Did you know your Central Provident Fund (CPF) accrued interest can negatively affect you?
Without proper knowledge of the CPF accrued interest system, you could risk yourself to unforeseen cuts on your profit revenue.
Let me tell you a story. In the past, we have met an HDB seller who bought his flat in Choa Chu Kang which he has paid for in full using his CPF savings money worth $400,000. Ten years later, he wanted to sell. After doing his evaluation checks, we discovered that his flat, at the time of selling, was worth $500,000.
On paper, the transaction should earn him a $100,000 profit. But came the shock of his life when he realized he would not see a single cent from this $100,000 profit. In fact, if he wants to sell, he even has to top up an additional $12,000 into his CPF account.
Surprises like this stem from a need for more comprehension of how CPF accrued interest operates. To avoid such pitfalls, let’s delve into the mechanics of CPF accrued interest and how it can impact your selling profits.
How CPF Accrued Interest Works
If you utilized your CPF savings to acquire your flat, you must repay two components into your CPF account:
- The principal CPF amount that you have withdrawn to purchase your HDB property.
- The accrued interest that you would have earned if you hadn’t used your CPF savings. The current interest rate is calculated at 2.5% per annum for normal accounts, while special and Medisave are rated at 4.08%.
As the goal of CPF savings is to prepare you for your retirement, you’re required to pay these amounts back in full after selling a property you bought using your CPF savings.
Sample Scenarios
To fully understand this concept, let’s pull up some practical examples.
Suppose we have two families who bought two identical homes for $400,000.
Family A paid in cash, while Family B used 100% of their CPF savings. Ten years later, both families intend to sell their houses simultaneously with a market value of $500,000. While Family A would earn $100,000 in cash proceeds, Family B faces a more complex situation.
Since Family B used their CPF savings for monthly payments on their property, this resulted in accrued interest of $112,000 in ten years. That means their expected cash proceeds of $100,000 must be returned to their CPF account, along with an additional $12,000 to cover the total accrued interest.
So what happened to Family B’s profit? And why do they need to pay that $112,000 back into their account?
Remember, when you take your money from your CPF account to pay off your housing loan, CPF will charge you accrued interest for using your savings money. This accrued interest is collected to cover the loss of interest you would have earned if you had kept your money untouched in your account.
How to Know How Much is Your Accrued Interest
If you’ve used your CPF savings to buy an HDB flat and want to know how much accrued interest you would have to pay back if you sell your house today, visit the CPF website and log in to your account.
From there, click on My Statement.
Scroll down to section C and click on the property.
find the link to My Public Housing Withdrawal Details.
Here, you can see the entire amount of your CPF usage for your housing, from the duties to the legal fees, and how much exactly the interest you need to pay back into your CPF account if you sell your current property.
How to Properly Use Your CPF Savings:
Most HDB owners prefer using their CPF money to pay for their monthly housing loans to avoid using their hard-earned cash. While this method is fine, it could also haunt them in the future, especially if prices remain flat or go down. To avoid unexpected cuts to your cash proceeds, be sure to check your accrued interest today.
If you’re currently using your CPF money to pay off your monthly housing loans, consider injecting cash into your monthly installments. Doing so will retain a balance in your CPF account over the years which you could not only use to save up for your retirement plans but also have readily available to utilize for your future housing purchases.
For more detailed information on CPF accrued interest or assistance with your property plans, reach out to us. Let’s structure a secure financial strategy to fund your property plans without the hassle.
