Question on CPF Minimum Sum and Housing Withdrawal Limit

[Dennis Ng]

Someone asked the following question. I provided him with an answer, now here's the question and answer for everyone's easy reference:

CPF Minimum sum & Housing withdrawal limit
Hi,

I'm concern about my CPF minimum sum. Can someone explain what this means and the implications if I do not have the minimum sum stated by CPF?

What is the relationship betw minimum sum and housing withdrawal limits?

My reply:

You asked a very interesting question which many people are confused, including many Financial Planners out there. For your specific situation, we can provide you with a no-obligation analysis but we need more information from you. You can email to us at info@HousingLoanSG.com and we?ll provide FREE unbiased analysis for you.

For the issues you raised, below?s a general answer for everyone?s easy reference:

You can use CPF to pay for Housing Loan instalments up to 100% of the Valuation Limit without any restrictions.

Valuation Limit: lower of purchase price or valuation of property at point of purchase

After you reach 100% of the Valuation Limit, you can ONLY continue using CPF to pay for Housing loan instalments thereafter provided you have set aside at least the CPF Minimum Sum cash component in CPF Ordinary account Plus Special account.

Currently, the Minimum Sum is $90,000. Minimum Sum Cash Component equals half of that or $45,000. Note that by year 2013, the CPF Minimum Sum is expected to increase to $120,000 and the cash component would then be $60,000.

Let?s use a numerical example to illustrate:

Mr A bought a HDB flat, purchase price $200,000, valuation $210,000.

Valuation Limit = $200,000

He paid the 20% downpayment using CPF, or = $40,000

He can use CPF for downpayment and instalments up to valuation limit or $200,000 without any restriction.

Assume he takes a 80% loan from HDB or = $160,000. Assume an average interest rate of 3% for the loan and he takes a 25 year loan. His monthly instalment works out to $758.74. As he has used $40,000 in CPF for downpayment, total he can use CPF for monthly instalment until reach Valuation Limit of $200,000 is $160,000.

Using $160,000 dividing by monthly instalment of $758.74, it means that he would reach Valuation Limit by 210.9 months, or 17.57 years. It also means if on 211th month, if he does not have enough CPF Minimum Sum Cash Component, he can no longer use CPF to pay for monthly instalments.

So if he took up the 25 year Housing Loan thinking he can use CPF to pay for ALL the Housing Loan instalments, he might be in for a rude shock.

I?m sure when many people purchase a property, be it a HDB resale flat or a private property, NO property agents would have shared with you such potential problems. Most of them (though there?re some good and ethical ones) are only interested to close the deal. They don?t really bother how you might be unable to use CPF to pay for Housing Loan in future.

Thus, in advanced countries such as U.S.A and Australia, other than the usual Financial Planners, these countries even have specialised ?Mortgage Consultants? who would provide such specific advice on debt management, planning and helping you to get the BEST deal in Housing Loans by providing you with an unbiased Housing Loan Analysis. When a person think of buying a house or refinancing his/her housing loan in these advanced countries, they do not go to a property agent, they do not go to a general Financial Planner as well, but they seek the advice of specialised Mortgage Consultants.

You might be glad to know that now such a service is available in Singapore. LEVERAGE HOLDINGS is a company that have certified consultants to advise you and provide personalised service so that you can take up a Housing Loan in the comfort of your home or office or anywhere you prefer. You might also be delighted to know that we DO NOT charge a FEE for our service as we?re paid by banks and finance companies separately. So there?s everything for you to gain and nothing for you to lose to engage our service.

Cheers!

Dennis Ng, info@HousingLoanSG.com

http://www.HousingLoanSG.com

[Dennis Ng]

Hi Dennis,

Thanks for your detail reply.

Is the housing withdrawal limit dependent on when you I bought the flat?


My comments:
I think you confuse Housing withdrawal limit to CPF withdrawal limit.

When you purchase a house only makes a difference in terms of CPF withdrawal limit.

Here's a summary on ruling on CPF withdrawal limit.

1. for HDB flat (whether new or resale falt) bought using HDB concessionary rate loan - CPF withdrawal limit is not applicable, as long as you fulfill Housing withdrawal limit I mentioned in my earlier post, you can use CPF to pay housing loan.

2. For HDB flat financed by a bank loan, including those HDB concessionary rate loan borrowers who switched to bank, the CPF withdrawal limit is applicable. What limit to use, depends on which year they first switch to bank. eg. if they switched to bank in year 2003, limit is 150%.

Note: for above reasons, though Leverage earns money by helping people get housing loans from banks and finance companies, Leverage has as a company policy, ALWAYS advised against a person taking up HDB concessionary rate loan from switching to a bank.

3. For private property bought before 1 Sep 2002, limits are not applicable.

4. For private property bought after 1 Sep 2002, limits are applicable.

What are the CPF withdrawal limits exactly?

It's summarised as follows:

Year 2003 - 150%
Year 2004 - 144%
Year 2005 - 138%
Year 2006 - 132%
Year 2007 - 126%
Year 2008 onwards - 120%

For above reasons, I see there's much "obstacles" to mid and low price range condos enjoying much capital appreciation in next few years. Becos I think many people are not aware of how this CPF withdrawal limit is being reduced.

Just imagine, a person who bought a $500,000 condo in year 2008, assume valuation also $500,000

Maximum he can use CPF to fund this property purchase is $500,000 x 120% or $600,000

Assume this person use 5% cash and 15% CPF for downpayment.

CPF used for downpayment = $75,000, which means $525,000 available for housing loan instalments

Assume this guy borrow 80% or $400,000 at average interest rate of 4% for a period of 25 years - his monthly housing loan instalment works out to be $2,111.34.

$525,000 divided by $2,111.34 = 248.7 months or 20.7 years. Again in last 4.3 years, he has to pay his Housing Loan instalments 100% in Cash provided he meets the criteria I stated in earlier post on Housing Withdrawal limit.

Please don't be surprised above information and analysis most Financial Planners are also confused themselves and many property agents also don't want to know cos majority of them only interested in closing the deal.

P.S. there're trustworthy and ethical property agents out there who put their clients interest first and willingly share above info with them, however, this is the minority of them. Leverage Holdings do work with trustworthy and ethical property agents and can help the public to refer you to be served by one of them rather than those that are not ethical. This service of helping you recommend a trustworhty property agent is another value-added service we providw WITHOUT charging any fee at all.

Cheers!

Dennis Ng, http://www.HousingLoanSG.com
info@HousingLoanSG.com

[Yan]

still cant see the difference between the housing withdrawal limits, and the cpf withdrawal limits.

care to further elaborate, using a case of buying a HDB resale in May 2006, and borrowed a bank loan.

thanks

[Dennis Ng]

still cant see the difference between the housing withdrawal limits, and the cpf withdrawal limits.

thanks

the difference?

AHWL, ie. Available Housing Withdrawal Limit.

What is AHWL?

Here it is:
For CPF members aged below 55 years, the AHWL will be simplified to:
the available Ordinary Account balance after setting aside the Minimum Sum cash component (i.e. criterion (i) above has been done away with).
For CPF members aged 55 years and above, the AHWL will be:
Available Ordinary Account balance less the Minimum Sum cash component shortfall.

What is CPF Withdrawal Limit for a property?
I think this has been thoroughly explained in my previous post.

You need to re-read them. For unbiased Analysis of ALL Housing Loans in Singapore, email to info@HousingLoanSG.com