Using monies from your CPF Ordinary Account to make your downpayment for your home may be common but to wholly rely on OA to fund your home purchase may not be the wisest decision. Let us tell you why.
- Using CPF to buy a home means you will have lesser savings in future. Why? Do you know that you can maximise your retirement funds by voluntarily diverting money from OA to Special Account (SA)? Monies in your OA earn a base interest rate of 2.5% per annum while monies in your SA earn a base interest rate of 4% per annum.
- By using your CPF savings to buy a private condo, you may deplete your OA unknowingly and hit the CPF withdrawal limit. You will receive a letter from CPF informing you that you have hit the limit and that you can no longer utilise the account for your mortgage. If you do not have excess funds set aside for this to happen, there is a possibility of defaulting which can lead to foreclosure eventually.
- Home owners could potentially miss out on chances to lower your monthly mortgage instalments with the automatic housing loan repayment via CPF. When you are fully complacent with the automatic CPF deduction, you may forget to refinance when interest rates are on the uptrend.
- Using CPF to buy your home can also result in greater opportunity costs. With OA and SA’s lucrative interest rates at 2.5% per annum and 4% respectively, you will lose out on earning the reasonably good Return on Investment (ROI) if you choose to use it to pay for your home.