Can I use my CPF and How much can I use?

How much can you afford?

This is a common step that most buyers forgot about it. Before you go to popular property sites like property guru and other portals advertising your property, you need to know what is a suitable or comfortable housing budget based on your income or family household income and current financial commitments. It is important step to know how much is your monthly mortgage repayment cost so that you will not feel stretched in the long term worrying if you have sufficient money for your kids or even for holiday plans.

Many buyers think also think that they could afford more based on their income without considering other expenses. Therefore, some buyers will feel the pain during rainy days or during emergency.

Other than your flat purchase price, you also need to know other fees that relates to the purchase of your property such as stamp duty, legal fee, renovation expenses which are incurred one time off and other monthly recurring expenses relating to the property such as mortgage repayment cost, utility bills, carpark fee and maintenance fee(if any).

In order to take a housing loan to finance your flat purchase, your monthly loan instalment must not exceed 30% of your gross monthly income. This is a term called Mortgage servicing ratio (MSR) which refers to the portion of a borrower’s gross monthly income that goes towards repaying all property loans, including the loan being applied for.

MSR is capped at 30% of a borrower's gross monthly income.

These limits are in place so that you can have sufficient savings and spending for personal and future needs. It is therefore important to find a balance of having liquid and non-liquidity assets.

Are there grants available for us ?

Yes! There is Enhanced CPF Housing Grant (EHG) of up to $80,000 if you are eligible. The eligibility is determined based on your average gross monthly household income. Both applicant must be working continuously during the 12-month period before and at the time of the flat application and their average gross household income must not exceed $9,000.

Complete the questionnaire for a preliminary assessment of your eligibility for the purchase a new or resale flat, housing grant(s) and an HDB housing loan.

What type of housing loan should we pick?

There are two types of housing loan you can choose, HDB Housing Loan or the Financial Institutions(FI).

If you are planning to take a loan from FI, you will have to pay 25% of the flat’s purchase price as a down-payment when you sign the agreement. 5% is payable in cash while the remaining 20% can be paid in cash or CPF savings. FI can only grant a maximum loan quantum of up to 75% of the purchase price since 2018.

Interest rates also vary depending on the FI. It depends on the loan package (lock in or no lock in), and market conditions. There is no restriction in a bank loan, as you have the freedom to choose any amount in your Ordinary Account (OA) savings as balance and can allow your OA account to continue to grow your savings for retirement.

However, if you choose HDB housing loan, you can use your OA savings to fully pay for your 15% down-payment. The balance of the CPF will use to lower down the Housing loan. The interest rate of an HDB housing loan is currently 2.6% p.a., pegged at 0.1% above the prevailing OA interest rate. You also have the option to set aside a maximum amount of $20,000 in your CPF OA, allowing you to grow your savings at an attractive interest rate of up to 3.5% p.a.

When you have decided on a suitable housing loan, check the terms and conditions and ensure that you have obtained sufficient financing for your intended flat purchase.

How to pay monthly housing loan instalments?

You can use your monthly CPF contributions savings for your monthly housing loan instalments. However, if you feel comfortable about using a mix of cash and your CPF OA savings to cover your monthly loan repayments, you would be able to keep some monies in your CPF OA. These monies would continue to compound at attractive interest rates of up to 3.5% p.a.​

In addition, you can use your OA savings as a safety net for your mortgage payments. For example, if you lose your job in the future or are in between jobs, the funds you’ve set aside in your OA can be used for your monthly loan repayments.

Therefore, it’s important to find a balance between using your cash and CPF OA savings for your monthly loan repayments! It is highly recommend that you retain at least $20,000 to keep for raining days.

How much CPF savings can I use for my second property?

You can utilize your CPF savings to pay for your second or subsequent property purchase. However, it might not be as straightforward as using your CPF savings when you purchased your first property.

You need to consider on Basic Retirement Sum and Full Retirement Sum for better understanding on CPF usage for second or subsequent property purchase.

The Basic Retirement Sum applies to members who turned 55 in 2016 to 2022:

Property that was purchased on 10th May 2019

The amount of CPF savings that you are allowed to use for the second or subsequent properties purchase will depend on the remaining lease of at least one of the properties you possess or are getting, where you have utilized your CPF savings for the property, can cover the youngest buyer to at least 95 years old.

The few different circumstances I have commonly seen are:

• The remaining lease of at least one of the properties you possess or are getting, where you have used CPF savings for the property purchase, can cover you to at least 95 years old when your age is below 55 years old or above 55 years old.

• The remaining lease of all the properties you possess or are getting, where you have used CPF savings for the property purchase, cannot cover you to at least 95 years old when your age is below 55 years old or above 55 years old.

Example 1: Below 55 yo, property can cover till 95 yo

If you are below 55 years old, and you have use part of your CPF savings for the first property purchase. Later, you have decided to purchase your second or multiple properties, which one of the properties can cover you up to at least 95 years old.

In this example, you have to set aside the current BRS before you can use your balance savings from your CPF OA (up to the valuation limit or purchase price, whichever is lower) for the new purchase.

The maximum sum of CPF savings that you're allowed to utilize is determined by the remaining lease of the property and the age of the youngest buyer who is using the CPF savings for the property purchase must be able to cover up to at least 95 years old.

Example 2: Above 55 yo, property can cover till 95 yo

If your age is 55 years old and above, you have to set aside your BRS in your CPF Retirement Account (RA) before you can utilize the balance CPF savings in your Ordinary Account for the second purchase.

You're also allowed to use your RA savings (excluding interest earned, grants received from the Government, and top-ups made under the Retirement Sum Topping-up Scheme) in excess of your BRS, where you are eligible or approved by the CPF board.

Example 3: Below 55 yo, property cannot cover till 95 yo

If none of the properties you own or are purchasing, where you have used your CPF savings for the first property purchase, have a remaining lease that cannot cover you to at least 95 years old.

If you are below 55 years old, you have to put aside the current Full Retirement Sum(FRS) before you can utilize your balance CPF OA saving for the second or subsequent property purchase. The maximum CPF savings that you can use for the property purchase will be pro-rated.

Example 4: Above 55 yo, property cannot cover till 95 yo

If you are 55 years old and above and both the properties that you own or are purchasing, cannot cover you up to at least 95 years old. You will have to put aside your Full Retirement Sum in your CPF Retirement Account before you can use any excess savings in your OA for the property.

The CPF OA saving that you can utilize for the second or subsequent property purchase is pro-rated as the remaining lease cannot cover the youngest buyer up to 95 years old.

If you intend to sell your existing property (such that your new property would be your only property paid using your CPF savings), you will be given a 6-month grace period to do so. During the grace period, you do not have to set aside the applicable BRS or FRS.

The grace period is:

* 6 months from the date of issue of the Temporary Occupation Permit(TOP) if the new property is under construction; or

* 6 months from the completion date of purchase if the new property is a completed property.

Maximum CPF usage based on VL (%)

Alternatively, if the remaining lease does not cover the youngest buyer up to at least 95 years old, you may use the following formula to calculate the pro-rated maximum CPF saving usage:

Pro-Rated CPF Usage = (Remaining lease of property - 20)/(95 - age of youngest buyer using CPF -

20)

Use the CPF Housing Usage Calculator to calculate how much funds you can utilize to purchase your second or subsequent property.

In Conclusion:

It is possible to use the CPF savings to purchase a second or subsequent property.

I hope that the above example clears some of your minds about using your CPF in Singapore.

You are free to use your excess CPF savings to purchase the second property after setting aside the necessary saving for retirement.

Buying the second or subsequent property might not be straightforward after all and there are many other considerations that you have to factor in such as affordability, Additional Buyer Stamp Duty (ABSD), Total Debt Servicing Ratio (TDSR), and mortgage Loan-to-Value (LTV) limit restriction.

You may get in contact with me if you require professional advice or need to understand more before you proceed with your purchasing plan.