personal finance

Devastating HDB Loan and CPF Accrued Interest

Be afraid. Be very afraid after reading this article. This is an article that all aspiring and existing home owners can ill-afford to miss. And I do mean it because you may live to regret for dismissing the message in this article. Today, I am going to share with readers the devastating effect of HDB Loan combined with CPF Accrued interest.

Many financial bloggers wrote about CPF accrued interest and HDB Loan. However, they may not have the real experience of purchasing an HDB flat or obtaining an HDB loan before. Most of them merely touched on the interest rate figures without providing much analysis on the bigger picture of the housing scheme framework in Singapore. In my perspective, this is dangerous as not knowing the full picture of the law can cost you an arm or leg.

However, I am different because in this article, I am going to provide some basic analysis and share with readers the frightening aspect of the HDB Loan and CPF Accrued interest. At the end of the day, I hope readers can avoid the financial pit-falls and grow wealth with me together. So, if you do find this article useful, please lend your support and subscribe to my blog.

HDB Loan

For many decades, Singapore government has been selling HDB Loan as a form of concessionary loan “exclusive” only to Singapore citizens. Undeniably, the interest rate for HDB Loan is extremely stable and is not subject to fluctuating market conditions. This is because the interest rate is pegged to the CPF Ordinary Account (OA) interest rate.

Currently, the interest rate for HDB Loan is pegged at 0.1% above the CPF OA interest rate of 2.5%. Hence, the total interest rate payable for HDB Loan has been 2.6% for many years.

CPF Accrued Interest

But in life, there are always trade-offs. In exchange for the unbeatable stable interest rate, those who took HDB Loans are essentially forking out a huge premium as compared to those who opted for commercial bank loans. For the past 8 years, interest rates offered by bank for home loans had been consistently below 2%. Of course, nobody can tell when the interest rate will spike as a lot will depend on the policy developments of US Federal Reserve. Thus, this is not to say that bank loans are better than HDB Loan because there is the risk of rising interest rate to be considered.

Nonetheless, what I am going to highlight is not the interest rate payable for HDB Loan, but [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]

Read my other articles on CPF:

  1. CPF’s Home Protection Scheme (HPS)
  2. The Dark Side of CPF Housing Withdrawal Limit

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22 thoughts on “Devastating HDB Loan and CPF Accrued Interest

  • So what to do? Live on the streets? No live for at least 10 years with your parents ! a bit of squeeze is ok!

  • ‘On top of this 2.6%, there is an accrued interest of CPF 2.5%….So effectively, it is 2.6% multiply by 2.5% making a total of 6.5%’? Why multiply instead of add?

    Sorry, I think you weave and entangle yourself till your rationale becomes illogical. You permitted HDB to take the money from your CPF OA to pay for the housing loan at 2.6% interest rate. You could choose not to! In the meantime there is no 6.5% interest rate involved. Only when you sell the flat, will you return the accrued interest(2.5% compounded)and principal back to CPF.

    The Valuation Limit and Withdrawing Limit serve their purpose of ensuring that one should not overuse their CPF for housing and to remind us that CPF is meant for retirement

  • Hi Wang,

    There is a choice. You can choose to take bank loan or not to use your CPF savings to finance your HDB flat.


  • On top of this 2.6%, there is an accrued interest of CPF 2.5%….So effectively, it is 2.6% multiply by 2.5% making a total of 6.5%’?

    I could only determine it is 0.065%…. Is there something I had missed out?

  • Hi Fred,

    I used to think that the combined CPF accrued interest and the HDB Loan interest is 2.6% plus 2.5% which is equal to 5.1%. But after much thinking, this is not the way CPF Accrued interest works. Assuming you paid off the HDB Loan in one year. Let’s assume with HDB interest, the amount of CPF you used to pay HDB is $1000 x 2.6%. Then at the end of the year, the CPF Accrued interest is actually $1000 x 2.6% x 2.5%.

    Secondly, in my article, I did share that you may choose not to use CPF OA to finance your HDB flat. But how many Singaporeans are that cash rich to pay for the housing loan?

    Maybe I was not being clear in my article. Although you don’t have to return the accrued interest if you hold your HDB flat, the accrued interest will cause your Valuation Limit to be exceeded sooner than you may expect.

    Of course I know Valuation Limit and Withdrawal Limit are meant to discourage Singaporeans from overusing their CPF for housing. But do you know that if you take bank loan, the Withdrawal Limit is 120% of Valuation Limit?


  • Hi Ylfoo,

    You are absolutely correct. I have amended the typo.
    Thank you for pointing out the mistake!


  • This is very misleading. Accrued interest is your own money. It is a deficit that you have to make up if you sell your HDB. The proceeds go towards filling up this hole, but the amount that is used to fill up this hole (accrued interest) is still your money! This is totally different from interest expense, which is paid to HDB and is ab outflow.

  • Hi SGWealthBuilder,

    Thanks for your article and, wow, it is scary.
    May I ask you a question that, if I take a bank loan to finance my HDB, but I choose to pay the monthly installment by using CPF OA, will I be sufferred from the CPF accrued interest as well when I sell my HDB unit?


  • You conveniently, unintended or otherwise, left out the interest rates from bank loans before 2008. Loan tenures are in the 20-30 year horizon.

  • Whatever you pay as an accrued interest goes back to your CPF account. When you reach retirement age, they are yours to withdraw including the compound interest.

  • I read half way and stopped and thought it was nonsense. I agree with Louis and Peter Choy above that the accrued CPF interest is still your own money, at most you suffer some cash flow problem.

  • Hi Francis,

    CPF interest is of course still your own money. I have never dispute that in my article.
    What I am highlighting is how mismanaging your CPF monies would have devastating effect on your wealth.
    Very disappointed that you jumped to conclusion and did not make the effort to understand what I wrote.


  • Hi Peter,

    I agree with you that whatever you took out from your CPF account, you need to refund back to your CPF account, with accrued interest.
    Nonetheless, if you don’t play the game right, you may suffer from negative HDB sale.
    I think readers don’t really understand my point.


  • Hi AL,

    Bank interest rates are never fixed. Most people would refinance their bank loans every few years.
    Furthermore, I have reiterated that my article is not meant to imply that bank loan is better than HDB loan.
    You need to weigh the benefit of stable interest rate (HDB loan) versus the risk of fluctuating bank interest rates.


  • Hi DUFY,

    Yes, you would suffer from the CPF accrued interest as well when you sell your HDB flat.
    I should know because this is what happened to me. I took bank loan for my current HDB flat and pay off the installments with my CPF savings.
    The accrued interest is mind-boggling even for a period of 5 years only.


  • Hi Louis,

    In what way am I misleading? CPF accrued interest is of course your money. This is 100% fact and I have never disputed that in my article.
    What I am trying to highlight is not whether CPF money is your money or not. It is about managing your CPF money to prevent cash flow issue.
    Very disappointed you didn’t bother to read and jumped to conclusion.


  • I think most of you have missed the point on opportunity cost.

    “Assuming you paid off the HDB Loan in one year. Let’s assume with HDB interest, the amount of CPF you used to pay HDB is $1000 x 2.6%. Then at the end of the year, the CPF Accrued interest is actually $1000 x 2.6% x 2.5%.”

    Interest paid to HDB:
    $1000 x 2.6% = $26

    Accrued interest:
    $1000 x 2.6% x 2.5% = $0.65

    Interest with accrued interest repayment to CPF: $1000 x 2.5% + $0.65 = $25.65

    CPF Interest forgone:
    $1000 x 2.5% = $25

    Total cost:
    $25.65 + $25 = $50.65
    This is the actual cost of the scheme for a principle of $1000.

    Now for the point of valuation limit, assuming fully paid and you hold for 20years, interest and accrued interest:
    $1000 x (102.5%^20 – 100%) = $638.61
    What you have owed to your own CPF account becomes $1638.61!
    Can you sell your property at 160%? If not, don’t expect any cash returns.

  • 1. VL & AWL does not apply if buying direct from HDB and using HDB loan.

    2. Those younger people who already hit “VL” is because they bought property OLDER THAN 39 YEARS …. CPF has a formula for such older properties …. it will be less than the actual valuation amount.

    3. Returning of accrued interest mainly affects cashflow i.e. if you plan on collecting as much cash-on-hand as possible from sale of property, especially downgraders, or investors cashing out of investment properties.

    4. If you’re upgrading, then not so bad since the money will be used for the bigger more expensive property.

    5. There is a way to avoid returning CPF accrued interest — sell your property ONLY AFTER 65 and DON’T PLEDGE YOUR PROPERTY to makeup the Retirement Sum.

    But most people here youngsters …. and they thinking 65?? Die liao lah!!! Hahaha!!!

  • Regardless of how many percent of interest we have to top up back to the CPF OA account, it is important to understand that the CPF is OUR savings for retirement. Unless we need the cash returns urgently when selling the house, returning the 2.5% interest to CPF savings doesnt sounds that ‘devasting’ for me to be ‘afraid’.

    I think what many of us wants to clarify and made known to the many readers of this blog is that: this 2.5% is not an additional money lost, in case the less financially educated community gets misled into thinking bank loan is significantly advantageous than HDB loan.

  • Max,

    WRT accrued CPF interest, it’s irrelevant whether bank loan or HDB loan.

    What’s relevant is whether got use any CPF money to buy property? If yes, then the clock starts ticking & 2.5% accrual interest starts computing on the CPF money taken out.

    It’s the same principle when you use your parents’ CPF money for Uni/Poly — you need to pay back the money together with the 2.5% interest into your parents’ CPF accounts.

    Want to beat the system?? Simple:
    1) Don’t use your CPF money.
    2) Don’t sell your property — stay until die.
    3) Don’t pledge your property to CPF & sell only after 65 yrs old.

  • Sinkie, yes, I know.

  • So HDB 2.6% interest rate (0.1% above CPF OA rate)
    CPF Ordinary Account 2.5%
    Accrued Interest also 2.5%

    Keep the house (even after fully paid) CPF accrued interest still compounds by 2.5%
    Sell the house (after fully paid), seller’s payment has to first return to accrued interest then to OA.

    Effectively, your loan rate with HDB is only 0.1% since money comes back to you after flat is sold. So anyone complaining anymore?

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