A while back, I shared with a client about CPF Accrued Interest. His first reaction was "Acc-what? Interest?". Like most Singaporeans, they are unaware or only know briefly about CPF Accrued Interest. I told my client to check his CPF statement via the CPF website.
This client of mine took a HDB Loan for 30 years, and his monthly mortgage was $954. And like most Singaporeans, he paid down his monthly mortgage using solely CPF. And by the time we met, he was proud to share with me that his HDB loan was fully paid.
We met in 2017, which was 9 years since he bought his BTO. During that time, a 5-Room HDB in Choa Chu Kang could fetch a price of around $450,000.
Based on $450,000, his sales proceeds after paying back the loan should've been:
$450,000 - $298,000 = $152,000 (Sounds good doesn't it?)
However, the calculation for the CPF Return of principal + accrued interest in the 9 years worked out to be $559,334. Thus, if he were to sell his HDB flat, it would've been a negative sale.
To understand why this is the case, lets look at the table below.
He was shocked! Never did he think that even after the price of his HDB appreciated $152,000 that he would still have to top up cash if he sold his flat. Now his plans of retirement were turned upside down. He was lost....
Some might say, he can just stay in his HDB forever and not sell it. Then he wouldn't have to pay for the CPF refund. But then wouldn't he be in a VERY risky situation?
For most Singaporeans, our biggest asset and where most of our wealth is stored, is our properties. If something happens down the road and he needs a large sum of cash urgently (Sickness, Bankruptcy..etc) , he can neither sell his house to cash out nor produce cash to help himself.
Thankfully, he met me, and I was able to create a strategic solution for him to escape this fate.
This begs the question – did YOU effectively use your CPF funds to maximize the growth of your assets?
Most Singaporeans start off the same – with a HDB flat that is financially affordable.
But why do some end up differently?
Some are stuck with a single HDB flat (there is no right or wrong here). While others are able to end up with multiple properties.
The difference is the the choices and the decisions made during the process of owning a HDB. And your decisions you make depend highly on your knowledge and the people you seek advice from.
It is ok to not fully understand the intricacies of interest rates and CPF rules – We are always caught up in our hectic lives in Singapore. Most Singaporeans rarely have time to catch up with government policies and, current industry and market movements.
Most importantly, DO NOT be afraid to seek advice and help if you need it!
If you would like to understand more about what steps to take and what other options are available, please contact me. I will sincerely and honestly share with you my experiences and knowledge that have helped my clients.
9759 2826 / 8388 4881 Propnex Realty Pte Ltd
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