Most residents in Singapore don’t support the issue of flat sale because it is likely not to benefit them as it is fixed in their Central Provident Fund accounts whereby one cannot access it. They prefer receiving it in cash form. Here are some objectives that will help you make better decisions on whether to sell your property with the payments been refunded into your Central Provident Fund account or not.
Anything taken from Central Provident Fund must be reimbursed.
The rule of this account is that each amount of finance used on a property must be reimbursed after the property is sold. The total repayment you will be required to make comprises of the amount used or received and the accrued interest.
This means the profits that the Central Provident Fund account would have created from your interests if it wasn’t sold. And in that case, you need to consider that the accrued interest increases as time goes.
Returning of the principal amount plus accrued interest also applies to all CPF grants.
There are procedures that one should follow to get a grant from the Central Provident Fund. After all, you will be required to return the principal amount plus the accrued interest if you applied and received a grant to support your project and decided to sell your flat.
In cases where the amount you have to refund to the Central Provident Fund increases higher than your cash proceeds, the excess amount is written off that means you will not be required to refund to the account beyond the HDB sale received.
Find out how much CPF can take from your HDB sale proceeds.
You can access the Central Provident Fund account online services through your sing-pass and log in to your statement where you will see a property, and this can help you calculate the amount that you are to repay to the CPF and at what period.
An example of calculating the sales proceeds of HDB.
Some factors can help you calculate the number of cash proceeds you will get after the flat sale. They include the number of sales, the accrued interests of CPF, the principal amount of CPF, the resale levy of the DB, the legal fees and the agent commission fee.
Here is an example to illustrate this idea:
In case you plan to sell an HDB flat with four rooms that you had purchased at a price of let’s say $150,000 in the year 2001 with $15,000 CPF-OA down payment and a CPF grant of $15,000. Then that all mortgage installments are covered using CPF and a loan that stands at $50,000.
(A) Sale amount = $550,000 (If you’re not sure what your property might sell for, refer to HDB’s past transacted prices)
(B) Outstanding loan amount = $50,000
(C) CPF principal amount used = $130,000 (consisting of $100,000 mortgage payments + interest paid using CPF and $30,000 grant plus down payment)
(D) CPF accrued interest = $97,000 (this has been rounded off for easy calculation)
Note that (D) is calculated based on principal amount compounded yearly up till the point of sale, not until the end of the loan tenure.
(E) HDB resale levy = $40,000 for a 4-room flat, assuming you’re buying an EC or another flat directly from HDB (e.g. BTO or SBF)
(F) Sale proceeds = (A) – (B) – (C) – (D) – (E)
$550,000 – $50,000 – $40,000 – $130,000 – $97,000 = $233,000
**(You may also estimate your sale proceeds using HDB’s Sale Proceeds calculator)
(G) Agent commission fee = $5,885
This is typically 1 to 2% of the sale price, with GST (currently 7%) tacked on separately.
(H) Legal fees = $2,500
Generally, legal fees cost between $2,000 to $3,000.
Cash proceeds = (F) – (G) – (H)
$233,000 – $5,885 – $2,500 = $224,615, which may or may not be sufficient to finance your next home purchase and/or fulfill other objectives for selling the home.
After making calculations, the resultant amount may or may not be enough to stand to fully refinance your next dream home you need to purchase or; you might not be at a chance of fulfilling other home selling objectives you might be having.
Avoiding further accrued interest by making a cash refund to CPF.
Making cash refunds to the Central Provident Fund can clear you any mortgages at that particular time and for the rest of the time before you decide to sell your flat.it is also an added advantage since you can refund the principal amount and the accrued interest either in full amount or in installments.
If you make the amount in full, you will not be required to credit any money back into your Central Provident Fund account after selling your flat.
Other methods to lower the accrued interest of CPF.
There are so many ways an individual can make plans to ensure that there is reduced CPF interests that might be accrued during the entire payment period. Herein you will learn among the ways this can be done;
- Avoid touching grants using a ten-foot pole.
- Consider refinancing your loan to a bank loan that charges low-interest rates if you plan to take HDB loans of interest rates standing at 2.6%.
- Make consideration to pay part of your mortgage in cash if you at that time can’t afford to make full payment for the same.
- Considering shortened loan tenure or instead of taking a small loan is the best way to go for as there are no penalties you will accrue if you do that when considering an HDB loan.
In case you arrive at a convenient time, and maybe your financial situation seems to change, there is a need for you to make a plan to sell your flat early.