Should I Use Cash or CPF To Finance My Property?

Whether to use CPF or cash to finance your home has always been a popular question among many home buyers. This article looks into what CPF can be used for in your property purchase and what happens when you use them.

WHAT CAN YOU USE YOUR CPF FOR?

Some examples you can use your CPF to pay for the following:

·?????? Part of the Down Payment for your property purchase

·?????? Servicing monthly loan mortgages

·?????? Payment for Buyers Stamp Duty (BSD)

·?????? Payment for Additional Buyers Stamp Duty (ABSD)

·?????? Legal Fees depending on law firm

SO WHAT HAPPENS WHEN YOU USE CPF?

CPF was established with the primary mission to provide sufficient retirement support financially for Singaporeans. But at the same time, CPF OA can also be used to fund property purchases - Some might find it challenging to finance their property with cash alone without it.

However, if given a choice to choose using cash or CPF, you should understand the opportunity costs of using their CPF to finance their property.?

Using your CPF to finance your property will mean missing out on the relatively safe and stable interest rates the CPF board gives. According to the latest figures on the?CPF website, the OA’s interest rate sits at 2.5% per annum and?4.0% for the SA.

Unless you have better usage or interest generating activity with your cash, it is a good idea to consider using more cash than CPF to finance your property. Meanwhile, let your CPF grow for your future retirement based on the compound interests the board is giving.

If you sell your property, bear in mind that you will need to return the CPF amount used, plus the accrued interests that were supposed to be accumulated over the years. This means instead of having CPF to earn these interests for you, you will have to do it yourself. It is worse if your property value is on the depreciating trend.

CPF Interest Rates Illustration ( 1 October 2021 to 31 December 2021)

Source: CPF Board

SIMPLE EXAMPLE SHOWING HOW CPF INTERESTS GROW

Assuming a buyer uses S$150,000 down payment for their property and decides to sell after 10 years. Without factoring in the monthly payment via CPF but just the S$150,000 down payment alone, estimated accrued interest rates at 2.5% will be S$42,012.68!

Given a choice, this S$42,012.68 could be earned with CPF instead of earning and saving yourself.

EVERY PURCHASE CASE IS DIFFERENT

Lastly, please remember that everyone has different backgrounds and situations with the above short note. Ultimately, you need to consider your needs and financial position to judge if the above considerations can be applied.

Contact me if you need clarity and proper financial calculation for your property.

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