Owning a home can be exciting, but that first excitement and the benefits that come with owning a home aren’t all there is.
You still have to pay back your home loan, and for new homeowners, the thought of paying monthly installments for 20-25 years can be terrifying.
However, knowing the loan repayment options available is the first step in helping you develop a good plan to pay off your home loan.
This article covers how to pay housing loan in Singapore with the use of cash or your CPF Ordinary Account (OA), or a combination of both.
Housing HDB Loan Vs Bank Loans
HDB loans and bank loans are the two common types of loans homeowners consider when thinking of purchasing a new home.
Homeowners wanting to purchase an HDB flat can apply for an HDB loan if they are eligible. HDB loans provide a maximum loan-to-value (LTV) ratio of 80%.
This means you can borrow up to 80% of the value of the home. The remaining 20% is the downpayment, which you have to pay with cash, CPF, or both. The interest rate for HDB loans is higher than banks, but it is pretty consistent as it has been for the last decade.
On the other hand, bank loans offer an LTV ratio of 75%. This means you have to fund the 25% downpayment by yourself – either with cash, CPF, or both. However, 5% of the 25% must be paid in cash.
Homeowners might go for a bank loan if they need to purchase a private property or an executive condominium (EC), as HDB doesn’t give loans for those purposes. They might also require a bank loan if they want to refinance their HDB flat.
Bank loans have lower interest rates than HDB loans, but since interest rates might vary from bank to bank, you may have to shop around for the best interest rate.
How To Pay For Your Housing Loan Installments
Once your home loan has been approved, and you have successfully purchased your home, depending on the repayment period you now have to service the loan every month.
This monthly installment includes a portion of the loan principal and the interest rate.
When it comes to how to pay housing loan, there are a couple of ways you can pay a HDB loan or bank loan.
- CPF OA
- Cash + CPF OA
Homeowners can use cash for their HDB loan repayment or bank loan. You might prefer to let your CPF funds accrue interest for you and save towards your retirement. Cash payment will help you achieve this, even though repaying a housing loan with cash can place a strain on your finances.
However, if you’re short on cash, you may choose to use your CPF OA for your HDB loan payment and bank loan. Note that it’s mandatory to repay the CPF housing loan.
The last option is to use both cash and CPF. Homeowners can start out using CPF to repay their home loan, and transition to cash once they are in a better financial situation.
Others might begin paying with cash, but may combine it with their CPF savings later on if they fall into financial difficulties.
How To Use Your CPF OA To Pay For Your Housing Loan
You can pay for your HDB loan using CPF, just like you can for your bank loan. However, you can only use CPF to pay for a housing loan if:
- You get a home before the age of 55
- You’re above 55 but have met the Basic Retirement Sum (BRS)
- If the amount of the mortgage isn’t more than the withdrawal or valuation limit
The valuation limit has to do with the value of the purchase price of the property, whichever is lower.
The withdrawal limit refers to the maximum amount of your CPF OA that can be directed towards housing. This is currently capped at 120% of the valuation limit.
Take, for instance, the purchase price of a property is $450,000, while the valuation price is $480,000. The valuation limit will be $450,000, and the withdrawal limit will be $540,000 (i.e. 120% of $450,000).
From the example above, you can continue using your CPF to service your housing loan up to $540,000. Once this limit has been reached, you can no longer use your CPF and have to use cash.
Keep in mind that if you’re buying a second property, you can use your CPF to service the loan after you have met your BRS. The withdrawal limit for your second property is capped at 100%.
Other factors such as the remaining lease on the property, the age of the youngest buyer, whether the loan is a bank or HDB loan, and if the flat is an HDB resale or Build-To-Order (BTO) flat can all affect how much CPF you can use for your housing loan.
To know how much housing loan CPF you can use at any point in time, use the CPF housing calculator to find out.
How To Pay Back CPF Housing Loan
While using your CPF to pay for housing seems like an excellent option, be aware that you’ll need to pay back your CPF, as well as the 2.5% interest rate that should have accumulated if your CPF savings were left untouched.
There are two ways you can repay your CPF housing loan:
- Voluntary CPF refunds
- When you sell the property
By doing voluntary CPF housing refunds, you can reap the benefits of large retirement savings, utilise your CPF again for other needs, and reduce the refund sum you’ll pay when you sell your property.
If you wait to refund your CPF when you sell your property, be aware that there might be no sales proceeds left to finance your new property after you settle the outstanding home loan amount and your CPF.
So should you pay off your HDB loan using CPF? You can, but borrow with caution, and do voluntary refunds.
Paying Off Your HDB Loan Early
If you own a HDB flat, you can pay off your HDB loan early to save on interest. Another benefit is that if you want to resell your home, you’ll have much more of your sales proceeds left as little will go to settling the outstanding loan balance, if any.
One way you can do this is through partial capital repayment.
Partial Capital Repayment (PCR)
A PCR shortens your repayment period, and gives you two options:
- Continue with the existing monthly installment, or
- Revise your monthly installment.
How much PCR can you pay?
- If your loan commencement date was before 1 Apr 2012, the minimum PCR you can pay is $500
If your loan commencement date was on or after 1 Apr 2012, the minimum PCR you can pay is $5,000
To apply for PCR, log in to your HDP page, and click on Partial Capital Repayment under “Other Related Services”. A proposed date for payment will be given one month after the HDB receives your request.
Late Payment Charges
Failure to repay your HDB loan on time can incur late payment charges. Currently and up until 31 Mar 2023, the late payment charge is 7.5% per annum. This will be calculated at the end of the month on any outstanding loan balance.
Which Option Is Right For You?
There is no right or wrong option on how to pay housing loan in Singapore. Remember, you can always use cash, CPF OA, or a combination of both.
When using your CPF, just make sure you make voluntary repayments so you can benefit from the 2.5% interest rate.
If you’re having difficulties paying off your housing loan, Lending Bee, an established licensed money lender in Singapore, offers fast loans at low interest rates.
About Ashley Sim
Calling herself a “professional multi-tasker”, Ashley worked as a relationship manager in a bank for five years. She left her job just before the pandemic happened and became a freelance writer for about a year. Now, she’s making the most of her love for writing and knowledge of the banking and financial industry in her role as a content marketing lead. She hopes to help people make better financial decisions through her content and campaigns.