Common terms that we can easily relate with

When we bring up the topic about buying a home, we often get excited and relate this to how we can utilize our CPF savings and/or HDB grants to purchase and finance our home.

However, we tend to overlook the longer term perspectives during this initial stage.

Uncommon terms that we easily FORGET to relate with

So, what happens after? When the family is bigger now and a larger home is required?

Or perhaps a home is now needed in a different location?

It is prudent to think for the future and get acquainted with the term, CPF Accrued Interest.

What is CPF Accrued Interest?

First things first, CPF Accrued Interest is applicable to all CPF members who have utilized funds in their CPF Ordinary Account (OA) to pay for the initial down payment and monthly mortgage loan installments for their property.

It is the interest amount that CPF members would have earned in their OA, had they not withdrawn for their housing needs.

With CPF’s goal to ensure that we have sufficient retirement savings, when the property is sold, owners will need to return the drawn down principal amount PLUS the Accrued Interest, back into your CPF OA.

This amount may include the following:

The initial down payment that was withdrawn from our CPF account

The monthly installments that were withdrawn to pay our mortgage loan

Any HDB housing grant(s) that we received for our HDB flat

The CPF Accrued Interest on all the above

Note: Our HDB housing grants are given to us via our CPF when we buy our BTO or HDB resale flat.

This means that we will start to accumulate CPF Accrued Interest on these funds as well.

Now, with this understanding, let us dive deeper to take a good look into this policy and learn how to apply this to our best advantage.

How CPF Accrued Interest affects HDB cash proceeds after selling?

Let’s re-establish some basic information before we move on with our case study:

1) CPF pays you 2.5% interest per annum for funds in your CPF Ordinary Account (OA)

2) When you withdraw your CPF funds to finance a property, you will “stop” earning the 2.5% per annum (as above)

3) When you sell your property, the 2.5% interest per annum that you were supposed to have earned, will be paid back into your CPF Account (OA) as if the funds had not been withdrawn. This is on top of the sum that was used for the initial down payment and serving of monthly mortgage loan

4) When you sell your property, the sales proceeds are being paid in the following order – (1) Bank (2) CPF (3) excess in cash to you

Case Study:

Mr and Mrs Ong, purchased a 4-room BTO flat in Punggol for $350,000.

They used $200,000 from their CPF OA and $150,000 loan to finance the house.

Assuming they had only used $200,000 CPF as the initial down payment.

After the 5-year MOP, they decide to sell their 4-room BTO flat and upgrade to a bigger home.

With reference to the table above, at Year 5, the total accumulative CPF Accrued Interest stands at $26,281.64.

So upon selling their flat, the amount to be returned to CPF OA, will be $226,281.64 – the principal amount PLUS Accrued Interest over 5 years.

If the selling price of the flat is $450,000, Mr and Mr Ong will get the remaining sales proceeds after settling any outstanding HDB loan amount and repaying $226,281.64 to their CPF OA.

WHAT IF?

Mr and Mr Ong stayed in the flat for 10 years before deciding to sell their home.

Again, with reference to the table above, at Year 10, the total accumulative CPF accrued interest stands at $56,016.90 and the total amount to be returned to CPF OA, will be $256,016.90.

If the selling price of the flat remains at $450,000, it would mean lesser cash proceeds for Mr and Mr Ong to use, towards their next property.

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