Refund of housing withdrawal into CPF

[tanjm]

There's a CPF "hack" you can do that I recently discovered. Perhaps it is already well known, but it certainly didn't occur to me until recently.

It is based on the fact that you can refund your housing withdrawal back into CPF even if you haven't sold your property.

This is particularly attractive if
(A) you have paid off your property but are still living in it.
(B) you have spare cash that you would like to invest risk free for at least the next few years (or however far you are from 55)
(C ) You are relatively near the retirement age of 55.

You then earn the statutory minimum interest rate of 2.5% in OA or 4% if you can transfer some to SA. At present, 2.5% is better than the yield of a 30 year govt bond.

After contributing to CPF LIFE at age 55, you can withdraw the rest, or keep it in CPF at 2.5% interest rate. You can withdraw any amount on demand with about 3 days notice. i.e. basically use it as a high interest bank account.

[opmi]

add one more - protection from bankruptcy for money inside CPF (not CPFIA)

[chialc88]

Hi TanJM,
Yes, not many people aware this but certainly got people doing it.

The T&C and application form is here:
link

You can do a cash refund for:
1. Full principal amount
2. Partial principal amount
3. Full principal amount and full accrued interest
4. Full accrued interest (you can only refund the accrued interest after you have refunded the full principal amount.)

Above is the theory and this is my experience:

1. First, you need to pay off the Principal amount before you can pay off the accrued interest.
   
2. For principal amount, you can do partial payment. 
   
3. Payment thru cheque/cashier order to "CPF Board" aka not your name.
   
4. No cash allow (at Jurong East Branch)
   
5. Warning: for accrued interest, must pay all in one shot aka can not do partial payment.
   

Huat ah!


Wish every valuebuddies a million dollar in your CPF (before your retirement age).

Sweet Dream & Merry Christmas:

[Porkbelly]

Thanks TanJM & Chialc88!

Yet I dont understand the mechanics.
Withdrawal was made to purchase the home ( HDB or Private )
The money has been paid to bank. or HDB.

The sale price of the home needs to be higher, for refunds.
Since the property is not sold, where is the money from?
Is there a key fact that I missed?

[opmi]

the above is for cash rich VBs. while the general public wants to get money out of CPF, VBs want to get cash into CPF OA..hahaha...

the limitation of this particular method is the max cap.......

[tanjm]

I've always maintained that Singaporeans over consume housing simply because CPF is so temptingly within reach.

Just buy a house slightly below your apparent means (CPF is still your money, even if you think its not), and avoid a second house (unless you are filthy rich of course). Save the rest. Pay off your mortgage early.

To answer PorkBelly. You are confused because you are linking the house and housing withdrawal refund. CPF allows you to pay off the refund regardless of whether you sold the house or not. Of course, this works when you are no longer using CPF for housing payments (i.e. paid off mortgage).

[tanjm]

the above is for cash rich VBs. while the general public wants to get money out of CPF, VBs want to get cash into CPF OA..hahaha...

the limitation of this particular method is the max cap.......

CPF is your money. it is simply restricted. If you get rid of mental accounting blinkers, you'll see that CPF interest rates are marvelous risk free rates for parking future consumption.

See mental accounting. https://en.wikipedia.org/wiki/Mental_accounting

People over consume housing because at the back of their mind, they think CPF isn't "real money". This is also mental accounting.

[Millionfaith]

I actually refund to CPF voluntary after 4 years. If I remember correctly, I also need to pay back the accrued interest. I bought the property in late 2004.

But first of all, before refunding to CPF which charges 2.5%, I cleared my mortgage loan which was charging 5-6% interest in 2006.

One of the reason why I refunded to CPF at that time was that I was concerned I might used the money to invest in shares, which I considered risky and uncomfortable. But if one is good at investment, invest the sum would generate more than 2.5%. I believe most VBs here can do better than 2.5%

Of course if one have refunded the money to CPF, they still can use it for investments. However, there are limitation in what one can invest and the maximum sum one can invest in a particular asset class.

[brattzz]

1) CPF makes housing expensive = agreed (take away CPF, and u will see housing prices come down!)
2) Top-Up cash into CPF = lock out your liquidity = not preferred
3) OA/SA as a percentage of diversification (say 20% of total investment) = agreed

[specuvestor]

I actually refund to CPF voluntary after 4 years. If I remember correctly, I also need to pay back the accrued interest. I bought the property in late 2004.

Actually like VBs mention above, it is actually our money. It is not "pay back" and I view it as a great free government service to help us actualise and visualise  the REAL rate of return on our house. What's "payback" is if we get loan from HDB at 2.6% rate or from private banks.

Many people complain after the cash return to their own CPF, they can't withdraw much cash from the house sale, after transaction costs. That's because it is mainly inflation (in this case presuming at 2.5% CPF rate) that is appreciating the house

Housing appreciation is very misunderstood amongst lay people who dont understand what 4X leverage and inflation (and L99) can do to your perceived Return on Equity. That's not to say housing is not a good asset class, but the perception is not inline with reality.