CPF Withdrawal limit - Case Study by Dennis Ng

[Dennis Ng]

CPF withdrawal limit - Case Study TODAY 22 July 2006

many people are confused about how exactly does "CPF Withdrawal limit" on property affect them. Below is a case study http://www.HousingLoanSG.com provided to TODAY newspaper on 22 July 2006:

Cheers!

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

Home Financing Case Study:
Mr Tan bought an HDB flat at a purchase price of $200,000, a discount from its valuation of $210,000. As such, the Valuation Limit, which is the lower of the valuation and purchase price, is $200,000.
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He can use his CPF savings for the downpayment and instalments up to the valuation limit or $200,000 without any restriction.
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If he takes a 30-year bank loan of $160,000 (80 per cent of purchase price) and assuming an annual average interest rate of 3.5 per cent, his monthly instalment works out to $718.47.
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As he has already used $30,000 in his CPF account for the downpayment, he can use $170,000 of his CPF to pay his monthly instalments given the Valuation Limit of $200,000.
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Using $170,000 divided by the monthly instalment of $718.47, he would reach his Valuation Limit in 236.6 months, or 19.7 years. This means that on the 237th month, if he does not have enough in his CPF to meet the CPF Minimum Sum cash component, he can no longer use his CPF funds to pay for the monthly instalments.
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If Mr Tan took up a 30-year housing loan thinking he can use his CPF savings to pay for all the loan instalments, he might be in for a rude shock. The last 137 months, or 11.4 years of his loan, may have to be paid for in cash.
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What's more, if Mr Tan plans to buy a property financed by a bank loan from 2008 onwards, the CPF Withdrawal Limit would be reduced to 120 per cent or even lower, aggravating his problem.

[Dennis Ng]

HI Dennis,

Me and my wife are in the process of buying a HDB now and were wondering whether does this CPF Withdrawal limit apply to us. I was told by my bank and agent that this only doesn't affect first time buyer. Is it true?

We are both SPR and will have to take our mortgage loan from commercial bank. This is the first HDB we are buying here.

My comments:
according to CPF rules, as long as a person buys a HDB flat financed by a Housing Loan with a BANK, he/she is subjected to CPF withdrawal limit. If you buy a house this year, the CPF withdrawal limit is 132%.

I'm not sure why your bank and property agent says CPF withdrawal limit is not applicable to you. This information is INCORRECT. If in doubt, you can clarify with CPF on this. (perhaps they are not familiar with CPF rules?)

If you're a first time HDB flat buyer, you're ONLY not subjected to CPF withdrawal limit if you can qualify and take a HDB concessionary rate loan from HDB. Once you take a Bank loan on a HDB flat, CPF withdrawal limit applies to you.

This real-life experience you have shows to you that it is very important for you to seek competent advice, and that's why www.HousingLoanSG.com wants to provide FREE Competent Consultation to empower ALL property buyers with relevant and correct information to help them make an informed decision.

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