Many questions have been put to Aaron about CPF accrued interest and how it affects Singapore Citizens/PRs who use money from the CPF OA to pay for property. We are here today to explain this concept and how it affects property owners, as simply as we can.
Summary: The CPF amount used on your property needs to be paid back with interest when you sell your property. Use cash to redeem the amount paid to reduce interest incurred on the amount taken from your OA.
What is CPF accrued interest?
CPF pays out an interest to funds in your Ordinary Account (OA), and if you use your OA to pay for your property, you are required to pay the interest that would otherwise be accrued on the same amount. The CPF amount used on your property and the total interest accrued needs to be paid back to your CPF OA when you sell your property.
Monies in your CPF account will earn an interest paid by the government. The interest rate on the OA is 2.5% p.a at the time of writing. At the same time, you are allowed to use a portion of your OA monies to pay for your property, be it down-payment or instalments. The total amount of monies withdrawn from the OA will then be calculated and charged the same interest rate that you were supposed to get from the government.
So, instead of the government paying you the 2.5% interest p.a, you are now liable to pay back this interest amount to your OA, thus the term accrued interest.
Checking the amount used & accrued interest
In order to check on the amount of CPF monies used on you property and the corresponding accrued interest, go into the CPF website and service.
Log in with your Singpass
Check My Statements
Check Property
Check Property Withdrawal Details
You should see two columns on the table, the first which reflect the amount used on your property purchase and the second being the accrued interest.
Accrued interest is the amount of interest you would have gotten from the government if you did not use money from your OA to pay for your property.
Example
To further illustrate the concept of accrued interest and how it might affect you, we have a simple example.
You used 100k from the OA to pay for your property.
There is an accrued interest of 30k.
If you are selling your property for 130k, the cash earnings from this transaction then needs to be paid back to your CPF account (100k + 30k interest).
Negative Sale
What happens if you have a negative sale? Instead of 130k, you sell the property at 110k.
There is a shortfall of 20k on the accrued interest you now owe to your CPF OA.
Based on the rules, the shortfall of 20k has to be paid back in cash. However, from experience, there is a need to appeal to HDB. If the selling price is in line with market price, and you can prove a genuine effort to sell the unit, usually, there can be a waiver by the HDB officer.
The rule is there to prevent under table transactions and parties that might try to extract cash from their CPF accounts through dubious means. So, if you are genuinely unable to pay back the shortfall due to negative sale, then an appeal should be able to waive off the required payment.
Decoupling
For property owners looking to decouple their property, you would first need to pay back the full amount used for your property into your OA. The reason is that you are not able to give away any CPF OA monies to others.
After redeeming the amount with cash, your property is considered paid by cash and thus available for decoupling and giving away this cash amount.
Conclusion
For property owners that used monies from the CPF OA to pay, if you have cash on hand, Aaron recommends redeeming and using your cash to pay back the amount used from OA. The reason being, you would be able to enjoy the guaranteed interest given by the government on the amount in your OA.
Instead of being liable to pay the interest on OA, you retain the earnings from any appreciation in your property's price while also earning interest given by the government.
Aaron clears the air about CPF accrued interest in this simple to understand video!