Changes in use of CPF funds for HDB housing loan

Soon, HDB buyers can better prepare themselves financially for retirement with the option to leave up to $20,000 in their ordinary account before using the rest to pay for their HDB housing loan.

HDB buyers can leave up to $20,000 in their OA account

Blossom Spring, BTO, Yishun. Picture: HDB

Previously, flat buyers who took a housing loan from HDB had to use all of their CPF ordinary account funds before the remaining could be loaned.

The motivation behind this change is to help buyers leave some funds behind for their retirement.

This only applies to those taking a loan from the Housing Board. Buyers who took bank loans already have the option to leave money behind in their CPF accounts.

This new regulation will apply only to buyers of new BTO flats, those who have yet to receive keys for their new BTO flats and also new resale flat applicants.

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New regulation a gain or a bane?

Kim Tian Road, Tiong Bahru. Picture: iProperty

Currently, monies in the CPF special account (SA) can only be used for retirement. The SA has interest rates of up to 5%. Monies from the ordinary account (OA) can be shifted to the special account as well. The interest rate for the OA is 2.5%.

Providing buyers with the option to leave up to $20,000 in their OA means they can potentially earn $32,772.33 over 20 years, which is about the same tenure for a housing loan.

Some buyers may welcome this change as it provides them with an option to add to their retirement fund from an earlier stage in their lives. But one of the considerations is that the interest rate for HDB loan is 2.6%, 0.1% point higher than the interest rate for the OA.

Thus buyers who may be thinking of taking larger loans just to keep $20,000 in their OA may have to think twice as that may not save them money in the long run.

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