Property investment does not always necessarily mean that you have to make money by buying/selling properties or renting properties. Sometimes the easiest way to make extra returns is by saving money.
One of the ways a property owner can 'enrich himself is via the CPF Voluntary Housing Refund. This is a method that not many have been practising. In most instances, property owners are unaware that this is even possible. According to an ST report, only 14,980 made voluntary housing refunds in 2020.
CPF Usage and Implication
The usage of CPF for housing purchase either as a lump sum payment or housing loan would result in the loss of interest for the funds used (at 2.5% interest). In addition, there is a need to refund the CPF used AND the interest accrued if you had sold your property.
There are also cases whereby the accrued interest refund is higher than the proceeds. The property owner may end up with no cash at the end of the sale.
While you need not top up the negative cash flow to CPF, you would not get any cashback either. This despite that you have a positive $250,000 cash from the sale.
What is CPF Voluntary Housing Refund?
CPF Voluntary Housing Refund allows you to return the CPF monies that you had drawn down to purchase a house or used for loan servicing. You can refund any amount, capped at the full principal you had to withdraw for the property with accrued interest.
5 Reasons why you should do it
1 ) Earn 2.5% return on the cash return
With the interest rates for CPF ordinary account is at 2.5 %, it may
be worth considering to repay early. Current bank deposit interest are about 0.5% per annual. By placing your funds in CPF interest, you would get 5times the returns. You also do not need to constantly renew your FD upon maturity if you choose the CPF route.
If you already have earmarked your savings to repay the housing loan. Instead of placing your savings in bank accounts and earn meagre interest, putting it back to CPF makes more sense.
2) Get more cashback when you sell your house
If you intend to sell your property in the future, an early repayment into CPF means you would have higher cash proceeds from the sale of your property. Every $100,0000 cash refund back to CPF over 10 years would get you an additional $28,008.45 cash.
With more certainty of the number of cash proceeds from a home sale, we will be able to use it to our benefit for future home purchases. It will allow us to plan better in terms of the cash portion that is necessary for cash over valuation (COF), renovation and other costs.
3) You could use the cash refund to service loan of the SAME property
Many had the notion that if you refund cash into CPF, you cannot use it thereafter. On the contrary, you could use the CPF return to pay off your existing housing loan of the SAME property. Additionally, CPF can be used for your next home purchase as well.
If you have already earmarked some savings for repayment, instead of putting them in the bank, you could refund to CPF to earn higher interest as well as decelerate the accrued interest owned to CPF. In return, you also earn compound interest from the CPF return.
An extra point to note is that if you choose to make a voluntary refund of the FULL principal amount used with accrued interest, you would have to reapply to use your CPF savings and you will need to pay the legal cost as a new CPF charge has to be lodged on the property.
4) CPF voluntary house refund could be an alternative to CPF voluntary contributions
Today, you could make a Voluntary Contribution (VC) to the CPF account. This VC could be made to all 3 CPF accounts or Medisave account. While the interest is higher for Special and Medisave accounts, these funds are not entitled to another purpose except for retirement and medical needs. Do note for VC, there is also a cap of $37,740 per annual.
If you would like to earn the higher CPF interest beyond the cap of VC, CPF voluntary housing refund is a good alternative.
5) Manage cash flow
For those who are using cash for monthly servicing and decided to park the funds to CPF instead. You could replace the monthly cash repayment with CPF instead. This would help you to manage your cash flow more effectively on a month to month basis. There is no need to set aside funds for housing loans and you can budget more efficiently with the cash on hand.
Would this be suitable for everyone?
If you have spare savings that are purposely set aside for housing loans, it will be a good option to consider topping up CPF. While the benefits CPF voluntary housing refund are appealing, it may not be a suitable consideration for some.
These groups of people may not see the full benefit of CPF refunds
Limited cash on hand
Without sufficient cash on hand, it does not make any sense to refund CPF for housing as this would affect future cash flow. This scheme would be more useful for those with savings that are purposely earmarked for the housing loan.
Using CPF voluntary contributions for tax reliefs
Unlike Voluntary Contribtions, Voluntary Housing Refund does not qualify for tax reliefs. Thus this scheme would not apply to those seeking tax relief.
55 and above
For those 55 years and above, the refunded monies will be first used to meet the Full Retirement sum (FRS) for retirement needs. Any refunds after meeting FRS in the retirement account will remain in CPF ordinary and/or Special Account. If you intend to use the refund to service an existing housing loan, do ensure you meet the minimum of the FRS first.
Have no intent to sell the house
If you have no intention to sell the house and would like to leave it as an inheritance, there is no immediate need for you to refund CPF accounts.
How to do it?
Log into the CPF website using your Singpass
Go to [ My Request > Property > Make a Housing Refund with Cash]
Press start and choose your property.Your total amount of money used to pay property as well as the accrued interest can be seen. You have the option to refund part or all of the money.
Enter your Payment Amount, submit and pay via PayNow or eNets
Do note that the amount you wish to pay may be limited by the withdrawal limits you set for PayNow and eNets.
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