There are two parts to your question so I will try and explain it to you as clear as possible.
Yes, you are able to use cash for your loan repayments. Most opt for CPF to repay the mortgage, as it does not impinge on current day liquidity. However the downside is that the amount used will be subjected to accrued interest when returned to your CPF-OA. Using current day cash will circumvent this, but it will reduce your liquidity.
The grants assigned to you, are tagged to your sale price to help reduce your loan amount. It is not sitting in your CPF per se, but actually tagged under your house's value. On sale, this amount is returned to CPF with accrued interest.
So in a nut shell, it's possible to use cash for your loan repayments. The grants will always be aligned with the growth of your CPF, so you need not worry of lost interest.
Hope I was able to address your queries! Have a great week ahead!
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