Personal Finance

How servicing your mortgage in cash instead of CPF can add $200,000 to your retirement

Most Singaporeans prefer to service their mortgage using their CPF Ordinary Account (CPF OA). In fact, you are probably wondering why some Singaporeans service their mortgage in cash, when the CPF OA funds is “money they can’t spend anyway”.

Regardless of whether you use a private bank loan or a HDB Concessionary Loan, you always have the option to pay with your CPF OA. In general, most Singaporeans are able to “close an eye” and not pay attention to mortgage rates when using their CPF.

This is because the CPF OA interest rate is up to 3.5% (for the first $20,000). By contrast, a HDB loan charges 2.6% interest (at the time of writing), and most bank loans range between 2-3% interest. As such, your CPF OA funds theoretically grow faster than you spend them.

However, there are four good reasons to service your mortgage in cash instead:

1. Knowing when your mortgage costs more than necessary

If you use a private bank loan, you probably know that there is no perpetual fixed rate mortgage in Singapore. Mortgage rates fluctuate, often based on SIBOR (although some rare home loans are pegged to the more volatile SOR). When you are in this situation, it’s advisable to keep an eye on your loan rates.

Most home loans in Singapore offer teaser rates for three years, before rising significantly in the fourth year. So your rate may be 1.5% for the first three years, and then jump to 2.2% in the fourth year onward.

There is no advantage to staying with the same bank, if your rates end up being higher than all the others in the market. You should always work out, when your rate rises, whether you can save money by refinancing or repricing your loan. Most mortgage brokers can advise you on this for free.

When you service your loan via CPF however, the tendency is to ignore an expensive mortgage. As the old saying goes, “What gets measured gets managed.” Remember that, even though diligent refinancing may only save a few hundred dollars a month, it comes to a significant sum when your loan tenure is 25 or 30 years.

2. Being able to use cash-out refinancing

Note: the following applies only to private property. This cannot be done for HDB flats.

Cash-out refinancing provides sizeable loans at super-low interest rates. it is typically used when you want to get money out of your house, without having to sell it. Cash out refinancing allows you to borrow 60 to 80 percent of your home value, minus your outstanding loan and CPF funds used.

For example: Say you own a house worth $1.5 million and you have $300,000 outstanding on the loan. The only time you used CPF funds was for the down-payment (let’s say you took out $100,000 from CPF to pay part of the down payment when you bought it).

The total loan you can get is: $1.2 million (80% of property value) – $300,000 (outstanding loan) – $100,000 (CPF funds used) = $800,000.

Subject to other conditions (the loan tenure is restricted by age), this would basically let you borrow up to $800,000 at a super-low interest rate of around 1% per annum, but do check the effective interest rate which is usually higher.

This can be used for a variety of situations when personal loans would be inefficient. For example, you might want to send your children abroad to study, set up a cafe, invest in something that would outpace the 1% interest rate, and so forth.

Also, note that the cash out amount is based on the current value of your property. So if your property value has appreciated, you may suddenly have access to more money than you expected (but please don’t go crazy, and use the money to buy cars and vacations!).

As you can see however, using your CPF funds to service your entire mortgage would mean this is not much of an option.

3. Making your CPF a more reliable source of retirement income

Singaporeans who choose to rely heavily on CPF for retirement are better off not servicing their mortgage with it.

A good retirement should aim to beat the rate of inflation by 2%. In Singapore, this means aiming for returns of at least 4.5%-5% per annum. Now the CPF OA does not provide this, but the CPF Special Account (CPF SA) comes close with an interest rate of 4% (with an extra 1% interest for the first $40,000). An important point to note is that CPF interest rates are absolute; they do not fluctuate with market conditions.

As such, Singaporeans who intend to rely on their CPF should capitalise on the CPF SA. This is commonly done by transferring some of your CPF OA monies into your SA.

Now, assuming you max out the full amount you’re allowed to contribute to your CPF SA (currently at $166,000). Compounded over 30 years at 4% per annum, this comes to around $538,000. In comparison, if you left that amount in your CPF OA that earns 2.5% interest, you’d end with $348,000 – a difference of nearly two hundred grand. So if you can afford to, parking your money in the CPF SA will save you a whole lot more at the end of the day.

In order to use this method however, you will have to service your mortgage in cash, as your OA is kept mostly empty (until you hit the max contribution to the CPF SA). As the CPF SA monies are locked away until your later years however, we suggest you complement it with a balanced portfolio of dividend-paying stocks. When done right, this can result in a happy, early retirement as your returns will complement the million dollars you know is coming. You can also feel safe about your various stock and bond assets, as your retirement will be secured in your CPF no matter what happens.

4. Having an additional lifeline during a financial crisis

We advise that everyone make efforts to build an emergency fund, which should be sufficient to cover your mortgage for at least six months. This gives you time to recover or, at worst, sell the house for a relatively good price in an emergency.

If you service your mortgage in cash, you can treat your funds in your CPF OA as this lifeline (this is assuming you didn’t transfer all your funds into the CPF SA). If you end up never needing the money, it will compound at 2.5%-3.5% interest and buffer your retirement fund. If something does go wrong, you can stop servicing the loan with cash, and switch to using your OA – this means you won’t have to worry about losing the house, in the event of emergencies such as sudden retrenchment.

The fifth perspective

We understand it’s troublesome, and psychologically unappealing, to fork out a few thousand dollars from your salary every month. However, the convenience of just letting your CPF handle everything may be more expensive than you think. But do take a minute to look at your financial situation, and seriously consider if you’d be better off handling your home loan in cash.

Want to know more about how you can save and invest using your CPF? Read our CPF articles here.

Ryan Ong

Ryan is a successful property investor and has been writing about money, saving and spending, and personal finance for the last ten years. His articles have been featured in leading publications including Yahoo! Finance, Esquire, Her World and AsiaOne.


  1. “If you service your mortgage in cash, you can treat your funds in your CPF OA as this lifeline…” <- doesn't sounds right to me.

    Assume there is need to have $50K urgently, how does switching the loan to OA fund will provide the $50K that is needed?

    Nonetheless, the article is still a good read. Good Job!

    1. I believe what he meant was you can pay your mortgage using OA instead of cash in case of emergencies (i.e. retrenchment). Assuming 50k in OA and a mortgage of $1k/monthly, you have at least a good run rate of 50 months to find a new job.

  2. In private property, if one is using cash to service the mortgage, there is equity in the house. When one needs $50k urgently, one can cash out from a bank as refinancing.Using CPF to service the mortgage, one can’t cash out.

  3. I believe the author meant that if the CPF OA was left to accumulate, in the event that a person loses the job, the tidy sum left in the CPF OA will be able to service the mortgage while the person finds another job (not viable if the monthly CPF OA contributions were maxed out for the mortgage).

  4. The government is always shifting goal post when comes to CPF. There are already existing news report that some individuals can’t even tap into their CPF in times of needs.

    The only sentence that makes sense is ‘CPF OA funds is “money they can’t spend anyway’.

    4% high interest in CPF is a good lure but it can’t buy food when one is hungry. Good cash management and investment are still king.

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