Given today’s relatively lukewarm interest rates and high market valuations, I decided to deploy my spare cash towards a CPF housing refund.
A couple of years ago, I bought a 5-room resale flat as a single (most of my friends and relatives probably thought I was nuts —except for my property agent, of course). I financed it using partial cash, all of my CPF OA and maximum HDB mortgage. The plan is to hold it for 5–10 years and eventually downgrade to a 2-room Flexi BTO flat for retirement.
When I sell my flat in future abode downgrade (or right-size as the government might put it), the portion of the flat financed using CPF will need to be refunded to my CPF OA account with accrued interest. In other words, it’s not just about returning the principal amount withdrawn —it’s about returning the principal plus 2.5% annual accrued interest to CPF. That effectively reduces the cash proceeds I’ll receive upon selling the flat.
The Snowball Effect of Accrued Interest
The impact becomes clearer when we run the numbers.
Suppose $300,000 was used from CPF to finance the flat. At 2.5% compounded annually, over 10 years, the accrued interest would amount to roughly $84,000. That means instead of refunding $300,000 upon sale, I would need to refund about $384,000 to CPF. That $84,000 doesn’t go into my pocket —it simply returns to my CPF account. The more years I hold the property, the larger this accrued interest grows. In that sense, the CPF accrued interest functions like a compounding “cost” against my eventual cash proceeds.
So instead of letting the accrued interest snowball further, I chose to make a voluntary CPF housing refund using my spare cash. The refunded amount goes back into my CPF Ordinary Account (OA) and resumes earning 2.5% interest.
I decided to leave the funds in my OA instead of transferring them to my Special Account (SA), even though the SA earns a higher 4% interest.
The reason is flexibility.
Funds in the SA are effectively locked in for retirement purposes, whereas OA funds can still be used for housing. If my circumstances change and I decide to upgrade instead of downgrade, I would still be able to deploy these funds.
For now, my total CPF balance stands at about $470,000.
Why Not Invest Instead?
This brings me to the bigger question: should I conserve my “ammunition” and wait for the next market crash to deploy as a lump sum?
I admittedly missed the opportunity during the COVID downturn, especially in the US and crypto markets. However, I’m also not comfortable letting my cash sit idle, earning minimal returns while waiting for a correction that may or may not come.
I considered the alternatives:
Paying down my HDB loan (2.6%) – This would give me a guaranteed 2.6% return, which is slightly higher than CPF OA’s 2.5%. However, CPF accrued interest is also 2.5%, so refunding CPF essentially offsets that compounding effect.
T-bills / SSBs – Low risk, but yields fluctuate and have been on a downtrend lately.
Equity index funds – Higher long-term expected returns, but with short- to medium-term volatility. If markets correct sharply, I may not have the emotional discipline to deploy large sums at the bottom.
In comparison, the CPF housing refund feels like a clean, predictable move: a guaranteed 2.5% return while reducing future accrued interest obligations.
Is It Really “Risk-Free”?
CPF OA’s 2.5% is effectively risk-free in nominal terms. But it is not inflation-proof. Over long periods, equities may outperform comfortably, albeit with volatility.
There’s also concentration risk to consider. A large portion of my net worth is already tied up in property. Deploying more capital into markets could improve diversification.
So this move may not be mathematically optimal. But financial decisions are not made in a spreadsheet alone—they must align with one’s risk tolerance and life plans.
The Liquidity Trade-Off
One important consideration: once refunded into CPF, the money becomes illiquid.
I cannot freely withdraw it unless I sell the property or reach eligible withdrawal age. In exchange for certainty and guaranteed returns, I give up flexibility in cash access.
That’s a trade-off I’m consciously accepting.
Property Market Risks
Of course, this strategy assumes that Singapore’s property market remains relatively stable over the next 5–10 years.
Could there be a downturn? Possibly.
Some argue that the ramp-up in upcoming BTO supply could put downward pressure on resale prices. However, Plus and Prime flat owners are subjected to a 10-year Minimum Occupation Period before they can sell. That delays additional resale supply from entering the market.
Unless there’s a severe property crash (touchwood), the CPF refund strategy reduces my future accrued interest burden. I realized I value certainty more as I get older. The CPF refund gives me peace of mind as it simplifies my balance sheet and reduces one moving part in my financial life.
Final Thoughts
This may not be the highest-return move on paper. Equities could outperform 2.5% over the next decade. But this strategy aligns with:
- My housing downgrade plan
- My moderate risk tolerance
- My desire for predictable outcomes
Sometimes, personal finance isn’t about squeezing out every basis point of return. It’s about structuring your finances in a way that lets you sleep well at night.
Thanks for reading!
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