Should we wipe out CPF OA and take lower HDB loan or keep 20k each in OA with higher loan amount to earn the 3.5% interest?

Need to know what is your next step.

Your first step is already a mistake.

Keep the buffer if your loan amount can cover the excess 20k.

This does 3 things:

1. You earn an extra 700 in your OA every year via interest.

2. Leaves a buffer in case you need to dip into future OA if you're tight on cash for some reason.

But 3. You take on a bigger loan, which is an extra 90 dollars a month or 7000+ of interest over 25 years (the numbers here differ because first is principal plus interest repayment, the other is just total pure interest). But 7000 plus of extra pure interest is earned from your OA in just 10 years. So you net earn from leaving the 20000 behind which again you can tap into anytime you can't pay with cash.