What is the benefit of doing a voluntary housing refund?

[Supermarket_astronaut]

Under CPF property tab.

 

[reddevil0728]

To reduce accrue interest that you have to pay yourself?

 

[limster]

To get ready for the 2022 CPF Account Value Thread where people will start posting screenshot of their CPF balance in Jan 2022.

 

[dork32]

To reduce accrue interest that you have to pay yourself?

accrued interest is never a concern for me.

i do a refund when i feel that i have too much cash and want to reduce the amount owed to the bank

 

[battledome64]

accrued interest is never a concern for me.

i do a refund when i feel that i have too much cash and want to reduce the amount owed to the bank

Why not? It can cause a sale of property to result in loss if you have to payback CPF large amounts of interest.

 

[a4973]

Why not? It can cause a sale of property to result in loss if you have to payback CPF large amounts of interest.

Why is it considered a loss when you are refunding the accrued interest back to your own OA?

 

[reddevil0728]

Why is it considered a loss when you are refunding the accrued interest back to your own OA?

There are people who thinks money that's in CPF is a "lost cause"

 

[direbmem]

accrued interest is never a concern for me.

i do a refund when i feel that i have too much cash and want to reduce the amount owed to the bank

reduce amount owed to bank or to CPF?

 

[dork32]

reduce amount owed to bank or to CPF?

Eg i have 500k loan and alredy paid 300k using cpf

i have 50k cash and dont know what to do with it.

people that can count will pay back to cpf. (2.5% interest)

peace of mind people will pay back to bank (1.xx% interest)

 

[dork32]

Why not? It can cause a sale of property to result in loss if you have to payback CPF large amounts of interest.

money paid back to cpf can be used to buy the next flat, withdrawn at 55.

and if i stay in the flat till i die, i dont have to pay back a single cent,

there is no loss

 

[direbmem]

Eg i have 500k loan and alredy paid 300k using cpf

i have 50k cash and dont know what to do with it.

people that can count will pay back to cpf. (2.5% interest)

peace of mind people will pay back to bank (1.xx% interest)

Ya, but refund to CPF doesn't reduce amount owed to the bank right?

 

[rizhal]

Why is it considered a loss when you are refunding the accrued interest back to your own OA?

Less cash out. Sale proceeds lock in CPF

 

[yiron]

Under CPF property tab.

If you have surplus cash lying around that cannot generate at least 2.5% consistently, it makes sense to refund back to CPF to reduce the accrued interest.

 

[BBCWatcher]

Eg i have 500k loan and alredy paid 300k using cpf
i have 50k cash and dont know what to do with it.
people that can count will pay back to cpf. (2.5% interest)
peace of mind people will pay back to bank (1.xx% interest)

Yiron has the relevant point of comparison mostly right. See below. The loan interest rate comparison is relevant to whether to accelerate repayment of the debt or not.

Less cash out. Sale proceeds lock in CPF

Sure, but depositing liquid cash in a CPF Ordinary Account, particularly for a member under age 55, means less generally liquid cash now. From age 55 onward those OA funds are typically available for cash withdrawal in any amount, but they're "gated" behind higher interest earning Special Account dollars.

If you have surplus cash lying around that cannot generate at least 2.5% consistently, it makes sense to refund back to CPF to reduce the accrued interest.

I was with you until the last few words. Whether you reduce accrued interest or not doesn't particularly matter. That's notional interest you "owe" yourself. What matters is how hard your savings are/aren't working for you. CPF Ordinary Accounts earn 2.5% interest, and that's either a comparatively attractive opportunity for your available savings or not.

In fact, accumulating more accrued interest can be a good thing in lifecycle terms. This gets slightly complicated, but let me explain the basic part... Typically as you age and approach/enter retirement you want to shift from higher yielding but also higher volatility investments to more conservative but also lower yielding assets. If you have a larger opportunity for OA repayment because more accrued interest has accrued, then that can be quite useful in your golden years as a place to park more Singapore dollars (your CPF Ordinary Account) as you gradually rebalance your investment portfolio.

There's also a little nuance here that some people can insert some cash into their CPF Special and Ordinary Accounts via an "all three account" Voluntary Contribution. That'll earn a blended interest rate >2.5%, and >2.5% beats 2.5%. This "all three" VC works if you have room below the CPF Annual Limit, and it works particularly well if your MediSave Account has reached the Basic Healthcare Sum and you're past or near age 55 with a decently or better funded Retirement Account.

 

[Geeezz]

To reduce accrue interest that you have to pay yourself?

To add on, by doing it you will be able to get more cash in hand if you do sell your property because lesser accrued interest means lesser money from sale go to CPF

 

[BBCWatcher]

To add on, by doing it you will be able to get more cash in hand if you do sell your property because lesser accrued interest means lesser money from sale go to CPF

Is that a good thing? Let's explore....

1. If you're buying another home in Singapore, it sure seems like it doesn't matter. OA can be used for housing again, right?

2. In order to obtain that future amount of liquidity you have to reduce today's liquidity. Is it a good idea to reduce your liquidity today? In the future you're that much closer to (or past) age 55 when your CPF SA and OA become liquid anyway. Reducing your liquidity today means you're more likely to be forced to sell your home to raise cash, other things being equal. This seems like an odd decision in those terms, doesn't it?

3. As I mentioned, if you don't let accrued interest accumulate then you have that much less opportunity to inject cash into your CPF Ordinary Account when it makes more sense to do that in lifecycle terms, in your golden years. OA's 2.5% interest becomes comparatively more attractive as you age, when your investment time horizon becomes shorter. Sure, 2.5% interest isn't something to sneeze at. But if you have a decent or better investment time horizon, and if you're reasonably prudent and diligent, with high confidence you can do better.

4. If you're going to flip your house at the 5 year M.O.P. (as a common example) then we're not talking about much accrued interest anyway even in absolute dollar terms.

In short, I don't think I'd worry about this in the vast majority of cases. It's fairly hard to think of scenarios when this feature of CPF/housing will make a material difference. But here's one such example I can think of:

* You have lots of liquidity today and don't mind sacrificing some;
* You expect to sell your home and permanently leave Singapore (perhaps buying a home elsewhere) well before your 55th birthday.

In this scenario you might not want to "trap" too many dollars in your CPF Ordinary Account because you won't be able to use them for housing in Singapore (since you aren't living here). The 2.5% interest rate is comparatively unattractive particularly if you've got a long way to go to age 55, and the CPF Investment Scheme (OA) might also be unattractive for foreign tax and/or other reasons. So in this scenario I can imagine that you'd want to minimize accrued interest even while you're using OA to service a mortgage.

 

[Value.Matrix]

To add on, by doing it you will be able to get more cash in hand if you do sell your property because lesser accrued interest means lesser money from sale go to CPF

The only reason you want to refund to cpf OA is when

(1) you max out SA
(2) you max out MA
(3) you max out your VC3A
(4) You have a private property which you used cpf OA to pay for, and require to do equity / reverse mortgage loan.
(5) you have too much cash.

 

[BBCWatcher]

I guess there are some more edge cases when, for example, you're concerned about protecting assets from creditors and adverse court rulings.

 

[dork32]

The only reason you want to refund to cpf OA is when

(1) you max out SA
(2) you max out MA
(3) you max out your VC3A
(4) You have a private property which you used cpf OA to pay for, and require to do equity / reverse mortgage loan.
(5) you have too much cash.

many younger people will not agree to this.

yes sa and ma gives higher interest. but sa and ma is quite useless. retirement is still very far away and young people hardly fall sick

you can still use your oa for your second property, upgrade to a better home.

you only top up sa with money that you will not want to see again for another 25, 30 years. but if you are saving for the next property, oa is a much better choice

 

[dork32]

topping oa will give you buffer to pay your monthly installment, should you become economically inactive. your sa will not save you from the repo man