How to stop accrued interest we owe (CPF) from growing?

Added 30 Jan 17:

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UPDATED. FROM CPF BOARD (NOVEMBER 2016):

Q	I am not selling my property. Can I make voluntary refund on the housing amount withdrawn? If yes, how do I go about doing it?

A

Yes. You can refund the following amount via a cheque/cashier's order to the Board: a) Full principal amount b) Partial principal amount c) Full principal amount and full accrued interest d) Full accrued interest (You can only refund the accrued interest after you have refunded the full principal amount.) Please complete the Form HSD/VR  Updated Form: HSD/VR (2017) and prepare a cheque/cashier's order made payable to "CPF Board". On the reverse side of the cheque/cashier's order, please write your name, CPF Account No. and the property address. Mail both the form and the cheque/cashier's order, before 20th of the month if you wish to earn interest on the refunded amount from the following month, to: Central Provident Fund Board  Housing Schemes Department  238B Thomson Road #08-00 Tower B Novena Square Singapore 307685 Alternatively, you can deposit the cheque/cashier's order and this form at any CPF service centres. The refund will be credited to your CPF account(s) within five working days from the receipt of your cheque/cashier's order (subject to cheque/cashier's order clearance). If you wish to use your CPF savings to service the outstanding housing loan after making the full cash refund, you will need to submit a fresh application, "Application to Use CPF Savings to Purchase Residential Property" to the Board through your lawyers. You will incur legal costs in the process as we need to lodge a new CPF charge on the Property to secure the refund of new CPF savings used for the Property before we allow your CPF savings to be withdrawn for the Property.

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One of the things I have blogged about is how in using our CPF-OA money to purchase a property, we must be aware of the opportunity cost that comes with the decision. 

CPF money is meant to help fund our retirement. Our CPF money also enjoys relatively attractive interest rates from the government.

In the event that we use our CPF-OA money to purchase a property, we are losing out on interest payments by the government. Also, in line with the idea that our CPF money should grow for it to be a more meaningful source of retirement funding, we would have to pay ourselves interest for the CPF money we have utilised in the event that we sell the property with a capital gain.

Having understood this, a reader wrote and asked if we could voluntarily return the money we used from our CPF-OA in the purchase of our homes and here is the reply from the CPF Board:
 

You can refund the CPF savings that you have used for your HDB flat without selling the flat.

If you intend to make the voluntary refund, you can refund the following:

a) full principal amount withdrawn towards the property and accrued interest; or

b) full principal amount withdrawn; or

c) part of the principal amount withdrawn

With your SingPass, please check the Principal Amount used plus the Accrued Interest if you would like to proceed. The steps are as follows:

1. Logon to CPF website www.cpf.gov.sg and click on "Login Here ---à "

2. Key your SingPass ID and password

3. You will now see your CPF statement and a column of options on the left panel of the screen

4. Click on "My Statement". Scroll down to select "Section C" - "Net Amount Used & Amount Available"

5. Click on "Property >>"

Please note that you will not be able to apply for a refund of the monies once it is credited as the voluntary refund is irrevocable. 

However, the credited monies in your Ordinary Account can be used under the various CPF Schemes.

If it is a full voluntary refund i.e. full principal amount used and the accrued interest, your monthly instalment and the Home Protection Scheme cover (if any) will be terminated and the unused premium will be refunded to your Ordinary Account.

If you would like to make the voluntary refund, please complete the Form HSD/VR and let us have your cashier’s order or cheque made payable to ‘Central Provident Fund Board’  before 20th of the month (e.g. before 20 September, before 20 October and so on). 

On the reverse side of the cashier’s order/cheque, please indicate your name, NRIC number and property address.

Please send your cashier’s order/cheque together with the HSD/VR Form to:

Central Provident Fund Board     

Public Housing Section

79 Robinson Road

CPF Building

Singapore 068897

The refund will be credited to your CPF Ordinary Account within five working days from the receipt of your cashier’s order/cheque.

I would be glad to assist if you require any clarification on the Public Housing Scheme. Alternatively, you may call us on 1800-2271188 
(Monday to Friday 8.00 am - 5.30 pm).

Coincidentally, a friend also did this recently after we had a chat on the matter. He is quite pleased that the government has once again assumed a greater responsibility for helping him grow his CPF savings.

Please note that I am not suggesting that everyone does this but I feel that for people who are in their 40s or early 50s, who might have excess cash and who are somewhat risk averse could consider doing this to build bigger retirement nest eggs. 

In fact, they could also consider doing an OA to SA transfer if they should do this in order to enjoy a higher interest rate on their CPF savings if their CPF-SA has yet to hit the Minimum Sum (now called the Full Retirement Sum).




Why did I mention people in their 40s or early 50s? Well, apart from the fact that they are more likely to have some excess cash than people in their 20s or 30s, they are also closer to the number 55. 

At age 55, that is when we are allowed to withdraw a lump sum payment from our CPF in excess of the prevailing minimum sum. So, it would be like getting a short to medium term investment grade bond with an attractive coupon for people in their 40s and early 50s. Good deal.

Related posts:
1. How AK amassed money in his OA?
2. Retirement: AK buys a 12 year bond.

Could I use the money contributed voluntarily to my CPF?

The General Election has generated much more interest in the CPF:

YT:
hmmm.....if I already use the cpf for my first hdb. Now, I got cash to top up my OA. Can I use the OA to buy my second property.....say, a condo?

AK:
Yes, of course, You could use the money in your CPF OA for purchase of a second property. It doesn't matter how the money found its way into the OA.

You could do Voluntary Contributions to max out the annual Contribution Cap, you could do it and see the money flowing into your OA, SA and MA. If your MA is maxed, then, the money flows only into your OA and SA.

I think this gives those who think they might need their CPF-OA money for purchase of a second property (or for some other purposes) some flexibility while earning higher interest. If they decide not to, then, simply keep the money in their CPF accounts and the money goes towards retirement funding. For people who have decided that they want to make contributions to their CPF for retirement funding purposes, then, it is probably better to do a MS Top Up to their SA which also gives them income tax relief for the first $7K contributed per year.

The CPF is a self-help institution. If we are able to help the system to help ourselves, we should give it serious consideration.

Important note:"If you have already used CPF for a property and wish to use CPF for your second property, you can only use the excess CPF Ordinary Account savings for your second property after setting aside half of the prevailing Minimum Sum in your Special and Ordinary Accounts. The total CPF allowable for your second property is also capped at 100% of the Valuation Limit."(Source: http://www.moneysense.gov.sg/)

Related post:
Should a 20 yo do a VC or MS Top-Up?