CPF housing withdrawal limits: What you need to know

If you're reading this, chances are you're probably relying on — or intending to rely on — your Central Provident Fund (CPF) to pay the monthly mortgage instalments for your property. However, there's a limit on how much CPF funds you can use in some cases.

To avoid the rude shock of realising you've exceeded your CPF Housing Withdrawal Limits for property (and have to pay the remainder of your home loan in cash), read this article.

You'll find out exactly how much of your home can be paid off with your CPF funds.

Understanding the CPF Housing Withdrawal Limits

In a nutshell, the total amount of CPF funds that you can use to pay off your property depends on two limits: the Valuation Limit (VL) and Withdrawal Limit (WL).

Let's take a second to define these: The VL refers to the purchase price or the value of the property at the time of purchase (whichever is lower). The WL refers to the maximum amount of your CPF you can put towards the property, and this is currently set as 120 per cent of the VL.

Note that your CPF savings can only be used if the property you're purchasing is freehold or has a remaining lease of more than 20 years, with enough lease to cover the youngest buyer until they're at least 95 years old.

If you're getting a HDB loan:

For a BTO flat

Good news! Neither the VL nor the WL applies to you, and you can use your CPF to pay off your house in full.

For a resale/DBSS flat

The VL applies to you. If you want to use your CPF savings beyond your VL, then you'll have to:

• Meet the Basic Retirement Sum (BRS) in your Ordinary Account (OA) and Special Account (SA) if you're below 55, or
• Meet the BRS in your OA, SA and Retirement Account (RA), if you're 55 and above.

Detailed scenario:

Say you want to buy a resale flat with a remaining lease of 65 years. Given that the purchase price of the flat is $500,000 and the value of the flat is $480,000, your VL will be capped at $480,000.

Now, calculate your monthly instalment based on your loan amount, tenure and interest rate.

Assuming a $100,000 downpayment, a loan amount of $400,000, a tenure of 30 years and an interest rate of 2.6 per cent, you'll pay $1,601 each month.

With a VL is $480,000, you'll hit the limit within 22 years and one month.

If you're unable to meet your BRS at this point in time, then you'll have to switch to paying cash once this happens. If you've met your BRS, then you'll be able to continue using your CPF savings to pay your mortgage.

(For HDB loans, the WL is not applicable.)

If you're getting a bank loan:

As long as you're taking a bank loan, both the VL and WL apply to you, regardless of your housing type.

For a flat purchase at $500k and valued at $480k:

VL = $480,000

WL = $480,000 x 1.2 = $576,000

Like the previous scenario, you'll have to meet your BRS to continue to service your mortgage with your CPF savings, once you go beyond your VL of $480,000.

The difference here is, that once you hit your WL of $576,000 (at the 27 years, four months mark for a 30-year tenure), you'll have to start paying cash regardless of whether you've met your BRS or not.

Buying a second property?

If you're buying a second property, the WL will be capped at 100 per cent of the VL.

You can use your remaining CPA OA to fund your second property, after setting aside your BRS.

After hitting your CPF limit, the remainder of your monthly mortgage needs to be paid in cash.

Buying a property with less than 60 years of the remaining lease?

You can still use your CPF OA to fund such property, under certain conditions:

Scenario 1: If you have a property financed with OA savings that Doesn't cover you till you're 95:

• You need to set aside the relevant BRS, depending on your age.

Scenario 2: If you have a property financed with OA savings that WILL cover you till you're 95:

• You need to set aside the relevant FRS, depending on your age.

Scenario 3: If you don't have a property financed with OA savings:

The percentage of your OA payments for either of these three scenarios will be pegged to the lower of the purchase price or valuation price of the property.

Also regardless of which scenario you find yourself in, the lease needs to cover the youngest buyer until they're at least 95 years old.

This is the HDB's way of ensuring you'll have a roof over your head while having enough funds for your retirement.

A final word on using CPF funds to finance your property

To minimise the cash outlay for their properties, many Singaporeans will try and milk their CPF for all it's worth. Before you do so, be mindful of whether you'll hit the CPF Housing Withdrawal Limits before your loan tenure is up.

[[nid:515331]]

If you do, make sure you'll have enough cash savings by then and have the financial means to service the rest of your loan tenure by cash.

The more CPF funds you allocate to housing, the less you'll have for retirement, so make sure your debt repayments don't make up the majority of your income.

Also, consider whether it's worth paying your instalments via CPF, given that you face the double consequence of sacrificing the 2.5 per cent interest rate than you would otherwise earn in your CPF Ordinary Account, plus the fact that you'll have to return accrued interest to your CPF account if you sell the property.

Long story short, if you decide to use the bulk of your CPF funds to finance your property, make sure you have a decent cash savings and/or investment plan for your retirement.

This article was first published in 99.co.