Buyers and homeowners tend to overlook the fact that there is a limit on the use of the Central Provident Fund (CPF) when making withdrawals for housing payments.
Neglecting to consider this in your financial planning could make things go awry, especially in your retirement years. Imagine having to pay a few hundred dollars in cash every month to service your loan as you’ve already used up your CPF limit.
What is the CPF Housing Limit?
The CPF housing limit refers to the maximum amount that you can withdraw from your CPF funds to finance your housing loan.
If you are taking a maximum loan tenure of 25 years and you are planning to use your CPF to pay the monthly instalments, then your CPF limit will be used up before the loan tenure is over.
Are you planning to use any housing grants to supplement your purchase? Then the grant amounts would be included in the CPF limit as well.
Keep in mind that the CPF limit may not affect you if:
- You bought a BTO flat
- You are taking a shorter loan tenure
- You have decided to pay your housing loan part in cash and part CPF
How can I calculate my CPF Housing Limit?
Calculating this is easy with the CPF Housing Limits Calculator on the CPF website. The online tool helps you find out how much of your CPF funds can be used for your property.
All you need to do is key in the following information:
- Amount of CPF funds used
- Monthly payments from CPF
- Purchase price of the flat
CPF Limit When Buying an HDB Resale Flat With Housing Grants
Typically, buyers in the resale market would buy a flat with the help of housing grants such as the Enhanced CPF Housing Grant (EHG) and Proximity Housing Grant.
Let’s Explore With an Example
Imagine you are 35 years old and you’ve just bought an HDB flat for $400,000. Your CPF limit is also $400,000, which is the equivalent of the purchase price. To pay for this property, you take housing grants worth $100,000 and pay another $100,000 through your CPF.
This means you have already used up $200,000 (or half) of your $400,000 limit. In other words, you have a balance of $200,000 to reach the $400,000 limit for this property.
The calculation is displayed in the table below:
|Price of Property / CPF Housing Limit||Housing Grants||CPF||Balance CPF to Pay Off Home|
|$400,000||– $100,000||– $100,000||$200,000|
In this scenario, you’d need a $200,000 loan from HDB to pay off the property. This amount of $200,000 will be repaid monthly through your CPF with a loan repayment period of 25 years.
Take note that despite the 25-year repayment period, it is estimated that you will reach your CPF limit of $400,000 in 18 years because you are also paying principal plus interest on your loan.
What happens after I’ve reached my CPF Limit?
Unfortunately, you’d have to service the outstanding loan using cash and can no longer pay through your CPF as you have used up your CPF with the $400,000 spent on purchasing your flat.
Is there a way to pay for my flat using my CPF if I’ve reached the CPF Limit?
In order to continue to use your CPF to pay for the flat, you will then need to set aside the Basic Retirement Sum (BRS) even if you are not 55 years old. If you are unable to do that, you may have to consider selling your flat to pay off the cash instalments.
How can I avoid exceeding my CPF limit?
The best way to avoid this situation is to take out a shorter loan. This allows you to save up on interests paid.
If you are concerned about the affordability of your monthly instalment, consider splitting your payments into part cash and part CPF. Consider this option if you must take the maximum loan repayment period.
Being mindful of your budget can help you avoid going beyond your CPF limit. When purchasing your home, you need to factor other costs that are easily overlooked like the principal and interest.
Now that you know all about the CPF housing limit, why not
get a property agent to help you buy your HDB flat? Pay a fixed fee of only $2,288 + GST when you engage our trusted agent services!
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