cash vs cpf home loan

Cash vs. CPF Home Loan: Which Financing Option is Best?

Singaporeans tapping their Central Provident Fund (CPF) savings is a way to finance the property via a home loan unless they have the cash sitting idly in their banks or can keep up with monthly installments.

Your CPF is your financial safety net primarily meant for your retirement needs. Should you use it, you have to pay back the Accrued Interest (AI) as soon as possible. Meanwhile, other situations suggest that paying in cash is ideal. 

Make a more informed decision in making one of life’s biggest purchases. Know the difference between using cash and CPF in securing your dream property without hurting your future financial situation through this article. 

Cash vs. CPF Home Loan Comparison Table

At a Glance

Cash and CPF are two financial solutions with very different offerings for homebuyers. The table below serves as your overview of their key features:


Cash Home Loan CPF Home Loan

Source of Funds

Cash  CPF Ordinary Account (OA) savings

Interest rate

  • A fixed home loan rate of 3.85% or depending on your bank
  • None if taken from your savings 
2.5% p.a. For AI

Loan tenure

  • Maximum of 25 years for HDB loans
  • Maximum of 30 years for HDB flats via bank loans


Estimated monthly repayment of S$520 for a S$100,000 home loan if payable in 25 years

2.5% AI for your CPF Ordinary Account (OA)

Prepayment penalties 1.5% of the total loan amount within the lock-in period for bank loans

No prepayment penalties

Tax benefits The interest paid can be deemed tax deductible if the property is under construction or used for rental purposes

No tax relief or benefits

Impact on retirement N/A

Potentially reduced retirement funds

Liquidity Less money to spend

More cash on hand


The answer to whether a cash home loan or CPF home loan is better depends on individual financial situations. Using cash protects retirement savings and keeps CPF for emergencies but reduces monthly earnings and depends on variable bank rates. CPF usage increases take-home salary, stabilizes home loan financing, and offers lower interest rates, but mandates a 2.5% p.a. AI payment, limiting flexibility for other financial goals.


More Details on Cash Home Loan

Using cash to pay home loans makes sense for homeowners not keen on using their liquid cash on high-yielding money instruments or investment schemes. 

The amount used usually comes from the readily available money in their savings account and monthly income. This hints that there will be a restricted monthly budget since a new portion of the salary will have to go directly into paying the home loan plus the interest.

How It Works

Using cash to finance your home loan means utilizing your own funds from your savings or monthly income, which can be done by settling on a series of payments over time. 

Paying in cash also enables homebuyers to have more power in negotiating since they have the ability to pay without the use of other financing instruments. This suits families and singles with significant cash who want to maintain their CPF funds. 

Pros and Cons

Paying your home loans using cash without making the most out of your CPF comes with its fair share of pros and cons. 

Here are the advantages when you pay in cash:

  • Keep more earnings from sold properties: Since your CPF account is left untouched, there’d be no reason to refund it. Instead, most of the cash proceeds after selling your property go directly into your pockets, allowing you more flexibility in terms of spending. 
  • Increased cash increment on CPF savings: As you know, your CPF funds grow exponentially by about 2.5% yearly. By not removing money from your CPF, you’ll enjoy its accumulated growth potential for your retirement needs. 

Meanwhile, here are the disadvantages of paying your home loan with cash instead of CPF:

  • Inability to use CPF Housing Grants: When the CPF is not utilized, the borrower won’t be eligible for the housing grant. The housing grant is provided through CPF to help lower or middle-income earners purchase a new or resale flat. 
  • High borrowing cost of home loan. Homes are expensive in Singapore, and if you need more funds to finance one for your family, you’re most likely to borrow a significant amount from the bank if CPF is not an option. 

How to Apply

When applying for a housing loan in Singapore, the first step you need to do is to compare all bank home loans and find which of them offers the best interest rate. 

You may have to visit the banks individually and start a home loan process with your banker. As a means to prepare in advance to finance your home, you may have to obtain In-Principle Approval (IPA) from a bank. 

When the IPA is secured, you can find out if you are able to afford the property before paying the option fee. Once the bank gives you an IPA, you’ll learn how much the financial institution is willing to lend you. 

Further, since applying for a home loan is tedious and requires a lot of paperwork, it makes sense if you prepare them in advance. 

Here are the necessary requirements you need to submit as part of your application:

  1. HDB printout
  2. NRIC/passport
  3. Latest 3 months’ pay slips
  4. Credit card/credit line statements
  5. CPF property withdrawal statement
  6. HDB flat and financial information (if applicable)
  7. Option to Purchase or Sales and Purchase Agreement
  8. Value, confirmed by HDB (for HDB resale transactions)
  9. Valuation report (for private property and EC transactions)
  10. Latest 3 months’ salary crediting account statements (if working overseas)
  11. Latest Notice of Assessment (NOA) and past 12 months CPF contribution history
  12. Details on other loans

You can also check with your bank in case more paperwork is required.


More Details on CPF Home Loan

A CPF home loan is a government scheme in Singapore to financially assist homebuyers. It’s typically taken from your OA savings, which you can use to buy an HDB flat or private or residential properties.

The same OA savings can also be utilized to make a downpayment for your home or to pay off your housing loan, which includes:

How It Works

When you take advantage of your CPF, you save yourself from having reduced monthly income. Your OA funds from your CPF will cover your home loan regardless of whether you use an HDB or bank loan.

However, there will be a limit regarding how much you can use from your CPF. Typically, you can only make use of 120% of your house’s Valuation Limit (VL) via a bank home loan. The rest will have to be serviced using cash. 

Still, this is a practical step for homebuyers with little available cash or already on a tight budget. 

Interest Rates

When you take a CPF home loan, you will be obliged to repay it with the interest you would have earned if the funds remained in your CPF OA. Typically, the expected interest rate is 2.5 percent per annum. 

Pros and Cons

Making use of your CPF won’t always be ideal for any financial situation you’re in. You have to carefully consider if it can put you at an advantage or jeopardize your retirement.

Here are the pros of using CPF for your home loan:

  • More savings: Using your CPF to pay your home loan means keeping your hands off your savings. Cash on hand allows multiple opportunities, such as investing in stocks and bonds. If they offer attractive interest rates, they can compensate for the amount you’d have to pay for your CPF’s AI.
  • Pushes you to be more prudent: Since you have touched your CPF before reaching 55, you will be more encouraged to look for other ways to earn more income. That plus, you have to plan out your finances to keep your CPF back on track. 

Meanwhile, here are the cons of using CPF for your home loan:

  • It can reduce your retirement fund: Your CPF earns interest over time, and withdrawing a portion out of it also minimizes its compounding power. 
  • Stringent monthly income requirements: Qualifying to use your CPF savings for your HDB home loan requires you to have a family income of at least S$14,000.

How to Apply

The method of application in using your CPF for a home loan largely depends on the loan type you took and the type of property you chose. 

HDB flat using HDB home loan:

1. Submit an online application via HDB’s website using your Singpass. Follow the prompt below:

  • Log in and go to “My Flat”
  • Tap “Purchase Flat,” then “Financial Info,” followed by “Other Related Services.”
  • Press Commence/Vary Monthly CPF deduction and send your request. 

Processing time usually takes three business days upon receipt of your request.

2. Make an appointment and visit your local HDB branch and complete the CPF withdrawal form (PHS9).

Important note: You must be insured under Home Protection Scheme (HPS) for this category.

HDB flat using a bank loan

  1. Submit an online application with your Singpass. This is to start your monthly housing deduction.
  2. Submit your application at least five working days before your monthly installment due date.

Important note: For this category, you have to be insured under Home Protection Scheme (HPS).

Private Property

  1. Submit an online application with your Singpass. This is to start your monthly housing deduction.
  2. Submit your application at least five working days before your monthly installment due date.

Open door with key in keyhole to modern interior living room interior

Top 5 Factors to Consider Before Choosing

Cash and CPf for home loans have varying advantages in certain financial situations. If you’re torn between tapping your savings and making use of your available CPF OA funds, you have to carefully consider a few factors:

1. Financial Situation

Putting off a home loan has no uniform solution since homebuyers have different financial situations and goals. Regardless of your path to achieving your home, you must select which method you’re most comfortable taking.

On another note, should you switch from a bank to an HDB housing loan, that will have to stay that way for the rest of the course. 

If you use cash, keep in mind these possible circumstances:

  • Lose some of your cash liquidity
  • Loss of potential investment earnings

Though these may sound unideal, it won’t be the case if you aren’t keen on investing, you have enough cash flow, or it offers more advantages than using your CPF OA.

On the other hand, using your CPF OA savings would mean zero cash outlay and maximized cash liquidity. Most of the cash earned after selling your property will also be used to refund your CPF via Accrued Interest.

In addition to that, you may have to consider whether your CPF monies are highly essential for your retirement nest should you decide not to sell your house. 

2. Interest Rates

HDB loans usually offer stable interest rates, currently at 2.6%, compared to bank loans, which may come in four categories:

  • Fixed-rate home loans: Interest rates in this category are fixed for about a year or two and are typically expensive due to their stability. 
  • Floating-rate home loans: Market interest rates are variable based on Singapore Interbank Offered Rate (SIBOR) or Singapore Overnight Rate Average (SORA). This is favorable for borrowers when market interest rates are expected to fall. 
  • Fixed deposit-linked rate home loans: This is similar to the floating-rate home loan type. However, this will come in a home loan package where the interest rates are pegged to the bank’s fixed deposit interest rate.
  • Board rate home loans: The bank determines the interest rate internally without transparency. They will give you at least a month’s notice when rates are subject to change.

Banks offer different interest rates, which may be lower or higher than HDB rates. Gather information on each offered by financial institutions and pit it against the circumstance of using your CPF or cash.

3. Loan Tenure

Loan tenures are capped at 30 to 35 years, so flat buyers will be more encouraged to be prudent regarding their finances. Essentially, when your home loan tenure is long, you will have smaller monthly repayments but pay more interest over time. 

On the flip side, short loan periods mean larger monthly repayments but pay less interest during the whole loan duration. 

Considering cash liquidity or the lack thereof, depending on whether you pay using CPF or cash, the length of your home loan will be determined based on your repayment capacity.

4. Repayment Method

Choosing your repayment method is factored by many things, such as if you want to pay a consistent amount monthly or pay off the loan within a time frame. 

Here are the common repayment methods to choose from:

Equal payments

  • Repay in the same amount (installment + interest) at the start of the loan
  • Repayment amount will change if the interest rates change
  • Initially repay a small proportion of your installment only, but it will increase over time as the interest decreases

Equal installments

  • Installment stays the same, but the repayment will depend on the interest
  • If the interest rate is the same, the interest rate decreases as the principal loan amount decreases

Fixed annuity loan

  • Consistent repayment amount throughout loan tenure
  • If the reference interest rate rises, the loan tenure extends and vice versa
  • Loans borrowed with initial low interests may still rise, therefore, extending your home loan

Installment-free period

  • Installment free-periods mean paying only the interest and not the principal loan amount
  • Loan is extended and future installments are increased

5. Liquidity 

Using cash for your home loan equates to minimized cash liquidity. You may have to allocate a bigger chunk of your salary for your other expenses, CPF contributions, and home loan payments. 

Meanwhile, paying with CPF funds would give you around 80% of your take-home salary if your CPF contributions take off 20% of the amount. This allows more cash liquidity on your end.

Frequently Asked Questions

1. Is It Better to Pay for a House with Cash or CPF?

Paying for a house with cash or CPF depends on your financial circumstances and objectives. Paying in cash would be recommended if you want your CPF monies to compound over time with its 2.5% AI to cater to your retirement needs.

However, to have more cash on hand for your monthly expenses, consider taking advantage of your CPF monies. You can just pay off the Accrued Interest once you sell your home property.

2. Can I Pay the HDB Loan with Cash Instead of CPF?

Paying off your HDB housing loan requires a downpayment of 10% of the purchase price, which can be paid using cash or a combination of your CPF OA savings and cash. 

3. Should I Use CPF to Pay For Housing?

You can certainly use your CPF for your housing’s down payment, the remaining costs after your down payment, and your monthly repayments. 

Other fees required can also be paid using CPF monies, only they have to be financed upfront since CPF deals with this on a reimbursement basis.

4. Can I Use Both Cash and CPF to Repay My Home Loan?

Repaying your home loan can also be done using cash and CPF. This allows more options, benefits, and lesser risks. 

If your current home loan has lower interest rates than the CPF’s AI of 2.5%, cash would be the way to go. In turn, you’re also maximizing your CPF’s potential earnings. On the other hand, use your CPF if the home loan interest is significantly higher. 

You can also be more financially savvy when repaying your home loans if you pay more on CPF while investing a reasonable portion of your liquid cash.


Home loans repaid via cash or CPF will, by and large, depend on your finances. Each has its fair share of advantages and disadvantages, so examine their features closely and determine which is ultimately beneficial. To make a better decision, consult an expert who can review your unique financial situation.

Key takeaways

  • Retain cash liquidity by paying using CPF. 
  • Pay in cash if you have readily available funds to purchase a home.
  • If you can keep up with monthly installments, paying in cash is a sensible choice. 
  • If you want to be in more control of the benefits and risks, opt to pay in cash and CPF.

In need of immediate financial assistance? Instant Loan can help. Instant Loan’s advanced algorithm can help you find the best loan offers from trusted banks in the country with just a few clicks. Apply now, and get three loan quotes free of charge!

Instant Loan CTA Banners DesktopInstant Loan CTA Banner 2

Get Your Tailored Personal Loan Quotes

Complete the enquiry form to receive instant loan quotes now!

  • This field is for validation purposes and should be left unchanged.