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

Tuesday, 27 October 2015

Reducing/Preventing CPF Housing Loans' Accruing Interest

One of our readers asked us this question on our blog: 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? 

We went to do some research and asking and we got the answers for you!
The answer is below:
Yes! You can actually voluntarily choose to use your own money to pay back into your own CPF account the amount of money you used to buy your house.

It has become common for Singaporeans to know that CPF current charges an accruing interest (currently at 2.5% p.a.) on the amount in your Ordinary Account you use to pay for your house.
This accruing interest is not the interest you pay for borrowing money to buy your house.
This accruing interest is the interest you CONTRIBUTE BACK TO YOUR CPF in the future when you sell your house.
This is to make up the difference for what you could have in your CPF account IF you did not use it to buy your house.

More Links
What to Own during Rate Hikes?
Fine Print of CPF Money Withdrawal
5 Financial Things to do in your 20s
Singapore Finance Minister on Personal Finance Part 2
Repaying CPF Accrued Interest - Why?
CPF Housing Interest

If you have spare cash, and unable to find a good place to save with higher interest rates, you can put it to cover your accruing interest.
By reducing the amount of CPF money you used to pay for your house, more of your money will end up earning the CPF interest (2.5% + 1%) instead of coming from the appreciation of your house.

If you sell your house in the future, the accrued interest going back to your CPF comes from the appreciation of your house value.
Your RIGHT Pocket transferring money to your LEFT Pocket - There is NO NET GAIN IN VALUE!

If you put more of your cash into your house, keeping your CPF money intact, then your CPF money can earn Interest from CPF instead of from your house.
CPF Pocket going into your Pocket - You GAIN money paid by CPF!

Of course, the big point is you should have spare cash that cannot earn interests in excess of CPF interest (2.5%+1%).

More information can be found in the link below under "General Information on Housing Matters".

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  1. This info is news to me too. Thank you. Hmmm, I may consider paying up what I "owed" CPF, about 200k. Else I have to pay them 5k every year. It will be nicer if they pay me the 5k instead. But at 2.5%, I will have to consider if it is worth it. I can't get any risk free 2.5% out there now. But with some risk, I could get about 6%. Hmmmm...

    1. Hi An9elfire,

      Glad to know that we helped you know something new! :)
      Do weigh on your near-term cash needs and the returns given before deciding to use the money to repay your housing loans.
      Some times, having more cash at hand is better than having more cash in CPF :D

  2. Question.

    Is there any difference if I use cash to pay off my mortgage and not use the cpf vs I use my cpf and then add in the equivalent in cash into my cpf account.

    Eg. I have outstanding mortgage payment of $5000 and I have $5000 cash.

    Scenario 1 - I use the $5000 cash to pay the mortgage and $5000 in cpf remains, earning interest.

    Scenario 2 - I use my $5000 in CPF to pay the mortgage and at the same time, top up my cpf using the $5000 cash.


    1. Hi,

      Thank you for your question.
      Good question asked, we are currently working on a post regarding your question.
      But jus a short answer first, technically they are the same. However, the difference comes in the topping up of money into your CPF.
      A little more information regarding the top up is here :

      Do stay tune to us, we will post the full answer to your question soon!
      Thank you!

    2. Hi,

      Please find below the answer to your question!
      We hope this answers your question.
      If you have more you like to clarify or you have any other questions, do feel free to ask some more!:)
      We're more than delighted to answer!
      Thank you

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