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The Guide to Refunding Your CPF When Selling Your HDB

Updated: Sep 16, 2022


Financial Fortress_Real estate agent with house model and keys

Finding and buying the perfect residential property in Singapore is difficult enough as it is, but wait til; you find out how complicated it is to sell your home.


Due to Singapore’s limited land mass, our property prices are some of the highest in the world. The average cost of an HDB in Singapore is about S$530,000 or about $507 per square foot, which is why it’s understandable that many people resort to taking out home loans.


The good news is that we can use our Central Provident Fund (CPF) to finance our first residential property. However, if we decide to sell off our home in the future, we need to refund the amount taken from our CPF to make sure we have enough tucked away for retirement.


What you take from your CPF Ordinary Account (CPF OA), must be returned after selling the property.


To help you figure this out, we’ve put together a guide to help you make that CPF refund when that time comes.


 

Are people able to repay their CPF in full?


Financial Fortress_SINGAPORE- 13 MAR 2022_ The CPF (Central Provident Fund)

Over the years, the number of people unable to repay the money borrowed from their CPF accounts to finance their housing has been growing. From 3,960 people in 2019, it grew to 4,580 people in the following year, which is a 13% increase.


Why is this the case, though? Well, when you decide to sell your house, you’re obligated to make refunds from the sales proceeds.


Otherwise, you’ll have to make 2 refunds:

  • your existing home loan’s outstanding balance (can be an HDB loan or bank loan)

  • all the CPF funds taken from your account, including the accrued interest


In sum, the amount you have to pay back includes the principal amount borrowed from the CPF as well as the accrued interest that compounds annually from the date of withdrawal.



What’s accrued interest?


Financial Fortress_Balancing Of Percentage Red Block And House Model On The Small Seesaw

It’s the interest that the principal amount would’ve earned if it was sitting in your CPF Ordinary Account. Currently, the CPF OA interest rate is 2.5% per annum.


Accrued interest works just like compound interests. The more time passes, the higher accrued interest you’ll have to refund back into your CPF OA account.


Basically, the sooner you refund your CPF savings, the less you have to return to your account when you sell or transfer your property.



How to calculate how much you owe your CPF account?


Financial Fortress_close up hands of accountant calculating tax refund using calculator

To determine how much cash proceeds you’ll receive from the property sale, you have to factor in the sales amount, principal amount from CPF, accrued interest, and other legal fees.


If you’re working with a sales agent, you have to consider their commission fees as well.


Take this as an example: if you’re selling your flat for S$550,000 in 2022 and bought it for S$200,000 a decade ago, with a S$15,000 CPF grant and S$20,000 DP via CPF OA. The total loan amount is S$165,000 with a tenure of 20 years.


All instalments have been paid so far via CPF, so let’s say that the outstanding loan amount is S$93,000.


Here’s the formula to calculate sales proceeds:


Sale amount - outstanding loan amount - CPF principal amount used - accrued interests = cash proceeds


S$550,000 – S$93,000 – S$107,000 – S$30,000 = S$320,000


If we assume that legal fees and agent commission cost more or less S$13,000, then you’re left with S$307,000.


In case of a negative cash sale and the amount that you have to return to your CPF account is more than your sale proceeds in cash, CPF will simply write off the additional amount.


You don’t have to shell out any amount above your sale proceeds, but this only applies if you were able to sell your house at market value or above it.



Is there a way to lower CPF accrued interest?


Financial Fortress_Miniature wooden houses and a red arrow down

One of the biggest challenges of CPF refunds is the accrued interest, which tends to grow before our eyes.


Luckily, there are a few ways to reduce the amount you need to return to your CPF account: setting up a voluntary housing refund.

Setting up this account can ensure that you have a larger retirement fund since your CPF funds will keep growing thanks to compound interest.


Another way is to use cash as much as possible when repaying your loan instalments. Although your accrued interest will continue to snowball, it will do so at a much slower rate.


Here are the other ways to lower accrued interest rate, or at least slow down its growth:


  • Take an HDB loan with a 2.6% interest rate and refinance it to a bank loan with a lower interest rate

  • Consider paying a part of it in cash if you can’t afford to pay all your mortgage in cash

  • Take a shorter tenure loan

  • Selling your house will stop the accrued interest from accumulating


Conclusion


Financial Fortress_Miniature houses on coins, mortgage concept

There’s no way around the confusing and complex process of owning and selling a property in Singapore other than knowing the procedures and rules yourself.


Otherwise, you might run the risk of your retirement funds getting compromised in the long run, which then affects your retirement life.


If you’re looking to find out more about CPF refunds, or simply want financial planning tips, send us a message! We can connect you with experienced financial advisors who can teach you everything about home loans and retirement funds in Singapore.

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