Should Singaporeans pay their home mortgage in cash rather than use their CPF Ordinary Account? Why or why not? - Seedly

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Asked 1w ago

Should Singaporeans pay their home mortgage in cash rather than use their CPF Ordinary Account? Why or why not?

What are the pros and cons to this?

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Answers (1)

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There are 2 things to look at here.

1) Accrued Interest on CPF OA monies

2) Opportunity Cost (both ways)

Firstly, understanding the accrued interest rule. When you withdraw your CPF OA money to pay for your home, you have to return that money to your OA account with interest upon the sale of your home.

Why?

Because, if the money was left there unused, it would have earned a 2.5% interest. Now since it's not there, you have to take over and pay that interest back to yourself.

However, if you're planning to immediately purchase another flat right after, you can then use that refunded money again. So that's not that big of an issue.

Secondly, the opportunity cost. If you believe you can earn a potentially higher return above 2.5% p.a with your cash savings, it might be better to invest your cash and pay your mortgage with CPF.

If you aren't an investor and want to take the guaranteed 2.5% return, pay with cash and stock up and compound your CPF OA money.

Paying with cash also would mean that if one day, you are unable to continue paying with cash, you can always switch to using your OA instead.

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