In Singapore, there are many ways to finance your housing. One of the most popular ways to do so is through the Central Provident Fund (CPF). 

In this article, we shall discuss everything about a CPF housing loan, from what it is to how to pay back CPF housing loan.

What Is A CPF Housing Loan?

A CPF housing loan is provided by the  Central Provident Fund Board to Singaporeans looking to purchase a property. The aim is to help individuals with their housing needs and encourage homeownership among Singaporeans.

The CPF housing loan is a great scheme that has helped Singaporeans achieve their homeownership dreams. 

It is a loan with attractive terms and conditions. To qualify for a CPF housing loan, the buyer must be a Singapore citizen or permanent resident. The property must also be located in Singapore.

Thanks to the CPF Board, even when one lacks the cash to finance the purchase of property outright, one may still be able to use their CPF savings to take out a loan and purchase a property.

CPF Housing Loan Refund

The loan amount you are eligible for will depend on the amount of money available in your CPF account. 

The more money you have in your CPF account, the higher the loan amount you will be able to take out.

After taking out a CPF housing loan and completing the whole process of buying a property, you are required by law to make a CPF refund upon selling the home. 

The refund will be based on the amount of money you used to finance the property purchase. 

This refund will go back into your CPF account and can be used to finance the purchase of another property or for other purposes.

It will help if you keep in mind that the CPF housing loan comes with an interest rate of 2.5% per annum, which means you would need to pay back more than the principal amount you had borrowed.

For example, let’s say you had used $500,000 from your CPF to finance the purchase of a property. 

In that case, you would need to pay back $512,500 to the CPF Board upon selling the property, assuming that the interest rate remains at 2.5% per annum.

However, if you sell the property below its market value, you will have to make up for the shortfall in the refund to the CPF Board. 

For example, if the property is sold at $490,000 and the outstanding loan amount is $500,000, the seller will have to top up $10,000 to the CPF Board.

In short, the CPF refund protects the CPF Board’s interest upon selling a property. 

It ensures that the home buyer does not profit from the sale of the property and can only get back the money they had initially borrowed.

Voluntary Refund For Your CPF Housing Loan

While it is required by law to make a refund to the CPF Board upon selling a property, you can choose to make a voluntary refund to the CPF Board even before selling the property.

During the Covid-19 pandemic, there has been an increase in people making voluntary refunds to their CPF accounts. Unlike before, the number has more than doubled.

Why You Should Make A Voluntary Refund For Your Housing Loan In Singapore

There are many reasons why you should make a voluntary refund on your housing loan in Singapore. Some of these reasons are:

To Have Money To Fund Your Next Purchase

Making a voluntary refund on your housing loan in Singapore reduces the amount you owe your CPF account. It helps reduce the accrued interest on your housing loan.

Moreover, if you pay a larger sum of money as a voluntary refund, you will have more funds available when you sell your property to help you pay for your next purchase.

To Have Less Stress When Selling Your Property

Upon selling a property, you will be required to refund the housing loan. 

If you have made voluntary refunds, you will have less money to worry about, and the process will be much smoother.

To Earn 2.5% Per Annum Interest On Your Savings

The CPF Board gives you an interest of 2.5% per annum for the money in your CPF Ordinary Account (OA) account. Thus, by making voluntary refunds and depositing more money into your OA, you get to earn more interest.

How Much Voluntary Refund Can You Make?

You can make a voluntary refund on your housing loan at any time, for any amount and as little as you want. You don’t need to wait for your regular scheduled payments. 

How To Make A Voluntary Refund

Making a CPF voluntary housing refund in Singapore is a process that can be done using two methods. You can do so through:

• The CPF mobile app
• My CPF digital services

The CPF Mobile App

The first way of making a refund is through the use of the CPF mobile app. This is the most convenient way to do the refund anywhere and anytime. 

The steps are as follows:

• Go to the CPF app and open it
• Log in with your Singpass
• Select the “Services” option
• Choose the “Voluntary Housing Refund” option
• Enter the amount you wish to refund
• Click on the “Submit” button

My CPF Digital Services

The second way of making a refund is through the use of my CPF digital services. You can do this on the CPF website. The steps are as follows:

• Go to the CPF website
• Log in with your Singpass
• Select the “My Requests” option
• Choose the “Make a housing refund with cash” option
• Fill in the form
• Select the payment method of your choice
• Enter the amount you wish to refund
• Click on the “Submit” button

How Much CPF Voluntary Housing Refund To Make

While you can pay any amount of your principal housing loan, it would help if you make a significant voluntary payment. 

This is because, with each voluntary payment, you are reducing the interest amount you will need to pay.

In the long term, making voluntary payments can save you a lot of money. 

Ideally, paying off at least 10% of your housing loan each year would be best. In other words, if you have a housing loan of $300,000, you should aim to pay back $30,000 yearly.

You don’t have to make voluntary payments every year. 

But if you can afford it, making voluntary payments is a great way to reduce the overall cost of your housing loan. Talk to your lender if you’re unsure how much you can afford to pay.

How To Pay Back CPF Housing Loan

Let’s look at how to pay back CPF housing loan. You can repay CPF used for housing in several ways, depending on the amount you want to refund and your financial situation.

• If you have the cash, you can refund the entire amount you owe on your housing loan. This is the most straightforward way to refund your loan.
• If you don’t have the cash to make a one-time refund, opt for regular monthly payments until the loan is fully repaid.
• If you cannot make regular monthly payments, make a partial refund of your housing loan. This means you’ll still owe money on your loan but will have paid back some of the principal.

How To Pay Back CPF Accrued Interest

If you take a housing loan from the CPF Board, you’ll need to pay back the principal amount plus any accrued interest. 

The accrued interest is calculated based on the average balance of your CPF account during the year. It is what you could have earned had you left your CPF savings in your account to grow.

For example, the average balance in your CPF account during one year is $50,000. 

The accrued interest for that year would be $1,250 ($50,000 x 2.5%). This accrued interest will be added to your housing loan principal when you make your next CPF payment.

So if you’re paying $500 per annum towards your housing loan, your next CPF payment will be $1,750 ($500 + $1,250). 

Paying back the accrued interest is essential because it reduces the interest you’ll need to pay in the future. In the long term, this can save you a lot of money.

CPF Housing Refunds After The Age Of 55

You may wonder how to pay back CPF housing loan after you turn 55. 

After the age of 55, you are required to refund the total amount of your housing loan to your CPF account, that is, the principal amount you withdrew, plus any accrued interest – unlike in the past when you only needed to pay only the minimum sum deficiency.

This refund amount is the one that will be used to set aside the minimum sum applicable to you in your Retirement Account (RA) at the time of your retirement.

It is also the amount required in your MediSave account. Any remaining housing refund will automatically be disbursed to the cash portion of your RA.

Finance Your Home With A CPF Housing Loan

The CPF housing loan is a great way for Singaporeans to finance their housing needs as it is a loan with attractive terms and conditions. 

While taking out a CPF housing loan is beneficial, paying it back is also essential.

As discussed, there are different ways of how to pay back CPF housing loan. 

However, making a significant voluntary payment each year would be best. This is because with each voluntary payment, you are reducing the interest amount you will need to pay.

If you are looking for a loan, Horison Credit is the perfect place for you to get one. 

We are a reputable licensed money lender that helps borrowers find affordable loans without compromising their financial responsibilities. 

Contact us today and find out how to get cheaper rates, or apply for a loan now.