CPF Accrued interest - knowing it and understanding how it can impact your property plan
Many clients of mine have a lot of misconception about CPF accrued interest but most importantly, the impact it has on their lifestage planning. Before that, I would just like to share quickly on what is CPF accrued interest.
What is CPF Accrued Interest?
CPF Accrued interest is the amount that members would otherwise have earned had they not withdrawn their CPF savings for their housing repayment. The interest is computed on the principal amount withdrawn for housing on a monthly basis (at the prevailing CPF Ordinary Account interest rate) and compounded yearly.
IN SHORT, THE FORMULA:
Sale Price – Purchase Price – Outstanding Loan – CPF Used – CPF Accrued Interest = Cash Proceeds
What are the common misconceptions about the CPF accrued interest?
The biggest impact it has is actually the cash proceed or the lack of it for that matter for various life Stage.
For young couples:
– Bought a resale HDB flat. Wanted to upgrade to private in the future.
– Because of CPF accrued interest resulting in reduced cash proceed, they do not have enough to cover the 5% downpayment, renovation as well as have an adequate safety net which have to be in cash
– Bought a 5-room or Executive apartment but wanted to right size to a smaller unit for retirement purpose.
– Because of the CPF accrued interest along with the required CPF minimum sum, they ended up also not having the adequate cash needed for renovation and retirement even if they sold their HDB flat.
While I have heard and seen some other agents saying that buying private properties or Executive Condo will overcome CPF accrued interest, this is not necessarily the case for many and in fact choosing the wrong property to buy may it be public or private property would bring disastrous impact to you and your family. Therefore, it is utmost important to make a customised plan and making informed decision before executing them.
Do feel free to contact me should you feel that you would need a thorough understanding on your property needs. =)