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A few months ago, Mediacorp Channel 8 broadcasted a programme about a Singapore lady who got the shock of her life when the CPF Board froze her CPF account which she is using to service her outstanding HDB loan.Apparently she is 54 years old this year and she mistakenly thought that her CPF monies was frozen because it would be transferred to the Retirement Account (RA). But actually what happened was that she had reached her CPF Withdrawal Limit and thus, she was not allowed to use further CPF savings to pay the remaining home loan in cash. Her plight is not surprising to me because I believe many Singaporeans are not aware of how this CPF rule works and how it would affect them when they reached their fifties.

According to Moneysense, if you applied for HDB Concessionary Loan to repay the loan for your properties in Singapore, there will be a cap to the amount of CPF savings you can use. This limit is called the CPF Valuation Limit and the amount is the lower of the purchase price or valuation at the time of purchase. For example: if you bought the property for $300,000 and its valuation is $330,000, the Valuation Limit will be $300,000. Now, things a little bit complicated if your housing loan is still outstanding when your total CPF used has reached the Valuation Limit and,

  • you are below 55 years old, you may continue to use your CPF Ordinary Account savings up to the applicable Housing Withdrawal Limit to repay the housing loan after setting aside half of the prevailing Minimum Sum. Savings in the CPF Special Account (including the amount used for investments) and CPF Ordinary Account can be used to meet half of the prevailing Minimum Sum.
  •  you are 55 years old and above, you may use your CPF Ordinary Account savings up to the applicable Housing Withdrawal Limit to repay the housing loan after setting aside your Required Minimum Sum cash component. (This was the situation faced by the Singapore lady).

Readers should note that the above is not applicable to those who purchased new flats from HDB and using HDB concessionary loan. If you think you have managed to figure out the above CPF rules, then you may want to note the difference between Valuation Limit and Withdrawal Limit. This is because there is a cap to the amount of CPF savings you may use if you are using bank financing. This cap is known as the CPF Withdrawal Limit and is currently 120% of the Valuation Limit of each property. So based on the above example, the Withdrawal Limit is $360,000. To sum up the complex CPF framework for property loan repayment, below is a table extracted from Moneysense.
Key takeaways
1) Check your repayment schedule to find out how much cash you need to use and the period of time over which you will need to pay cash.

2) Don’t overestimate your earning ability and buy Executive Condominium or private properties when you are young. The best option is to buy BTO flats using HDB loan.

3) Most Singaporeans will face this CPF Valuation/Withdrawal Limit problem towards the tail-end of their loan repayment when they reached their fifties. Incidentally, this age group of Singaporeans is vulnerable to retrenchment and unemployment threats, so it is important that you take affordable housing loan and buy the right home size. Otherwise, you may suffer the double whammy of financial calamity when you are in mid-50s!

Magically yours,
SG Wealth Builder

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Updated: January 9, 2015 — 5:23 pm

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