Buying your first home can be a really taxing period. There is just so much information any young prospective homeowner would need to know. Put that together with the biggest financial commitment that most people have to face and you get the perfect recipe for more stress.
However, the Government has taken steps to lighten that load with the CPF housing grants. Here are the three tips you need to know about the grants before you purchase your dream home:
1. Find out exactly how much CPF housing grants you are eligible for.
One of the first things any young Singaporean couple will have to do before they start looking for their new home is to settle their finances. It is important that they have a good idea of how many loans they are able to get and the monthly repayments required.
For this, you will need to know how much CPF housing grants you will be eligible for. In some cases, you might be eligible for up to $80,000 in grants for first time home buyers for BTO and up to $110,000 for resale!
Determining how much CPF housing grants you are eligible for will also depend on the location you choose and the size of the flat. This will help you to get a clear understanding early on.
So, how exactly do you determine how much CPF housing grants you are eligible for? You can always go to the HDB website to find out more, but it’s a whole lot of information to sieve through and digest at one go. We have created a CPF housing grant interactive quiz, where you can find what you qualify for in just a couple of minutes! Try it out here.
2. You have to pay back accrued interest on your CPF housing grants.
No doubt, the CPF housing grants to help reduce the cost. But it is not a direct deduction of the price of an HDB flat; it is credited to your CPF account and then deducted straightaway. As a result, when you do sell off your flat, you will have to “pay” back the grant to your CPF account with the accrued interest.
3. You have to pay back accrued interest on your CPF money used to pay for the flat.
Firstly, you will HAVE to pay back whatever that was used to pay for the flat using your CPF.
Secondly, you HAVE to pay back the accrued interest on the amount that was withdrawn. To put it simply, you are effectively borrowing from your pension fund to pay off your flat. This is because if at any point you decide to sell, you will have to pay back into your CPF account the same amount that was taken out PLUS INTEREST (2.5%).
This accrued interest is what you would have earned had you not used your CPF to pay the monthly mortgage. Of course, at the end of the day, it is still your money that would help towards your retirement. But many people do not like the idea of this forced savings, and that will be another story for another day.
In general, you have to remember that your cash proceeds will never be as high as you would think. This is because, after the sale of the house, the bank will be paid off first, followed by your CPF account, and finally the remaining in cash. So the longer you have used your CPF to pay for your HDB flat, the fewer cash proceeds you will get back when you sell it off.
Having said that, one important point is if the sale proceeds after paying off any outstanding mortgage are lower than the sum of principal amount and accrued interest, you will not be required to top up the shortfall as long as the property is sold at or above the current market value.
Lastly, if you are above 55, the CPF refund into your OA will be used to top up both your Retirement Account and Medisave Account to the latest respective minimum sums. Any excess CPF funds will be paid to you within five working days.
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