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Buying your HDB – Cash or CPF?


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Are you buying your first HDB flat but unsure if you should use your CPF or cash to finance it?

We have compiled a few critical questions to help you decide.

Do you have sufficient cash for HDB downpayment?

HDB loan requires a down payment of a minimum 10% of the flat price while bank loan requires 25% down payment. If you had cash readily on hand and no plan to use it in the short-term, you can utilise it by paying the down payment instead of letting it sit in the bank.

This down payment is required by the HDB and banking institution so if you do not have sufficient cash, CPF would be the only viable option for you then.

If you have ample cash and CPF, you would have the privilege to choose which kind of financing you would like to use. Do note that if you use your CPF to pay for the downpayment, you would need to return this amount plus accrued interest to your CPF when you dispose of your property in the future.

Do you need the cash to sustain your cost of living?

Regardless of HDB or bank loan, you would still need to finance your mortgage loan. You have the options to use either cash or CPF for the monthly repayment.

Despite CPF being your own money, all of us know that we are not able to withdraw the funds until we reach the retirement age of 65. The crucial thing to ask is what do you need the cash for your monthly expenditure or in short-term?

Let’s say after repaying your monthly mortgage, and you do not have sufficient cash for your expense then CPF will serve as a better alternative.

On a side note, planning for the short term is essential but planning for retirement is crucial as well. If you use choose to use CPF to finance your monthly mortgage, you would be left with a lower amount in CPF when you reached your retirement age. Hence, you need to do the long-term financial planning to ensure you have sufficient savings by the time you retire.

Do you have spare cash for an emergency?

Cash is the best form of security during rainy days. For example, you are hospitalised and got no insurance to cover your hospital bills; you can foot the bill using cash.

Don’t hospitals accept the use of CPF?
Yes, however, there is a limit on how much you can withdraw from your CPF each time. Furthermore, your medical bills are deducted from your Medisave and not Ordinary Account. Rightfully, your Ordinary Account should have a higher amount of money due to the more significant portion of your CPF contributions going to your Ordinary Account.

Having more cash on hand would be better in during emergencies as it offers you the high flexibility for usage.

Any plan for investment in the future?

Do you intend to do some form of investment with the excess cash you have? If you are investing in the stock market or even starting a simple business, cash flow is an important factor. However, your business or investment must at least generate a return of 2.5%.

Why is it so? When you use your CPF to finance your flat, you would have to pay back the accrued interest of 2.5% on top of the amount you have withdrawn when you sell your flat in the future. If your investment does not generate a 2.5% return, it would be better to finance your HDB flat using cash and let your CPF savings earn that guaranteed 2.5% interest instead.

Using cash or CPF is a subjective issue. Some Singaporeans have the mindset that they would never get to “see” their CPF money in their entire life, why would they even bother with the interest. It is correct to a certain extent. Though CPF is rightfully your own money, there are so many criteria to be fulfilled to withdraw or utilise the funds. This money can only be withdrawn fully in cash by your beneficiaries when you passed on.

Some people feel a sense of security with substantial cash on hand while some prefers to keep their CPF as a form of guaranteed investment. It boils down to your preference, needs and circumstances. There is no straightforward answer to which option is better, CPF and cash both have their pros and cons.

Regardless whether you are financing your flat using CPF or cash, Ohmyhome has in-house mortgage specialist to help you find the most suitable package.

Call 6886 9009 and get free mortgage advisory service.

Sources: MOH, HDB, Gov.sg

Contributor: Leow Wei Min

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