When selling our house, why do we have to return the interest "we would have earned" as if the money was in our OA?

CPF does have strict rules on its usage, with OA allowable for housing payments.

In this regard, we are allowed to utilize our OA for home purchase. Having the "accrued interest" component helps us to think deeper when we want to utilize our OA for housing purchase, so that we can manage our finances better.

Rather than thinking about why we need to pay back the accrued interest into our OA, we can look back into the purpose in selling our house.
This accrued interest would not be a problem if we are not selling our house.

This accrued interest would not be a problem if we are selling our house with the intention to purchase another house. As the "returned accrued interest" can be utilized for the next house.

It would be not an issue If we hit our FRS and sell the house after 55 years old as we can withdraw the excess over FRS.

Hence in most cases, we should not be worrying over the "accrued interest". It serves mainly to remind us those interest would be given to us had we not use it for housing loan repayments with CPF, but had used our cash instead.

Don't see why we are charged 2.6%pa by CPF Board when we are taking 脸from our own CPF Account.
When we are taking a loan from our own personal cpf account, we should be paying the 2.6%pa to our own CPF account, instead of the CPF Board. This will make it unnecessary to pay extra 2.5%pa to our CPF Account that resulted in a total 5.1%pa cpf loan.

That’s the rules, no choice. if no accrued interest, everyone will cash out this way and some of not most will squander it away.

some people will want to sell their bigger flats to buy smaller apartments to ’cash out’ their flat.

CPF is a retirement fund that the govt forces on everybody. To ensure its people age well, the basic thing the govt can do is to help us have enough money by then. You wanna use the money, you follow its terms and conditions.

If you can pay w cash instead of CPF then you pay less when it comes to the 2.5% lor. Call this a paternalistic state or whatever, but not everybody is financially savvy enough for the govt to allow much flexibility. If you're good enough at investing then go earn more than 2.5% so that you have no worries repaying.

If you borrow from a bank, you need to pay interest. That is why you pay hdb the 2.6% interest. If you use your CPF money, you are sacrificing the interest it otherwise earns. So it makes sense that when you return the money, you include the interest. Because that makes up your retirement funds anyway. Borrowing money from your future self means you need to pay your future self the interest he/she deserves.