Emptying your CPF Ordinary Account (OA) to pay for property and service your mortgage is one way you can get some utility out of your CPF savings before you hit retirement age.

But you might have heard voices whispering that you should 'refund' your own CPF account by paying back the money you’ve used for housing. Do you really benefit by doing so? Let’s take a closer look.

What is CPF housing refund?

For the vast majority of cases in Singapore, CPF housing refunds happen only when someone sells a home they have bought with CPF savings.

Once the home has been sold and the sale proceeds received from the buyer, the original owner has to refund to his or her CPF accounts the full sum of money that was withdrawn to pay for the property, with interest. This includes any CPF Housing Grants.

If the property is sold below market value, the seller will have to make up for any shortfalls in cash. Ouch!

When you make a voluntary CPF Housing Refund, you are paying this money back without waiting to sell your home.

There’s actually been a surge of people making voluntary CPF housing refunds during the Covid-19 pandemic, with the number tripling over the past year.

Yes, you heard that right, people are voluntarily trapping their money in CPF! But why?

Pros of voluntary CPF housing refund

Turns out, there are some benefits to making a CPF Housing Refund.

When you sell your property, you need to refund any CPF monies used with interest. And not just any interest, but the CPF Board’s interest rates. The current CPF OA interest rate is currently 2.5 per cent, which is significantly higher than current bank housing loan interest rates.

When it comes to high interest rates, it’s much better to be on the receiving end than on the giving end.

By making a voluntary CPF housing refund, you not only get to reduce the total amount of interest you need to pay, but you also allow your money to sit in your OA collecting interest in subsequent years.

This also makes it a lot less stressful for you when you eventually sell your property, as you save yourself from losing a chunk of your sales proceeds and discovering that you need to pay back a ton of accumulated interest.

Cons of voluntary CPF housing refunding

For those who are actively investing, making a voluntary CPF Housing Refund might not be that attractive an idea if you can get better returns on your cash than the CPF interest rate. This is especially so for younger people who can stomach higher risk, higher return investments.

Another disadvantage of making a CPF Housing Refund is that your money gets stuck in the CPF system before its time. You won’t see it again until you decide to buy another property or reach the age where you can make withdrawals.

So, if you have cash flow issues, it might be wiser to just keep your cash in hand.

Should you do a voluntary CPF refund?

Assuming you have cash to spare, a CPF Housing Refund might be a good idea if you have money lying around that you have not earmarked for investments that you think can get a higher yield than CPF OA interest rates.

But because of the inflexibility of the CPF system, you need to make sure you really don’t need the cash before making the Housing Refund.

So, you want to first ensure you’re financially sound, are consistently free of high interest debt like credit card balances, and have an emergency fund of cash savings worth a few months’ worth of expenses.

You should also think ahead to the future to be sure you won’t need to raise cash for a big expense like a car or the arrival of a baby. Only when you’re sure you won’t need the cash should you use it to make a CPF Housing Refund.

How to refund your CPF used for housing

To make a CPF Housing Refund, log into the CPF website using your SingPass.

Go to [My Statement > Section C > Property].

You will see the total amount of money that you have used to pay for property, as well as the amount of interest that has accrued up to that point.

Now that you know how much you “owe”, you can proceed to refund part or all of the money.

Click [My Request > Property > Hake a Housing Refund with Cash].

You can then enter your Payment Amount and pay via PayNow or eNETS.

Pro tip: Make sure you disable your pop-up blocker and raise your bank account’s payment limits before trying to make a CPF Housing Refund, otherwise you’ll find yourself raging at your screen and having to redo the entire payment process.

ALSO READ: 3 key factors you should know when using your CPF to purchase property (2021)

This article was first published in MoneySmart.