Personal Finance

Why I’m Making Voluntary Housing Refund To My CPF

Calvin Lo

I was surprised to read that there were more people who couldn’t repay CPF after selling their property in 2020. That seems to suggest that the price appreciation of their property was not even high enough to cover the interest accrued on CPF monies used. That got me thinking about how much interest my wife and I might be accruing in CPF on the housing loan amount, and therefore how much we’re losing out in interest on our CPF.

Read: More people couldn’t fully repay CPF after selling property in 2020, but none required to top up in cash

After checking my CPF dashboard, turns out the number is quite scary. I still owe CPF ~$96K for funds used for housing loan (my wife and I split roughly in half) and accrued interest of almost $13K, after just 5+ years! So basically instead of CPF paying me $13K in interest over the past 5 years, I now owe my own CPF $13K and counting. That is simply compounding working against me.

Using the CPF total interest calculator here, a $300K loan amount for 25 years at 2.5% prevailing CPF OA interest rate will incur more than $100K in interest or as much as 26% of loan amount! In other words, if you can’t sell your HDB at more than 26% profit after expenses, you might fall into the same trap of not being able to fully repay CPF. There’s an allowance that if you sold at market value, CPF will let you off the hook, but you will still have lost out on that interest and your retirement fund is shortchanged.

Currently, we still owe the bank around $127K for the remainder of our housing loan. Our monthly instalment is around $660/month. For now, loan interest rate is still manageable for us but that might change in future. So far, the bank hasn’t informed us of any increase in monthly instalments.

If interest rates increase substantially, I think it might be double whammy for us. In addition to higher bank loan interest, we might also end up accruing higher interest on the CPF monies we used. Not an exciting prospect at all.

Thus, we decided to start paying back the CPF monies we used via the CPF voluntary housing refund scheme using our spare cash. At the current state, I think it works better than repaying the bank loan since interest rates are still below CPF OA minimum 2.5%.

So far this year, we have paid back just enough to cover for one year’s worth of instalments ~$4K each. Should we have more spare cash towards year end, we might return a bit more. That would slow our accrued interest roughly by ~$200 each, and earning that amount in interest instead in our CPF OA.

I’ve weighed this against using our spare cash to pay down bank loan, top up CPF SA/MA, or even investing into the stock market, and decided that making voluntary housing refund seems to be the best option.

Upon returning the monies to CPF OA, we might also decide to eventually transfer to SA to get higher interest. Downside of doing that would be we won’t be able to use that money if we decide to upgrade to a bigger home later on.

Do you make voluntary housing refunds to your CPF? If not, why?

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