Ask Aaron Now: Two Biggest CPF Misconceptions Relating To Property

Summary

If you use cash to make payment for your house, you can “earn” interest from your CPF account and receive cash proceeds from selling your property.

If you use your CPF OA to make payment for your house, you will have to refund the accrued interest you would have earned to the CPF OA.

Once you reach 55, you can only use half of the minimum sum of the retirement account to buy the next house.

Article

1: Should you use CPF or cash to make payment?

If you use your CPF OA to pay for the down payment and instalment, you will owe the CPF OA the accrued interest you would have earned on funds used for the home purchase. When you sell your property, you will have to refund the CPF OA.

On the other hand, if you use only cash to pay for your property, your CPF OA will continue to accrue compound interest (around 2.5%) on the same amount you could have used to buy your property.

The difference between using cash and your CPF OA funds to purchase property is substantial. While you “earn '' interest from the government when you keep your funds in the CPF OA, you have to “pay” back the interest back to the CPF OA if you used it for property purchase. While this does not mean you lose money, the proceeds from selling your property will not be in cash, but be in your CPF OA.

In addition, you can always split between using CPF OA and cash. You can easily adjust how much you withdraw from your CPF account and your savings statement account.

2: What happens when you reach 55?

Once you reach 55 and meet the minimum sum of the retirement account, you will receive in-full cash when you sell your house regardless of whether you used CPF or cash to pay for the property. You can use all of the cash proceeds and half of the minimum sum of the retirement account to buy your next house.

In reality, this is highly risky for those who do not meet the minimum sum of the retirement account. The proceeds from selling the property will be refunded into the CPF account and you can only use half of the minimum sum of the retirement account to buy the next house.