Tuesday, September 22, 2020

Taking A HDB Loan - Should I Wipe Out My CPF OA?

Starting from August 2018, we do not need to wipe out our CPF OA anymore when taking a HDB loan. Now, we can have the flexibility to leave up to $20,000 in our CPF OA when we take a HDB loan. For a couple, this means a total of $40,000 in their CPF OA ($20,000 each). 

The question now will be should we wipe out our CPF OA or leave $20,000 in our account? Leaving $20,000 in our CPF OA means taking up a higher mortgage loan and paying more loan instalment and interest per month. This may not be a bad thing. Let's look into detail on this. 

Setting out the scenario

Let's assume the following scenario for a couple who has bought a house and looking to take HDB loan:
  1. Bought a house at $400,000
  2. Has $100,000 each in CPF OA
  3. Wants to take HDB loan at 2.6%
Now, this couple wants to consider whether to leave $20,000 each in their OA or wipe out totally to pay lesser monthly instalment? 

If they wipe out their CPF OA and take a loan of $200,000 for 25 years, their monthly loan instalment will be $908/month. 

If they leave $20,000 in their CPF OA each (total of $40,000) and take a loan of $240,000 for 25 years, their monthly loan instalment will be $1,089/month. 

Looking at the above, most couple will choose to go for the lesser monthly loan instalment right? It seems like a logical choice but unfortunately logic does not always prevail. 

Interest gained for $20,000 left in CPF OA 

The decision now is whether to leave $20,000 in CPF OA. First, we must know how much interest we would have gained if we leave it in CPF OA. Here's a table to summarize:

$20,000 @ 2.5%
15 years $9,088
20 years $12,957
25 years $17,341

The above is the interest we would have gained for leaving $20,000 in CPF OA for 15, 20 and 25 years at 2.5% interest. Doesn't look a lot but let's move on to how much more interest we would have paid if we take up a bigger home loan if we have not wiped out our CPF OA. 

*Do note that CPF OA is actually giving 3.5% interest for the first $20,000 so the amount should be larger.

Interest paid on $240,000 vs $200,000 home loan

In order to know whether it is good to leave $20,000 in our CPF OA accounts, let's take a look at the interest we would have paid on a $240,000 vs a $200,000 home loan. 

25 years20 years15 years
$200,000 $72,121 $68,711 $59,081
$240,000 $86,618 $82,497 $70,921

The above shows the cumulative interest paid for a $200K vs $240K home loan for 25, 20 and 15 years at 2.6% interest rate. Now, let's calculate how much more interest we would have paid on a $240,000 home loan should a couple not leave $20,000 in each of their CPF OA. 

25 years20 years15 years
Additional interest on $240K vs $200K loan$14,497 $13,787 $11,840

Now, the additional interest paid on that additional $40,000 loan doesn't seem like a lot. Will the interest gained on the $20,000 each in a couple's CPF OA be more than the above interest paid?

Let's bring the numbers together. 

Taking HDB Loan - Should I Wipe Out My CPF OA?

Now, with all the calculations, will we see higher interest gained for leaving the $20,000 in our CPF OA? The answer is yes. Let's look at the table below. 

25 years20 years15 years
Additional interest on $240K vs $200K loan$14,497 $13,787 $11,840
Interest gained in CPF OA ($20,000 each for couple) $34,681 $25,915 $18,177
Net Interest gained for leaving $20K in CPF OA $20,184 $12,128 $6,337

While the net interest gained is more for the above, we still have to consider the higher mortgage paid per month for taking a $240,000 loan vs a $200,000 loan. The difference in monthly instalment is $1089-$908=$181 per month for 25 years mortgage. This sum will be left in our CPF OA earning 3.5% interest which can be quite significant. 

Apart from the interest point of view, leaving $20K in our CPF OA can be used as emergency fund just in case when we lose our job later. If we do not have leftover in our CPF OA, then we will have to pay our housing loan in cash at that time which makes it worse for our financial circumstances during that tough period. 

CPF OA monies can be invested as well for sums more than $20K. Leaving $20K in oir OA will enable us to invest the accumulated sums thereafter (above $20K) and may earn more interest higher than 2.5%. However, as with all investments there are always risks involved. 

Deciding on whether to wipe out our CPF OA is not an easy decision. It depends on what we really want. Nevertheless, this gives us the flexibility to choose based on our risk appetite.


  1. can you please change the font for the headers? It is cute but hard to read.

    1. Thanks for the feedback. I've changed the font and made it bigger now.

  2. Sorry but i have to correct the post. I think u have forgotten the difference in monthly mortgage of $1,098 - $908 = $181. If you put back the monthly $181 back into OA getting 2.5% will be a different story. In summary, put the money in the highest interest is more worth it.

    1st 3.5% - first 20k in OA
    2nd 2.6% - hdb loan
    3rd 2.5% - OA interest

    1. Hi Joshua,

      Thanks for pointing this out. You're right about the difference in monthly mortgage payment. Have amended my post to factor in other considerations.

    2. Ahhh! u missed the point. if u invest/put back cpf having 2.5% interest on that $181...

      interest gain:
      15 years - $6,893
      20 years - $12,791
      25 years - $20,891

      its actually a loss if u calculate using 2.5% OA interest.

    3. Hi Joshua,

      Yes it will be a loss based on your calculation which will offset the interest gained from leaving $20K in CPF OA. The nett should come in slightly negative.

  3. *Do note that CPF OA is actually giving 3.5% interest for the first $20,000 so the amount should be larger.
    may i know if SA + MA exceed 60k, does CPF gives additional 1% to OA?

    1. If I'm not wrong, the additional 1% will still be given. It is given on the first 20k of OA and first 40k of SA.

  4. hi bro,

    I am also getting a bto, but going to pay the downpayment in cash. Wanted to check if you know when will the interest for the hdb loan mortgage starts incurring? Would there be interest accruing from the time of downpayment till collection of the key? Or will the interest accrue upon collection of key and you start payment of the principle and interest altogether?


    1. Hi bro,

      If you're taking HDB loan, the interest will only start accruing when you take your keys. That is the time when the loan instalment kicks in and you start paying interest.

  5. thanks bro for the confirmation.

    would you recommend a person in his early 30 to clear off the hdb mortgage by doing partial capital repayment on the loan or to invest the money to have a better rate of return? but there is a risk on capital loss in investments. trying to get your perspectives on this. thanks again!

    1. It depends on the interest you're paying on the loan. If the interest you're paying on the loan is lesser than the CPF OA rate of 2.5%, then it doesn't make sense to pay down the loan faster.

      As for investments, yes there are always risks. For me, I'll balance paying off the loan partially and investments. I won't pay finish the loan totally so but will pay off more if I can while generating some investment returns and keeping my loan instalment low.


  6. Good comparison. This is something I have been thinking about lately. But another point to note is if couple empties their CPF-OA, and uses the $181 extra cash monthly to invest in an index fund or something even lower risk like the All Weather Portfolio, they could potentially grow the money to $120K cash after 25 yrs (using 6% CAGR). So it depends on how the couple uses that $181, do they just spent it away or invest it prudently. If they can grow it at 10-15%, the amount could be $200-400K. Just my 5 cents!

    1. Yes you are right if the $181 is invested in cash. However, I think most couples will be using their CPF to pay for their loan instalment fully so the extra $181 goes back into the CPF OA.