Should I use cash or CPF to service housing Loan?

Should I use cash or CPF to service housing loan?

As I’m expecting to get a BTO flat in the next few years. I have been diligently reading up on housing related topics these few weeks. A HDB loan would probably be the most suitable option for myself because of my financial situation. I would not go into the details of why i have decided to go with a HDB loan but you can check out a few of these pages (here, here and here) that have provided useful insights to help you make your choice. Once you have selected your poison, you will need to decide if you want to service your loan with cash or from your CPF-OA. There are pros and cons to either options. Currently, I prefer cash over CPF.

1) CPF is for retirement

It is a fact that life expectancy is increasing, with more people living past 90 years old. Assuming that we retire at age 65, that is 25 years without income plus increasing health care expenses as we get older. To keep up with inflation, the basic retirement sum needs to be raised every year. According to CPF’s website, a Basic Retirement Sum (BRS) of $83,000 would enable you to receive an annuity of $700 per month. An annuity basically guarantees you a monthly payout till death. All you need to do is survive till 75 to “break even” as you would have received $84,000 in total payouts. In my opinion, $700 is only sufficient if you have other streams of passive income or live a very basic lifestyle. Another option you can go for is the Full Retirement Sum of $166,000 (2x BRS) to get an annuity of $1,280 instead.

*Note that you need to hit the BRS at age 55, while annuity payments only starts later at age 65

Based on past history, the basic retirement sum increases by 3% each year. So I generated a forecasted BRS up to the year 2050.

Year Basic Retirement Sum
2020  $                                           90,500
2030  $                                         121,624
2040  $                                         163,453
2045  $                                         189,487
2050  $                                         219,667

To be honest, hitting the BRS is not that difficult if you have a stable job since CPF’s interest rates of 2.5%-5.0% can greatly accelerate the process. You can use this calculator to test if you are able to hit the BRS. Wiping out your CPF to pay for your mortgage loan could potentially delay your retirement because your CPF  accounts have less time to accumulate. If you are self-employed, some voluntary contributions to your CPF-SA early on can really make a difference in the long run.

2) Lost Opportunity cost

Upon selling your HDB home, you will need to return every penny you took from your CPF out to pay for your mortgage loan including accrued interest. Accrued Interest is what you would have earned in your CPF if you did not take the money out of your CPF account. This means that you would get very little cash from selling your home especially after changes to the Cash-Over-Valuation (COV) of resale flats. Furthermore, because the accrued interest component accumulates over time through compounding, the accrued interest is ever snowballing. The difference this time is that you are now the person responsible for funding the growth of your retirement funds instead of the government.

Some positives to using CPF to pay for mortgage loan?

The counter argument is that you could use the cash to get a better return than 2.5%-5% in the stocks market. However, that it is not a fair comparison because the interest from CPF is almost risk free while the stocks market carries a higher risk. It is not a fair apple to apple comparison. But if you are confident, then paying through CPF would indeed be the wiser choice.

Having said all that, there are some merits to using the CPF to pay for your home. Singaporeans get to own a home without having to use much cash. This is especially important to families that are struggling with cash flows on a month to month basis. Of course, there is always a risk that the CPF is a giant ponzi scheme by the government and Singaporeans would lose everything, haha ;). You can never predict the next 40 years.

*One of my reader also mentioned that you can also do voluntary contribution to CPF up to $7,000 with cash to receive some tax rebate. This would be useful if the rebate helps you to drop income tax bracket.


The main goal of the CPF is to make sure we have enough for our retirement. We should ideally use the CPF for this objective. It is generous in some ways by offering up to 5% interest on the first $60,00 in our S.A. This $60,000 is already more than sufficient to grow into the BRS after 30 years ($250,000), anything extra we can simply withdraw at age 55 if needed. People also tend to think that they can consistently generate returns higher than 2.5%-5.0% from the stocks market. Personally, I would rather have some form of retirement security blanket before i go on to take on more risks or attempt to beat the market.

Are my arguments invalid? or perhaps you have another view? Share it with me in the comment section below.


Just a soul exploring life

2 thoughts on “Should I use cash or CPF to service housing Loan?

  • April 11, 2017 at 1:39 am

    Hi there, just my 2 cents, i believe there are some upsides of using CPF to pay for mortgage loan which you might want to consider.

    Let’s look at another perspective for your point ‘CPF is for retirement’. I believe another alternative is that we could also use the extra cash (which we saved by paying for the loan using CPF) to do voluntary contribution to SA (up to 7k) or MA (depending on contribution limit) for tax rebate. In a way these make more sense to me as the extra tax rebate and the extra interest of SA is not negligible.

    ‘Lost Opportunity cost’ is a very valid point. But it would only affects people that are intending to sell their home. (albeit we can’t predict the future) In a way, we could also use cash to do voluntary refund on the housing amount withdrawn from CPF in order to pay back less accrued interest, this could be another way you might want to consider.

    Last but not least, I am glad that you also brought up the cash flow issue which i think is a very real thing especially for newly-weds, all the expenses including wedding, kids, etc. All in all, I sincerely hope you will take your time to consider more scenarios and make a correct decision which is right for yourself. =)

    • April 11, 2017 at 3:21 am

      Hi James,

      You have brought up many good points which i did not considered, such as extra tax rebate from Voluntary contribution and doing voluntary refund on the housing amount withdrawn to reduce the opportunity cost. I do hope to eventually upgrade and sell my home which is why i am uncomfortable with the accrued interest. The good thing is that i do have some time before i need to make a decision so i really appreciate any advice. Thank you for your contribution !


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