Flat buyers taking HDB loan can keep up to $20,000 in CPF

They no longer have to drain Ordinary Account first, and this can improve retirement adequacy

HDB flats opposite 600 Sin Ming Avenue, on May 15, 2018.
HDB flats opposite 600 Sin Ming Avenue, on May 15, 2018. PHOTO: ST FILE

Flat buyers taking a Housing Board loan will no longer have to drain their Central Provident Fund (CPF) Ordinary Account (OA) first - a move that encourages sufficient retirement savings.

They can now keep up to $20,000 in their OA when they take an HDB loan, the agency said yesterday. The changes apply to those who have yet to collect the keys to their new flats, as well as new resale applicants.

Before this, buyers had to use all the funds in their OA before taking on a Housing Board loan. Those who take private bank loans already have the option to leave some funds in their CPF accounts.

Said the HDB: "The funds can be used for their monthly mortgage instalments in times of need and will improve retirement adequacy if left unutilised."

For example, someone who leaves $20,000 in his OA can earn $32,772.33 over 20 years, the recommended tenure for a housing loan. The interest rate for the OA is currently 2.5 per cent a year. This amount could rise if he shifts his funds to the Special Account (SA), which can earn up to 5 per cent. Unlike the OA, however, which can be used to pay off a mortgage, the SA can be used only for retirement.

Observers welcomed the move which encourages buyers to ensure sufficient retirement funds even as they invest in a large asset like a home. "People have been conditioned to think of their OAs as their housing budget, which has probably led some buyers to choose more expensive housing than they really need or can comfortably afford," Singapore University of Social Sciences economist Walter Theseira said.

"We should view this policy change in the context of nudging people to realise that they don't have to exhaust their OAs for housing if they don't want to."


Mr Alfred Chia, chief executive of financial advisory firm SingCapital, recommended that buyers leave some money in their OAs.

He noted that some people might be reluctant to do so, as the interest rate for an HDB loan - which is now 2.6 per cent - is pegged at 0.1 percentage point above the prevailing CPF OA rate. "But property is illiquid, and if you put all your money into your property, then it is stuck there," he said.

"If your house is fully paid but you do not have cash or CPF savings, it doesn't help in your day-to-day living when you retire."

Beyond that, Providend chief executive Christopher Tan advised people to use cash to pay off their mortgage if they can afford to, as it earns lower interest than in the CPF. But the advantage of the new rules is that cash-strapped buyers still have the option of dipping into their OA, he said.

Mr Tan also had two other pieces of advice. The first is for people not to take a bigger loan just to keep the $20,000 in their OAs. They may end up paying more. The second is to take bank loans, which are now cheaper than the HDB housing loan - some are as low as 1.65 per cent - but only if they are prepared to monitor interest rates and refinance the loan when necessary.

"If you are someone who prefers stability, then go ahead with the HDB loan," he said.

According to media reports, about 600,000 households in total have taken HDB loans. There are about one million existing flats in all. Most households must earn $12,000 or less to qualify for an HDB loan, among other conditions.


A version of this article appeared in the print edition of The Straits Times on August 29, 2018, with the headline 'Flat buyers taking HDB loan can keep up to $20k in CPF'. Subscribe