Home Loans

Can You Use CPF To Pay Your Monthly Mortgage Bank Loan?

Everyone has heard of using CPF to finance their HDB loans. However, some will be shocked to find out that they can actually use their CPF to finance housing loans from financial institutions. Read more to find out how to do so.

If asked what is the Singaporean dream these days, many couples would throw their hands up and talk about owning their own HDB flat. This is evident from the rising demand for private properties and resale HDB, resulting in the introduction of a cooling measure in December 2021. Many young couples are also vying for the limited BTO spots to move in when they tie the knot in the future.

After the decision of buying a house, the next question will be how to finance it. This will open up options like bank loans and HDB loans.

In this article, we will look at how you can use your CPF to offset the burden of paying back mortgage loans with the help of CPF.

Table of Contents:

HDB Housing Loan

There are some buyers who choose to finance their HDB flat using the HDB Housing Loan despite the 2.6% interest rate which is higher than what banks are offering. One possible factor is that many believe only the HDB Housing Loan can be paid off by CPF monies.

Beyond having higher interest rates, HDB housing loans also have certain criteria that must be met before they extend a loan:

CitizenshipAt least 1 buyer is a Singaporean
Household StatusAll applicants and essential occupiers* listed in the application:
  • Have not previously taken 2 or more housing loans from HDB
  • Have taken 1 housing loan from HDB and the last owned property is not a local or overseas private residential property
* An essential occupier is a family member who has enabled the applicant(s) to qualify to buy a flat. They do not have ownership of the flat and must remain in the flat application, as well as during the minimum occupation period (MOP) after the flat purchase.
Monthly household income ceilingYour average gross monthly household income must not exceed:
  • $14,000 for families
  • $21,000 for extended families
  • $7,000 for singles buying under the Single Singapore Citizen (SSC) Scheme
Remaining Lease of the flatThe loan amount will depend on the extent the remaining lease can cover the youngest buyer to the age of 95.
Remaining Lease of Flat is More Than 20 Years and Covers Youngest Buyer to Age ofLoan-to-Value (LTV) Limit*Loan Period
95 years or moreNew flat: Up to 85% of the purchase price.

Resale flat: Up to 85% of the resale price or flat value, whichever is lower.

Shortest of:
  • 25 years;
  • 65 years minus the average age of the buyers; or
  • Remaining lease at the point of flat application minus 20 years.
Less than 95 yearsPro-rated from the 85% LTV limit, based on the extent the remaining lease can cover the youngest buyer till the age of 95.
The table is simplified. For more information, visit the HDB website below
Source: HDB | Housing Loans from HDB
CitizenshipAt least 1 buyer is a Singaporean
Household StatusAll applicants and essential occupiers* listed in the application:
  • Have not previously taken 2 or more housing loans from HDB
  • Have taken 1 housing loan from HDB and the last owned property is not a local or overseas private residential property
* An essential occupier is a family member who has enabled the applicant(s) to qualify to buy a flat. They do not have ownership of the flat and must remain in the flat application, as well as during the minimum occupation period (MOP) after the flat purchase.
Monthly household income ceilingYour average gross monthly household income must not exceed:
  • $14,000 for families
  • $21,000 for extended families
  • $7,000 for singles buying under the Single Singapore Citizen (SSC) Scheme
Remaining Lease of the flatThe loan amount will depend on the extent the remaining lease can cover the youngest buyer to the age of 95.
Remaining Lease of Flat is More Than 20 Years and Covers Youngest Buyer to Age ofLoan-to-Value (LTV) Limit*Loan Period
95 years or moreNew flat: Up to 85% of the purchase price.

Resale flat: Up to 85% of the resale price or flat value, whichever is lower.

Shortest of:
  • 25 years;
  • 65 years minus the average age of the buyers; or
  • Remaining lease at the point of flat application minus 20 years.
Less than 95 yearsPro-rated from the 85% LTV limit, based on the extent the remaining lease can cover the youngest buyer till the age of 95.
The table is simplified. For more information, visit the HDB website below
Source: HDB | Housing Loans from HDB

The main takeaway is that buyers must not have obtained 2 or more housing loans in the past and meet the income ceiling criteria.

As can be seen above, another benefit of HDB housing loans is that the loan amount is large at 85% of LTV compared to banks, which will only give you 75%.

Other Criteria

Buyers/ transferees have the option to:
  • Retain up to $20,000 of the available savings in each of their CPF Ordinary Account (OA)
  • Use the savings in their CPF OA to pay the stamp fee, registration fee, legal fees, and premium for the CPF Home Protection Insurance (if applicable)
The remaining balance in your CPF OA must be used to pay for the flat purchase or take over ownership of an existing flat before the HDB housing loan can be granted.
The total amount of CPF savings that can be used to buy or take over the flat and pay the monthly mortgage instalments will depend on:
  • Extent that the remaining lease of the flat can cover the youngest buyer or transferee up to the age of 95; and
  • Applicable CPF usage limits for the purchase of:
    • New flats
    • Resale flats

When the allowed CPF amount is used up, you have to pay for the balance purchase price and/or the monthly mortgage instalments in cash.

Down payments are made through the CPF OA with the option to retain up to S$20,000 in the respective OAs. You can use your CPF to finance your mortgage instalment, but when the allowed CPF amount is used up, you will need to pay your mortgage in cash.

Read Also: CPF Savings vs Cash: Which Would Be Better To Use To Pay For Your Home?

Why Bank Loans?

For individuals who are looking for more options other than the HDB housing loan, here are a few reasons why people might opt for bank loans instead.

House Folded using American Bills

Interest Rate

Bank loans offer better interest rates as compared to HDB Housing Loans. You will generally find lower interest rates in the first years and floating interest rates are often significantly lower.

Floating interest rates are pegged to reference rates (e.g. SIBOR, SOR, bank's board rate) that continuously move over time.

Floating rate mortgages can be advantageous when market rates are high and expected to decline in the coming years.

Down Payment

If you are on HDB Housing Loan and using your CPF to finance your repayments, you will be required to use your OA to pay for the down payment. HDB Housing Loans allow you to use all of your OA for the property purchase, granted there is an option to keep at least S$20,000 in your OA.

Banks allow you to finance the down payment in cash for buyers who do not wish to encroach too much into their CPF.

CPF

Although the LTV for bank loans is lower, you can use a greater amount of your CPF to finance the mortgage loan. HDB loan only allows you loan up to the lower limit of the valuation/purchase price, after setting aside the basic retirement sum (BRS). Bank loans on the other hand allow you to loan an additional 20% for the property if you have set aside your BRS.

What this means is that banks will lend you lesser than HDB, but going the route of bank loans allows you to use more of your CPF to finance the mortgage.

HDB Housing Loan Vs Bank Loan: Real Cost

LoanTypeLock-InInterest RateMonthly repayment (S$)Total Interest Cost (S$)
DBS Home LoanFixed Interest Rate22.45%1,561100,912
DBS SORAFloating Interest Rate21.36%1,37771,380
OCBC SORAFloating Interest Rate21.46%1,39372,040
RHB BoardFloating Interest Rate31.40%1,38384,892
CITI SORAFloating Interest Rate21.51%1,40185,204
HSBC SORAFloating Interest Rate21.56%1,40986,884

The table above shows the various loans that the banks offer. Accurate as of June 2022, the floating rates will offer you better interest rates and total interest costs.

If you were to use the HDB Housing Loan, it will cost you S$1,588 for a S$350,000 loan and S$1,800 for the full 85% loan at S$396,666. In this case, bank loans will be much cheaper in the long run.

Do note that the floating interest rate is pegged to reference rates and subjected to change.

Read Also: Best Home Loans in Singapore 2022

A Step-By-Step Guide To Applying For A Bank Loan & Paying With CPF OA

Landscape with HDB Flats

Resale Flat

  1. Work out a price with your seller.
  2. Before you sign any contracts, head down to the bank to obtain your In-Principle Approval (IPA) of your housing loan.
  3. Once you have your IPA and agree on the price, the seller can grant an Option to Purchase (OTP)
  4. Once you have signed the OTP, you will have 14 days to find a suitable home loan to finance your purchase.
  5. Prepare 5 - 10% of the purchase price (less the option fee) to pay for the down payment. For HDB properties, the deposit must not exceed $5000 (less the option fee).
  6. Prepare the required documents for your home loan application:
    • Mortgage Loan Application form
    • Declaration of Credit Facilities form
    • Copy of NRIC or Passport
    • CPF contribution History up to the last 12 months
    • Latest Income Tax Notice of Assessment
    • Latest computerised pay slip
    • Latest available statement for all existing credit facility (ies)
    • Option to Purchase (OTP) or Sale and Purchase (S&P) Agreement

Click here for more information on purchasing a resale HDB flat.

New Flats

The steps to getting a bank loan are similar to the resale flat. Take note of the timeline as the balloting process and BTO approval may take significantly longer than getting a resale flat. The important thing is to get your IPA in due time and secure a loan quickly once you get your OTP.

Click here to find out more about buying a new flat.

How to Pay Off Your Bank Loan With CPF

To pay your mortgage loan with your CPF, follow these steps:

  • Visit CPF Website and login with your Singpass.
  • Under my cpf, select My requests.
  • Under Property, select Use CPF for my Property.
  • Select your property under Property Details and click Next.
  • Select Make Lump Sum Payment and click Next.
  • Click Start and complete the following:
    • Financier: (Your bank/financial institution)
    • Key in your partial repayment CPF amount
    • Indicate the deduction date as 5 working days before the processing date of your partial repayment request
  • Read the Terms & Conditions and select the checkbox to provide your Declaration, Click Next.
  • Confirm that the information you have provided is correct and click Submit.

Considerations

In the best-case scenario, it will be better to not touch your OA as much as possible. Instead, actively moving your OA to your SA will bring more benefits as the interest rate is higher at 4%. With the compounding effect, you can earn much more by keeping your money in SA and get to retire earlier.

However, this is not a privilege for many young homeowners and using CPF for the downpayment and instalment is an option to reduce financial stress.

Banks and other financial institutions suffer a little in the loan amount. The loan amount is typically around 75% to 80% of the purchase price, while HDB Housing Loan goes up to 85%. The remaining amount is to be paid by cash or CPF OA. On top of that, 5% of the fee needs to be paid in cash.

However, this can be a good thing for most buyers as you can make adjustments not to spend too much of your OA on the initial payment. Beyond that, loan repayments will be cheaper in the long run as the interest rates and borrowed amount are lower.

Choosing to go for bank loans will result in greater overall savings. You will be able to enjoy lower interest rates on top of using your CPF to finance the mortgage. This forces you to wait a little longer and save up more. By doing so, your CPF will have more fund to comfortably repay the mortgage and your CPF account will still have funds to earn the interest rates.

Conclusion

Being new homeowners is an exciting part of adulting. It is important to plan your finances well and ensure that you will be able to keep up with your repayments.

Do not sink your entire CPF just for your house. Leave some funds inside so that you can earn the relatively high interest rates CPF provides.

Lastly, make sure you go through the procedures carefully so that mishaps like expiring OTPs or failing to secure loans in time will not happen to you.

Read Also

Tan Boon Hun

Boon Hun spent over five years in the content marketing space as the managing editor of Goody Feed creating interesting and relevant content for the social media generation. In 2022, he moved to the FinTech space while remaining true to his roots, intending to bring financial literacy to more people in Singapore. When not doing his work, he can be found watching people build homes on YouTube.

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