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Cash, CPF, or Both? 5 Singaporean Households Share How They're Paying Off Their Mortgage

Mary Wu
Cash, CPF, or Both? 5 Singaporean Households Share How They're Paying Off Their Mortgage
In October 2022, Singapore’s fixed home loan interest rates hit a new high of 3.85% p.a., up from 3.08% p.a. just in July this year. That’s a significant hike, considering that before the pandemic, the highest interest rates had climbed did not yet hit the 3% p.a. mark, with the previous high in recent times being 2.88% in mid-2019. Meanwhile, the HDB concessionary rate has remained at 0.1% above the prevailing CPF Ordinary Account (OA) interest rate of 2.5% p.a., at a steady 2.6%.
For homeowners, a high interest rate environment means having to service a more costly mortgage. Conventional advice says that in a low interest rate environment, it is preferable to pay your mortgage instalments in cash, as their cash at hand is likely earning less than the 2.5% CPF OA interest rate. But now that the script has flipped, is it better to pay your mortgage via CPF OA monies? Or should you stick with cash payments? Perhaps a mixture of both?
To find out more, we pick the brains of five Singaporeans and ask them how they are managing and paying off their home loan while grappling with this rising interest rate environment.

Ways to Pay Off Your Home Loan in Singapore

In general, there are only so many ways to pay off your home loan. The two main ways are via cold hard cash and CPF monies. However, the different permutations come in how we utilise these payment methods, the amount from each we use, and the loan tenure duration. Also interesting are the reasons behind deciding on the chosen payment method(s) as well as the intent of the property owner.

Using CPF Only to Pay Off Mortgage

1. Use CPF to Maintain Cash Liquidity, Can’t Withdraw till 55 Anyway

Anthony, 36, and his wife decided to go the full CPF route for two reasons: convenience and because their earning power wasn’t fantastic when they successfully balloted for their 3-room BTO flat in Toa Payoh.
The freelance chef said, “We applied for our BTO, under the Sale of Balance Flats (SBF) exercise, in 2015 when our combined income was less than $5,000. While this meant we qualified for additional grants, it also meant that the CPF amount available to cover the monthly loan isn’t a lot."
Things did get better financially for the couple when they collected their keys in 2017, but they still decided to wipe their CPF OA balances clean and pay for everything with CPF so that they wouldn’t see their liquid cash disappear. The couple also took an HDB loan and opted for the longest tenure of 25 years. Prior to 28 August 2018, buyers opting for an HDB loan had to use all their funds in their CPF OA when buying an HDB flat; now the rules have been relaxed and buyers can keep up to $20,000 in their CPF OA.
Anthony shared, "The monthly repayments are a bit more than $400 each month. Five years on, we have about $180,000 out of the initial $350,000 left to pay off. There’s also the option to sell for almost 100% profit as we managed to get an HDB flat in a good area that is in high demand.
Our current salary is now higher, which means we can still save and earn interest on our CPF OA monies. We put our extra cash into our CPF Special Account (as it has a higher interest rate), and use our spare cash for investments or holidays. It’s honestly very comfortable. Anyway, we can’t start to withdraw CPF till retirement so might as well use it, right?”

Using a Mix of CPF and Cash to Pay off Home Loan

2. Balanced Use of CPF and Cash, CPF Savings As Safety Net for Retirement

Then there’s Mr and Mrs Lim, who are in their 40s. The couple lives with their children in an executive condo (EC) in Choa Chu Kang, which they purchased for $680,000, and they moved in around late 2019. They only had access to a bank loan due to their property type and were encouraged to keep some money in their CPF OA, just in case.
"We were advised to take a balanced approach. So we kept $30,000 in our CPF OA just in case, and we make our mortgage repayments in cash so that we can have enough in our CPF accounts when it is time to retire. We aren’t exactly young and should anything happen to us, the CPF money can go to our children as beneficiaries.
The property is for our own stay, although we were told that the charm of buying an EC is that it will be considered privatised after 10 years. The current selling price is now about $1.4 million, so there’s also some profit to be made. But we’d like to settle here for now, while our children finish their studies,” Mr Lim shared.
“The high inflation and mortgage interest rates are definitely a concern. The current plan is to opt for a floating rate when our current fixed rate package ends next year, as the current fixed rate packages offered have high interest rates. But if the mortgage interest rates back down, we may consider a fixed rate package again," Mrs Lim added.

3. Go for a Bank Loan to Limit the Use of CPF Savings

Like the Lims, Teo Wai Yee, 29, also sees her CPF savings as a nest egg with the most stable rate of returns. “It’s practically guaranteed,” she exclaimed. The accountant grew up in a family that is fiscally savvy, so she is prudent about what she does with her money and always considers the approach with the lowest risk.
When she bought her 4-room resale flat in Sengkang for $588,000 with her fiance two years ago, she made a deliberate choice to go straight for a bank loan. Her rationale: those who opt for a bank loan are free to retain any amount of their OA savings.
"As someone who strongly believes in the stability and steady growth of my CPF monies, I don’t want to ‘throw’ it all away, even if I might be able to use cash to get higher gains elsewhere. Look at the market situation now. All of my friends’ stocks are in the red!”
Wai Yee uses as little as possible of her CPF OA monies to service her mortgage, covering the rest with her extra cash. She’s also a proponent of the 1M65 movement, where CPF members aim to amass $1,000,000 in CPF monies by the time they turn 65 years old.
Surprisingly, the current inflation rate is not really a big concern for her. “There will always be peaks and troughs. The low inflation rate we enjoyed when the COVID-19 pandemic hit is now normalised with this period of high inflation. I’ll just reprice or refinance my mortgage accordingly when the time comes."

4. CPF with Cash Outlay, Might Refinance Home Loan When Time Is Right

For Joanne, 32, she and her husband are currently using a mix of CPF and cash to pay off the mortgage for their 4-room BTO in Telok Blangah, which cost them over $500,000. The former relationship manager in a bank wiped her CPF OA account for the initial downpayment as her husband had yet to attain his Singapore Permanent Resident (PR) status then.
“We actually wanted to live near my parents, but there was nothing available and I was pregnant with my daughter when we applied for our BTO flat. We took the first thing that we balloted successfully for, although it’s quite a distance away from family.
To be honest, it was quite taxing for me, due to me being the only CPF member in our household then. Combined with the high price of the flat and single CPF account holder meant that I had to take on more of the loan. For the cash portion of the loan (about $600 per month) that my CPF couldn’t cover, my husband took on.”
Joanne says she initially thought of refinancing to a bank loan from the HDB loan but missed the window of opportunity when rates were low. As for now, seeing the high home loan interest rates of over 3% p.a., she’s content to stick with HDB’s 2.6% p.a interest rate for now.
Their flat has just hit the Minimum Occupancy Period (MOP) for their home and the couple is considering selling it when their daughter finishes primary school. However, Joanne is on the fence about putting her home up for sale as she’s someone who "doesn’t like to move once [she’s] in a comfort zone". Still, the lure of finding a place closer to her parents and the potential million-dollar resale price tag she could get for her current place is a big push factor.
With the current resale prices for their estate, they would be able to cover their HDB loan, the interest payable to CPF, and have some leftover money for the downpayment of their new home and renovations.

Using Cash Only

5. Use Cash to Minimise CPF Accrued Interest

Steven, 42, is of the mind that using cash is best as he does not want to repay the accrued interest back to his CPF when he sells his flat. The graphic designer is a second-time BTO flat owner, who “is applying the lessons from his previous mistakes” to his current property.
The Woodlands resident shared, “I sold my first HDB flat for a tidy profit (over $300,000), and managed to roll that money to buy another BTO in a non-mature estate (about $350,000), and I am investing the extra cash. However, one thing my partner and I really regret is that we had to pay back the accrued interest to CPF, which in my opinion, wasn’t a small amount. And we also wiped out our CPF OA.
This time around, I’m looking to flip my property again. I plan to use cash as much as possible for the downpayment and mortgage. Yes, they say the accrued interest will go back to my CPF OA and it is ultimately my money, but I don’t want extra funds going there as it is money I cannot use now. And, I just don’t enjoy the feeling of paying more.”

What’s the Best Way to Pay Off Your Home Loan?

As you can see, there’s no one ‘best’ way to pay off your home loan as everyone has varying financial circumstances and goals. However, whichever method you choose, it’s good to budget within your means and select a method you are most comfortable with. For HDB flat owners, be aware that once you switch to a bank loan from an HDB loan, there is no turning back.
If you use cash, you might lose out on some liquidity and potential investment earnings. However, that’s provided you have enough cash flow and are savvy enough to beat the CPF OA interest rate (especially in this bear market).
If you use your CPF OA savings, you can achieve zero cash outlay and maximise your liquidity. But if you do choose to sell your home in the future, the accrued interest would have to be refunded back into your CPF. For those who do not plan on selling their home, the other question to consider is if you would need the CPF monies in the future as an essential component of your retirement nest egg.
If you use a mix of both, there are also pros and cons as well, as our respondents have shared. Unsure of what’s the ‘best’ way to pay off your home loan? Thinking of refinancing your home loan but not sure which package to pick? Get tailored financial advice from our friendly and knowledgeable mortgage experts – all at no cost!
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FAQs About Paying Off Mortgage in Singapore

Assuming you managed to borrow 80% of your property's purchase price or valuation price (whichever is lower), you need to pay at a 20% downpayment which can be paid in full using your CPF OA savings.

You can only use up to 120% of the purchase price or valuation price of the property with a bank loan, as long as you can set aside the Basic Retirement Sum. The remainder must be serviced in cash.

Yes. But you’ll need to apply to CPF to reserve the savings in your CPF OA before you turn 55. This amount will be retained in your CPF OA and not transferred to your Retirement Account. Otherwise, you will need to use cash.