Today's post is an answer to the question: Why do I have to return into my CPF account the accrued interest I accumulated?
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1) What is 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.
So because you took it out, it could not earn the accrued interest, so that 'interest charge' is accumulated.
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 use your CPF to buy your house, your CPF OA balance would have earned an interest of 2.5% every year from CPF.
That money will be kept inside your CPF and would continue growing every year.
When you sell your house, you return into your CPF OA the amount that you had taken out to pay for your house (principal), plus the interest you would have earned if the principal was not withdrawn to pay for your house.
The "returning of CPF principal + accrued interest' is so that your CPF OA account can fully reflect the amount that should have been inside if you did not use it to buy a house.
I would say there are 2 big reasons for this:
a) Keeping the money inside CPF ensures that you can hit your minimum sum faster.
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.
Recommended Read: Moving CPF RSS to 90 is a Good Social Experiment
3) Am I Paying Double Interest via CPF Home Loan?
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.
4) What if I Don't Want to Pay the Accrued Interest?
Well, there are 2 ways:
- Pay for your home with cash and not with your CPF money.
- Don't ever sell your house. You only have to return the money into your CPF if you sell the house. If you never sell, you never need to return.
Recommended Read: What is CPF Basic Retirement Sum (BRS)?
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