You will be able to explain how the valuation limit, withdrawal limit and remaining lease cap how much CPF you can use.
Kelvin and Mei found two flats they liked in the same estate, a few blocks apart. One was priced lower and had a bigger kitchen. The other cost more, but its lease had about ten more years left. Kelvin assumed the cheaper one was the better deal until a friend asked whether they could use as much CPF on it.
It turned out to be the right question. How much CPF you can put into a home isn't only about how much is in your OA. Three caps sit on top of your balance: the valuation limit, the withdrawal limit and a rule about the remaining lease.
The valuation limit caps how much CPF you can use for a property at the lower of two figures: the price you paid, or the property's valuation at the time of purchase.
The logic is simple. CPF is retirement money, and the rules don't want it paying for more than a property is independently judged to be worth. That is the same reason cash-over-valuation, from lesson 2.1, must be cash. If Kelvin and Mei pay S$520,000 for a flat valued at S$510,000, both example figures, their valuation limit is S$510,000. Every dollar of CPF they use on that flat, for the downpayment, stamp duty, legal fees and instalments, counts towards it, across both of their accounts.
For most buyers in their first decade of ownership, the valuation limit is far away. It starts to bite on long loans, where years of instalments from CPF add up, and on homes bought with large CPF downpayments.
Once the CPF used on a property reaches the valuation limit, you may be able to keep going, up to a higher cap called the withdrawal limit. But there is a condition. You can only use CPF above the valuation limit if you have already set aside enough for retirement, measured against the current Basic Retirement Sum, in your CPF accounts.
Think of it as a gate. Below the valuation limit, the gate is open. Between the two limits, it opens only for members whose retirement savings are already in place. Above the withdrawal limit, it is shut, and any further loan repayments must be made in cash.
These limits apply to private property and to some HDB purchases, depending on the loan. An HDB flat bought with an HDB loan is treated differently from one bought with a bank loan. The CPF Board's housing pages, and the HDB Flat Eligibility letter for HDB buyers, tell you which rules apply to your purchase. Check before you sign, because the answer changes how long CPF can carry your instalments.
The third cap is about time. HDB flats and most private homes sit on leases, and a lease that runs out before you do is a poor home for retirement money. So the rules link how much CPF you can use to whether the remaining lease will last the youngest buyer to an age set by the CPF Board.
If the lease covers the youngest buyer to that age, you can use CPF up to the valuation limit, subject to the withdrawal limit. If it doesn't, the amount of CPF you can use is cut back in proportion to how far short the lease falls. Below a minimum remaining lease, CPF can't be used at all. The CPF Board publishes the current age and the minimum. Both have been revised before, so don't rely on a figure from a relative's purchase.
Back to Kelvin and Mei. Mei is 30 and is the younger buyer. The cheaper flat has about 60 years left on its lease, which covers her to 90. The dearer flat has about 70 years left, covering her to 100. Neither of them knew the current age CPF uses, so they looked it up. For the flat whose lease fell short of it, the CPF housing calculator showed a lower amount of CPF they could use, and a larger share of the price would need cash or a loan they would repay in cash.
The lease affects your bank and HDB loan too. Lenders also limit loans on older leases, and that rule is covered in Property & Mortgages: buy a home and manage the loan, lesson 7.2, Lease decay: what a shrinking lease does. This lesson stays with the CPF side.
You could try to work out the pro-rated amount by hand, but the CPF Board's housing calculator does it with the current figures. You enter the purchase price, the valuation if you have it, the remaining lease, and the ages of the buyers. It tells you the most CPF you could use for that property.
When Kelvin and Mei ran both flats through it, the cheaper flat stopped looking cheaper. Its lower price came with a lower CPF cap, which meant more cash out of pocket over the years. They went back to comparing the two on how much cash each would need in total.
Pick a flat you might buy, real or from a listing, and note its remaining lease and asking price. Then find your age and the age of anyone you would buy with, and open the CPF housing calculator on cpf.gov.sg.
Use the CPF Board's housing calculator to check how much CPF you could use on a flat with a given remaining lease and your age.
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