The interest your CPF Ordinary Account would have earned if you had not withdrawn it to pay for property. When you sell the property, you must refund both the CPF principal used and this accrued interest back into your CPF account, not into your pocket.
Example: If you used S$150,000 of CPF for your flat over many years, you could owe tens of thousands more in accrued interest on top when you sell, reducing the cash proceeds you walk away with.
It is the interest your CPF savings would have earned had you not withdrawn them for property. CPF tracks the 2.5% per annum OA interest, compounded, on every dollar of OA used for your home, and you must restore this when you sell.
Yes. On sale you must refund the CPF principal you used plus the accrued interest back into your CPF account. This is paid from the sale proceeds first, after the outstanding loan is cleared, which can sharply reduce the cash you walk away with.
If you are below 55 the refund returns to your Ordinary Account. If you are 55 or older, it is first used to top up your Retirement Account towards your required retirement sum, with any balance going to your OA.
No — the refund goes back into your own CPF, where it keeps earning at least 2.5%, so it is not a penalty. The risk is negative cash sale: if your selling price barely covers the loan and refund, you may receive little or no cash, even though your CPF is replenished.