Let’s talk about a common misconception. You’ve got your eye on a resale HDB or condo, and you’re mentally calculating how much CPF you’ll be using. You assume your ordinary account will just… cover it all, until the end of time.
That’s a mistake that can seriously screw up your retirement plans.
Your CPF is not a bottomless pit for your home loan. The government has put two major limits in place to protect you from over-leveraging and over-paying. And if you don’t know what they are, you could get a very rude shock when your monthly CPF payments suddenly stop and you have to use cash.
Let’s break them down.
1. The Valuation Limit: Why You Can’t Overpay with CPF
This is the first rule of the game. CPF will only let you use your money up to 100% of the property’s formal valuation, not the price you paid for it.
Think of it as a safety net. If you’re buying a resale flat for $550,000, but HDB or the bank’s official valuation is only $500,000, that extra $50,000 is what’s called a Cash Over Valuation (COV). CPF says, “We’ll help you pay up to $500,000, but that $50,000 extra? That’s on you. It’s got to come from your pocket.”
This limit is in place to stop you from overpaying for a property and to ensure your retirement savings are used prudently.
2. The Withdrawal Limit: The Final CPF Cap
The Withdrawal Limit is even more important. It’s the maximum total amount of CPF funds you can ever use on one property, for its entire lifespan. This includes the downpayment, stamp duties, legal fees, and every single monthly installment.
- The standard limit is 100% of the property’s valuation.
- If you’ve met your Basic Retirement Sum (BRS) in your CPF, you can use up to 120% of the valuation.
Here’s why this matters: your loan is a combination of principal and interest. Your CPF is paying both. Over a long tenor, especially with a bank loan, that total amount can easily exceed the Withdrawal Limit.
The moment you hit that limit—whether it’s 100% or 120%—your CPF payments stop. Period. You are now responsible for servicing the rest of the loan with cold, hard cash.
When These Limits Apply (and When They Don’t)
This is a key takeaway because the rules are different depending on your loan type.
- BTO or SBF flats (from HDB): Neither limit applies.
- Resale HDB with an HDB loan: The Valuation Limit applies, but the withdrawal limit does not.
- Resale HDB with a bank loan OR a private property: Both limits apply. This is where most people get caught off guard.
A Real-World Example
Let’s say you buy a resale HDB with a bank loan.
- Purchase Price & Valuation: $500,000
- Your Cash Downpayment: $25,000 (5%)
- Your CPF Downpayment: $100,000 (20%)
- Loan Amount: $375,000 (75%)
- Upfront Costs (CPF): Buyer’s Stamp Duty & Legal Fees – $11,600
- Total CPF Used Upfront: $111,600
Now, your withdrawal limit is based on the valuation. So if you haven’t met your BRS, your cap is $500,000. If you have, it’s $600,000 (120%).
Even with a 25-year loan at a seemingly low 2.5% interest, you will hit that limit. At the end of year 20, you’ve used about $495,000. By the end of year 24, you’ve used almost $600,000.
What this means is that in the last few years of your loan, you’ll have to pay the installments in cash. Many people just assume their CPF will last the full 25 years. It won’t.
Final Takeaway
Don’t get trapped by these hidden caps. Your CPF is a powerful tool, but it’s not a magic bullet. The key is to plan your cash flow from the very beginning, as this is also a period where your income could have taken a dip due to age, and you may no longer be drawing your current salary.
- Know your limits: Check the valuation and know your withdrawal limit (100% vs. 120%).
- Be prepared: Assume you will have to make cash payments at the end of your loan tenor.
- Check your rates: This is why it’s so important to actively manage your mortgage and refinance. Lowering your interest rate reduces the amount of interest you pay, which helps you extend the lifespan of your CPF for that property.
