The majority of buyers would opt to use their CPF to pay for their HDB loans. Another common practice, these buyers would use a combination of both cash and CPF.

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Unfortunately, the majority of these decisions are only because they believe it is a common practice by many.

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And if the reason for your choice is because it is the “common practice”, then you’re actually not doing justice for your old self.

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The Ultimate Question To Ask Yourself

Buying a property in Singapore could possibly be the largest purchase in your life. However, before you decide which to choose, you need to ask yourself; “What is my financial goals and needs now?”

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And ultimately, “What is my retirement plan?”

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Because where you choose to put your money (especially your CPF) today, will greatly affect your retirement plans in the future.

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Why use CPF for HDB loans

Many home buyers want to make full use of their CPF funds and it seems like a “lesser” financial investment to start with. This leaves them with more cash, for renovations, furnishing or personal investments.

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Unless we can all spend our CPF in our daily lives as we do with our Cash, then the decision would be as obvious. Due to the limited opportunities, we have to use our CPF, many would opt to use their CPF funds for housing.

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Why use Cash for HDB loans

So why you shouldn’t use CPF for HDB loans? The government created this compulsory savings scheme to provide Singaporeans support and security during their retirement days.

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Risk-Free Investment
If your long-term plan is to fund your retirement using CPF, you planned well. Its compounding power is the greatest risk-free investment you can make. Interest of 2.5% per annum to your Ordinary Account (OA) and 4% per annum to your Special Account (SA) without significant risk makes it impossible to beat.

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More CPF Used = More Interest to Pay
Another less-known fact about funding your home with CPF is the Accrued Interest. You actually need to refund CPF funds back with accrued interest after you sell your property.

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This 2.5% interest to be accounted for can be a hefty sum to pay and it might be worse if you ended up with a negative sale. Even after making a loss, you need to return this interest.

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Sitting on Cash
If you have paid with cash, this means your CPF is untouched and you’ll be ending up with more Cash Withdrawal from CPF when you reach the age of 55.

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And on your side, you got a “Piggy Bank” – Your Property. Unlike a car that depreciates despite you paying cash monthly, however much cash you invested into your property is remains that amount for you sell for profit or what you paid for.

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Conclusion

If you understand the roles of CPF and HDB loans very well, you’ll be able to plan your retirement with ease. We don’t want to be spending our retirement days paying interests and bills! Get your preferred realtors to work this figure and forecast for you or you can also use the free housing loans and CPF calculator tools available online.