You will be able to explain accrued interest and work out roughly what you would refund to CPF on a sale.
Linda's neighbours sold their five-room flat last year for a price that made the whole block talk. A month later the husband admitted, a little embarrassed, that far less cash had reached their bank account than they had told everyone. Most of the money hadn't vanished. It had gone back into their CPF accounts, because of a rule they had signed up to twenty years earlier and forgotten.
That rule is accrued interest, and it decides how much cash you walk away with when you sell a home bought with CPF.
When you use OA savings for a home, the money leaves your account and stops earning CPF interest. The rules treat that as a loan from your retirement savings to your property. When the property is sold, you must put back the principal, meaning every dollar of CPF you used, plus the interest that money would have earned if it had stayed in your OA. That second part is the accrued interest.
It is worked out at the OA interest rate, and it compounds. The interest added in year one earns interest in year two, and so on, for as long as the money is out of your account. Every withdrawal counts: the downpayment, stamp duty, legal fees and each monthly instalment paid from CPF.
Here is the lump-sum part for Kelvin, with made-up figures. He uses S$60,000 from his OA when he and Mei buy their flat. At an example OA rate of 3% a year, which is not the current rate, the amount he would have to refund grows like this: S$61,800 after one year, S$63,654 after two, S$65,563.62 after three. After ten years it is S$80,634.98, of which S$20,634.98 is accrued interest. That is before counting a single monthly instalment, which lesson 2.5, Model the accrued interest on your home, adds.
The word refund makes it sound like a penalty. It isn't one. The money goes back into your own CPF accounts, mostly your OA, and it is still yours. You can use it for your next home, and if you don't, it becomes part of your retirement savings and keeps earning CPF interest.
So accrued interest doesn't make you poorer. What it changes is the form your money takes. A sale turns part of your home's value into CPF savings rather than cash in hand. For someone planning an upgrade, that is often fine, because the next purchase can use the refunded CPF. For someone hoping to sell and use the proceeds for a business or a child's overseas studies, it can be a shock.
You can also refund CPF used for your home before you sell, through a voluntary housing refund. The money goes back into your accounts and reduces what would be refunded on a sale. Whether that suits you is the same question as paying your instalments in cash, covered in lesson 2.4, Pay the mortgage from CPF or cash: the trade-off.
On a sale, the money is paid out in a fixed order. The outstanding loan is repaid first. Next comes the CPF refund, principal plus accrued interest, for each owner who used CPF. Only what is left after that reaches you in cash, and fees such as the agent's commission and legal costs come out of that cash as well.
With made-up figures: if a couple sell for S$600,000 and still owe S$250,000 on the loan, and the CPF refund for both of them comes to S$300,000, the cash left is S$50,000, before fees. Their home was worth S$600,000, but the cash they can spend freely is a twelfth of that.
What if the sale price doesn't cover the full refund? The CPF rules set out how that is handled, and for a sale at market value you are generally not asked to make up the shortfall in cash. The details depend on your case, so check the current rule with the CPF Board before you price a sale. Property & Mortgages: buy a home and manage the loan, lesson 8.3, Selling: proceeds, the CPF refund and the timing, follows the rest of a sale.
You don't have to work out your accrued interest from scratch for a home you already own. Log in to cpf.gov.sg and open the housing section. For each property, it shows the principal you have used so far and the accrued interest to date. Those two numbers together are what you would refund if you sold today.
Many owners have never looked. Linda checked after her neighbours' sale and found that the accrued interest on her own flat was almost half the principal, because she had bought it more than twenty years ago and paid every instalment from CPF.
If you own a property, log in and find those two figures for it. If you don't own one yet, use a flat you might buy and estimate the CPF you would use at purchase, so you can see how its refund would grow.
Log in to CPF and write the principal used and accrued interest so far on any property you own, or estimate it for one you plan to buy.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).