Should You Always Pay Your HDB Downpayment With Cash Or CPF?

|Posted by | CPF, HDB, Home Loans, Home Ownership
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Let’s just say that if you’re able to mull over your downpayment options, you are in a privileged financial position indeed. Will your cash be put to good use? Here we’ll take a deeper look.

In Singapore, nothing is more divisive than the topic of CPF and the merits (and repercussions) of its usage, particularly when financing your property purchase. 

There’s those who are all for using our CPF Ordinary Account (OA) to take care of the deposit and subsequent loan repayments. After all, isn’t that what it’s meant for? 

Then there’s the opposing camp, the ones who would rather leave their CPF alone and grow their CPF savings over time with the magic of compound interest.

Note that in this article we’re only looking at the downpayment, not the mortgage repayment. Which side of the fence are you on? If you’re undecided, let’s dive in.

How much is the downpayment for an HDB flat anyway?

The amount you’re required to pay depends on the type of loan. If you are taking on a HDB concessionary loan, you are required to make a downpayment of 10% of the purchase price or valuation, whichever is higher. 

If you are taking on a bank loan instead, you’ll need to make a higher downpayment that consists of 25% of the purchase price or valuation, whichever is higher.

Of this 25%, at least 5% of the downpayment must be made in cash while the remaining 20% can be paid via CPF savings in your OA or cash (or a combination of the two).  

Let’s illustrate this with an example. Say you just got married and are looking to buy a 5-room flat valued at $423,000.

Cost of downpayment:

  • For HDB loan = $423,000 x 10% = $42,300
  • For bank loan = $423,000 x 25% = $105,750 (of which 5% or $21,150 must be paid in cash)

Now looking at these figures, it could seem a little harrowing to be paying that much in cold hard cash. However, accumulating enough savings to pay the downpayment for an HDB flat is definitely achievable, particularly if you’re in a double income household and are in a good place financially (no debts, no existing loans). 

Keep in mind that when buying an HDB flat, the downpayment is only one part of the equation. 

Breakdown of payment:

Downpayment + Buyer’s Stamp Duty + Conveyancing Fees + Remaining Purchase Price of the Flat (repaid via installments on a monthly basis)

On paying downpayment with cash 

ProsCons
More of your CPF is untouched, able to transfer OA to SA for higher interestWipe out a huge portion — if not all — of your current retirement savings
Avoid accrued interests on the downpayment amountTransferring OA to SA can’t be reversed
Higher likelihood of positive cash saleLess cash on hand for other expenses i.e. renovation, property taxes and mortgage repayments, among others

Following the example earlier, let’s assume that you choose to take up an HDB loan. By paying the 10% downpayment in cash, that leaves $42,300 in your CPF OA to earn a base interest of 2.5% p.a. In 10 years’ time, the accrued interest amount alone will snowball to: 

$42,300 x 2.5% p.a. x 10 years = $10,575 

What’s more you can choose to transfer your OA monies to your Special Account (SA) which offers a higher interest rate of 4% p.a.

Another thing to consider is also the higher likelihood of making a positive cash sale should you sell off your flat. That’s because when you sell your flat, you’ll need to refund the principal amount borrowed and accrued interests from the total loan amount as well as any upfront costs (conveyancing, stamp duty fees) paid for using your OA monies. 

To put it simply, every penny used by your CPF needs to be repaid in full — including the interest it could have accrued. This could easily take up a huge portion of your sale proceeds, which may result in a loss as you’ll need to dip into your proceeds to pay back the total loan amount.

On paying downpayment with CPF 

ProsCons
Frees up cashflowNot feasible if cash savings are insufficient
Able to invest the cash at your disposalLess CPF savings for retirement
Cash can be used for unforeseen emergenciesHigher risk of negative cash sale

On the other side of the argument, freeing up one’s cash does have its upsides — higher liquidity plus more cash on hand to invest or you could also park it in a rainy day fund.

But one unavoidable reason why CPF is better left untouched is its significant interest rate of 2.5% p.a. that can be built up over time without having to lift a finger.

Additionally, you’re also looking at less funds for your retirement savings as a Retirement Account (RA) will be created for you once you hit the age of 55, made up of your OA and SA (up to the Full Retirement Sum) balances. 

There’s also the potential sale proceeds to think about. Once you’ve fulfilled the Minimum Occupation Period (MOP), you’re eligible to sell your HDB flat. Once it’s sold, the proceeds must go towards the outstanding home loan amount as well as all the CPF money you’ve used to buy the property — plus the love-it-or-hate-it accrued interest. Accrued interest may not be your friend in this case, particularly if you’re hoping to make a profit.

Conclusion: Which is better — CPF or cash?

The pros and cons are definitely neck and neck. It could all come down to a simpler question: do you have sufficient cash for the downpayment and are you willing to part with it just to minimise your CPF usage?

At the end of the day, overstretching your means in any capacity — be it cash or CPF savings — is an outcome that is better off avoided. If you’re sitting on a pile of cash and you have no long-term plans for it, the money could be better off in servicing the downpayment if you’re looking to upgrade in future and reap the benefits of the attractive OA (or SA) interest rate.

Alternatively, you could very well use your CPF OA for your downpayment if you prefer having more cash on hand and are not too concerned about accrued interest. After all, there’s more than one way to grow your wealth. The right investment strategy, endowment plan or savings account can do wonders to accelerate that growth.

Read these next:
Pros And Cons Of Keeping Your Savings In Your CPF Special Account
Uniquely Singaporean Things We Do To Accumulate Wealth
Endowus Review: Investing Your Cash, CPF And SRS Money At Low Fees
CPF Investment Scheme (CPFIS): Guide To Investing With Your CPF
How To Buy A House In Singapore: A Complete Guide


By Marissa Saini
Your friendly neighbourhood cat enthusiast who enjoys not being broke. Spend less, save more is the name of the game. Firm believer that being financially savvy is not about the destination, but the friends you make along the way.