Should I use my CPF OA to pay for my flat or keep it earning 2.5% and pay cash? What did you decide?

Question

Buying my first flat and the bank keeps saying I can wipe out my CPF Ordinary Account to reduce the loan. But my finance-savvy friend says the OA earns 2.5% guaranteed and I should preserve it and pay cash instead. There's also this accrued interest thing when I sell later that I don't fully understand. For those who've been through a full property cycle, what would you do differently?

IT Support Ah Kow · Accepted Answer

The thing everyone underestimates is accrued interest. Every dollar of CPF OA you use for the flat, you must return to your CPF with 2.5% compound interest when you sell, even though that interest goes back into your own account, not to the government. I used 90k of OA for my first flat, and after nine years the accrued interest was almost 22k, so when I sold, a big chunk of my sale proceeds just went back into CPF instead of cash in hand. It's not lost money, but if you were counting on cash from the sale for your next home, it can be a nasty surprise. Understand this fully before you decide, because it changed how I planned my upgrade.

Auntie Lay Hoon Wet Market · Answer

Depends on the loan rate at your point of purchase honestly. When rates spiked to 4% plus in 2023, it made total sense to use OA to reduce a 4% loan rather than let it earn 2.5%. Now that HDB loan is back to 2.6%, the gap is tiny and preserving OA makes more sense. Don't blindly follow a rule of thumb, run the actual numbers against your current interest rate. The right answer literally changes with the rate environment.

CPF Guru Benjamin · Answer

One practical angle, keep at least some buffer in OA for the monthly instalments in case you lose your job. During Covid a lot of my friends were retrenched and the ones who had drained their OA to the floor to pay cash suddenly couldn't service the loan from CPF. Having OA still deducting monthly gave breathing room while job hunting. So even if you want to pay down aggressively, leave a few months of instalments sitting in OA as insurance.

Uncle Lim Taxi · Answer

I chose to pay as much cash as I comfortably could and preserve my OA, and I'm glad. The OA gives a risk-free 2.5%, which is better than most fixed deposits, and it keeps compounding for retirement. My loan interest at the time was around 2.6% so it was roughly a wash on paper, but the discipline of keeping CPF untouched meant a healthy nest egg. The trade-off is you need real cash flow to do this. If money is tight, using OA is completely reasonable, just don't drain it to zero.

BTO Newlywed Jia Hui · Answer

I did the opposite of the popular advice, I used OA heavily because I didn't trust myself to invest the freed-up cash wisely. In theory keeping OA and paying cash is smarter, but only if you actually deploy that cash into something productive. Most people just let it sit in the bank at 0.05% or spend it. Be honest about your own habits lah, the optimal spreadsheet answer only works if you have the discipline to follow through.

Should I use my CPF OA to pay for my flat or keep it earning 2.5% and pay cash? What did you decide?

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