mortgage loan matures?

    ReplyDelete
    Replies
    1. Hi Brandon,

      You could apply to CPF to repay your CPF home accrued interest while you are still repaying your mortgage loan.

      Delete
  8. I am Penny song i was in need of a loan of S$70,000 and was scammed by those fraudulent lenders and a friend introduce me to Mr Akim Lim,and he lend me the loan without any stress,you can contact him akimlim_loanfirm19@yahoo.com

    ReplyDelete