Monthly Housing Installment: Use CPF or Use Cash?

"Should I pay my monthly property installment using CPF or cash?"

This is probably a very common question people who just bought their house think of.

Which should you choose?

Let's find out!

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Scenario 1: Use cash to pay for mortgage, CPF money remains in CPF

This is the least common way Singaporeans tend to pay for their property. 

1. You are earning interest (2.5% + 1%), by keeping your money in CPF OA.

2. No accrued interest incurred from using cash to pay for housing loan.

3. You will have less cash on hand, thus it is not recommended to do this UNLESS you have quite a sum of cash or income to sustain your monthly mortgage.

Usually, those people that I know do this tend to 

a) have sufficient cash/salary to pay for their mortgage, and 

b) are keeping their money in CPF to earn the high interest because there is no where else that pays 2.5% (or 4% if you transfer to SA).

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Scenario 2: Use CPF to pay for mortgage. 

This is the most commonly used method to pay for most property purchase in Singapore.

Because the idea is: my money is locked away in CPF. I cannot touch it until age 65, might as well use it to pay for my property.

1. You won't be able to earn CPF interest because the money has been used to pay for your property.

2. You will incur accrued interest, which you would need to return back to your CPF account when you sell your house in the future.*

3. You get to keep cash in your hands! There's a lot of things you can do with cash that's in your hands, like investing! 😉

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Conclusion

Depending on your own circumstance, decide which is the right path for you to take.

There is no right or wrong option; just whether it suits you or not.

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