Discover 7 Reasons to Sell and Right-Size Your Property
TLDR The increasing trend of right-sizing properties in Singapore is driven by various factors such as lifestyle changes, financial gains,...
Read More
Singaporeans are renowned for being smart and savvy – especially when it comes to selling their homes, whether it’s an HDB flat or condo. For the most part, we prefer to receive the sale proceeds in cash, rather than having it go into our Central Provident Fund (CPF) accounts.
In this article, we’ll provide an insight into the amount of money that needs to be refunded back into your CPF account upon selling your house.
Planning your finances and deciding whether to sell your house or not requires knowledge of the amount involved, including property agent commission and the HDB resale levy as deductions from your sale proceeds, as well as how refunding CPF monies to your account works.
Don’t forget, the refunded CPF funds can be used to finance your next home, giving you the opportunity to continue utilizing your hard-earned money!
What You Withdraw From Your CPF Account For The Purpose Of Selling Your House Must Be Returned To Your Account Once The Transaction Has Been Completed
You must pay back any CPF funds used to purchase a property to your CPF account when the property is sold. This repayment includes the original sum used, plus any accrued interest.
What’s Accrued Interest?
You might have been surprised when you heard about the accrued interest rules, but the Singapore government knows what’s up – and it’s clear why!
With your principal amount sitting in your CPF Ordinary Account (CPF OA) instead of having been taken out for your house, you’re now able to enjoy the great benefits of compound interest at the rate of 2.5% per annum!
So, what are you waiting for – start accruing that sweet interest and start planning for the retirement you deserve.
Feeling the pinch of having to pay interest on top of interest on their mortgage is why some folks opt to cover their mortgage instalments in CASH, rather than through their CPF – no matter what the cost.
In Addition To The Original Sum And The Interest That Has Accumulated, You Must Also Return The CPF Grants To Your Account
Getting a grant from the CPF to help pay for your HDB flat may sound generous, but be aware of the strings attached! If you receive the grant, you’ll have to pay back the amount, plus interest, when you go to sell the house.
It was a cautionary tale for flat sellers; forgetting about a CPF grant they’d received years ago nearly cost them their entire cash proceeds from the sale of their flat, forcing them to pay back the grant, along with interest. Interestingly, from 2018 to 2020, the number of people unable to fully refund their CPF monies used for housing seemed to be decreasing – yet in 2021, the figure plunged to 9%.
If selling your property at market value means the amount to refund to your CPF account is more than the cash proceeds you receive, don’t fret! CPF will simply write off the extra amount, meaning you won’t have to return any more than what you get! Keep in mind, though, this offer applies only when you sell at market value.
If you sell your property at a price below market value and the amount due to your CPF account, including interest, is greater than the cash proceeds, you must return all the CPF funds used by default. Even if it requires you to pay cash and refund the option money to cover the shortfall.
However, sellers can submit an appeal to the CPF Board for them to consider waiving the debt.
So, what should you do?
The answer is simple – make sure you understand the risks before selling below market value!
First, Determine The Extent To Which The Accumulated Interest Can Reduce Your Sale Profits
Log in to your CPF account and head to the “My CPF” tab. Click on “Home ownership” to see how much you owe your account. The page will show you the principal amount used and the accrued interest. The sum of these two is what you must return when you sell your property – and that’s your total amount due!
A Step-By-Step Example To Calculate Your Sale Proceeds
To calculate the cash proceeds you will receive from the sale of your property, you’ll need to consider the sale amount, principal sum from your CPF savings, accrued CPF interest, real estate agent commission and legal expenses.
If you’re selling your 4-room HDB flat in 2023 for S$550,000, you can look back and see how far you’ve come! You bought it for S$200,000 in 2013 with a S$15,000 CPF grant and S$20,000 downpayment from your CPF OA savings.
That gave you a loan amount of S$165,000 with a 20-year loan tenure and an interest rate of 2.6%. All your mortgage instalments have been paid with CPF and you’re left with an outstanding loan amount of S$93,000.
(A) Sale amount = S$550,000 (If you’re not sure what your property might sell for, you can either use 99.co’s Property Value Tool or refer to HDB’s past transacted prices)
(B) Outstanding loan amount = S$93,000 (rounded off for easy calculation)
(C) CPF principal amount used = S$107,000 (consisting of S$72,000 mortgage payments + interest paid using CPF and S$35,000 grant plus downpayment)
(D) CPF accrued interest = S$30,000 (rounded off for easy calculation)
It’s important to remember that (D) is calculated from the principal amount compounded yearly up until the time of sale, not until the end of the loan period.
(E) Sale proceeds = (A) – (B) – (C) – (D)
S$550,000 – S$93,000 – S$107,000 – S$30,000= S$320,000
**(You may also estimate your sale proceeds using HDB’s sale proceeds calculator)
(F) Agent commission fee = S$11,000
A commission is typically required when enlisting the services of a property agent to assist with selling your house; the widely accepted rate for an HDB resale flat is 2% of the sale price.
(G) Legal fees = S$2,500
Generally, legal fees cost between S$2,000 to S$3,000.
Cash proceeds = (E) – (F) – (G)
S$320,000 – S$11,000 – S$2,500 = S$306,500
This sum may be enough to cover your next home purchase and/or achieve your goals for selling the house, but it’s not a guarantee.
IMPORTANT: For Those Who Are Aged 55 And Above…
When you turn 55 in 2023, your Full Retirement Sum (FRS) will be S$198,800. If the combined balance of your CPF OA and Special Account (SA) falls short of this threshold, any amount refunded from the sale of your house will automatically be redirected to your Retirement Account to satisfy the FRS.
Whatever remains will stay in your CPF OA and/or SA.
If you are still employed, you can use contributions to your CPF OA to cover any outstanding home loan payments, regardless of whether you reach the Full Retirement Sum or not.
At the end of the day, the refund of accrued interest to your CPF account can really eat into your sale proceeds – this can put a real damper on your plans to upgrade, use the cash to start a business, finance your child’s university education or save for retirement.
Despite the CPF Trends Report revealing that a small percentage of individuals were unable to fully retrieve their CPF funds after selling their homes, meaning they were unable to gain any cash proceeds from the transaction, unless of course they plan to migrate after the sale, whereby they can reclaim their full CPF balance.
Pro Tip: Reduce Accrued Interest By Making A Cash Refund To CPF
If you’re looking to increase your sale proceeds and reduce the amount that needs to be refunded to your CPF account, a voluntary housing refund can be made – either fully or partially – to your CPF account.
To further maximise the return, try to use cash as much as possible when making the remaining loan instalment payments.
If you’re able to make a partial refund (either a partial principal amount or the full principal amount without accrued interest), the amount of interest that you owe will still grow, but not as quickly.
When you sell your house, you will still have to put the money back into your CPF account, but it will be less than what it would have been with a full cash refund (principal + accrued interest) and paying off the home loan with cash.
In other words, if you can afford to make a full cash refund and pay off your mortgage in cash, you won’t have to add anything to your CPF account after selling your house.
Discover Alternate Strategies To Reduce Your CPF Accrued Interest, Leading To More Money In Your Pocket From Future Sales
If you’re taking out an HDB loan with an interest rate of 2.6%, why not think about refinancing to a bank loan with a lower rate?
To avoid the added burden of your mortgage, consider paying a portion in cash and taking a shorter loan term or decreasing the length of your existing loan (no penalties for HDB loans).
Alternatively, if you wish to halt the interest accumulation, you can sell your house – just ensure you have a fool-proof plan to give yourself a secure roof over your head!
Should You Buy, Sell or Wait?
If you’re reading this, you must be trying to figure out the best course of action right now: is it the right time to buy or sell?
It’s difficult to give an exact answer since everyone’s situation is unique and what works for one person may not necessarily work for you.
I can bring you a wealth of on-the-ground experience and a data-driven approach to provide clarity and direction. From beginners to experienced investors, our top-down, objective approach will help you on your real estate journey.
I can help you by:
- Offering Strategic Real Estate Advice – I can help create a comprehensive plan to guide you through your property journey.
- Connecting Your Home with the Perfect Buyers – Through stunning visuals, an effective communication strategy, and an in-depth knowledge of the market, we’ll ensure your home is presented in the best possible way to fulfill your goals.
You May Also Like …
Is it Better to Sell Your Newly Launched Condo Before or After Completion? Here’s What the Statistics Indicate
TLDR Determining the best time to sell a newly launched condo involves weighing the benefits of selling before or after...
Read More
What Difference in One Year After the ABSD Hike in April 2023?
TLDR The recent hike in ABSD rates, especially the increase from 30% to 60% for foreign buyers, has dramatically affected...
Read More
Top 5 Places to Learn About Singapore’s Diversity
Singapore, a vibrant city-state in Southeast Asia, is well-known for its diverse culture and rich history. A melting pot of...
Read More
Top 5 Reasons : Why Investing in Singapore’s Property Market Is a Smart Move for Expats – Expert Analysis!
Singapore, a thriving city-state in Southeast Asia, has long been a popular destination for expatriates seeking new opportunities and a...
Read More
Why En Blocs Often Fail to Succeed
TLDR In this blog post, the focus is on the challenges and complexities of en-bloc transactions in Singapore's property market....
Read More
Top 5 Reasons : Why Investing in Singapore’s Property Market Is a Smart Move for Millennials – Expert Analysis!
In recent years, Singapore has emerged as a global financial hub and a prime destination for property investments. The city-state's...
Read More
When to Strike Gold: The Ultimate Guide to Selling Your House in Singapore!
TLDR When deciding the best time to sell your property, consider various factors such as market trends, financial goals, and...
Read More
When a Property Seller Pulls Out of the Deal : What Now?
TLDR When a property deal is not yet formalized, sellers can withdraw without consequences. However, once an Option to Purchase...
Read More
Lessons from the Rollercoaster Ride: Homebuyers Share Their Singapore Housing Market Experiences
TLDR The Singapore housing market is a rollercoaster of unpredictable changes. Three homebuyers share their experiences: Tristan waited too long...
Read More
Mortgage Interest : The True Cost of Buying and Owning Properties in Singapore
TLDR When considering buying a property in Singapore, it's crucial to understand the true costs and risks involved. High monthly...
Read More
What to Do Before Exercising Option to Purchase?
TLDR Home buyers are advised to thoroughly research property values using online tools, secure an ideal home loan package early...
Read More
5 Reasons Why Districts 9 and 10 are the Next Big Thing in Singapore Real Estate
Singapore is renowned for its thriving real estate market, with many desirable neighborhoods and top-notch properties. However, when it comes...
Read More
Unforgettable Vacation: The Ultimate Guide To Singapore’s 5 Best Hotels
Unforgettable Vacation: The Ultimate Guide To Singapore's 5 Best Hotels It's 五新房产, Singapore is a vibrant and exciting destination, known...
Read More
5 Secrets To Successful Property Investing In Singapore
Investing in property is a popular option in Singapore, with many investors seeing it as a lucrative way to build...
Read More
6 Compelling Reasons Why 3-Bedroom Condos Might Shrink Further
TLDR Three-bedroom units in Singapore have significantly downsized from 1,700-1,800 sq. ft. in the 1980s to around 1,000 sq. ft....
Read More
Is Lentor Mansion: The 5th New Lentor Condo in 2 Years Still Worth Your Attention?
TLDR for "Exciting Updates from Lentor Mansion" Lentor Mansion, a new project in the vibrant Lentor region, is set to...
Read More
Navigating the Singapore Property Market as a Foreign Investor: What You Need to Know
Singapore, a thriving hub of business and commerce in Southeast Asia, boasts a highly developed economy and a robust real...
Read More
Top 5 Mistakes to Avoid When Buying Property in Singapore – Expert Insights!
Purchasing a property in Singapore can be an exciting and rewarding experience, especially for those looking to invest in the...
Read More
Top 5 Tips : How to Avoid Scams in Singapore’s Property Market – Expert Tips and Warnings!
The property market in Singapore is a thriving and lucrative industry, attracting both local and foreign investors. However, with the...
Read More
