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Most people think they are on their way to being “debt free” after paying down a substantial part of their mortgage over time, for example when their outstanding mortgage goes below $500,000.  However, they may have forgotten there’s a second debt on their property which I will call it the “CPF Loan”.

Unless you did not use any CPF monies for down payment at purchase, most people actually have two loans on their property – mortgage loan and the CPF loan.  To be considered totally free of debt on the property, you’ll need to pay off both.

Why do we consider the use of CPF funds a loan?  It’s one of the most insidious debt you can assume without realising or thinking much about.  Let me explain.

For example, a total of $300,000 withdrawn from CPF for housing purpose which can come from both down payment or ongoing monthly mortgage servicing over time, compounded at 2.50% (floor rate for CPF interest) over long periods like 20 years, will accrue to a sum total of $491,585 to be put back to your CPF OA when you finally sell the property.

You may buy and sell multiple times over that 20 years, but if you always withdraw again for the next purchase after you plough back, the sum keeps accruing.  That’s a sum total of principal $300,000 with an added “accrued interest” of $191,585 over 20 years (almost two-thirds on the principal), which must all be returned to CPF at the end.

Wait.  Doesn’t that accrued interest go back to form part of your CPF OA funds, so technically it’s still “your money” and not a real “interest cost”?

That’s the intuitive thinking which explains why it does not come across to most as a loan, which makes it insidious.  What if I tell you that you could have let GIC invests for you during the same period and pay you that $191,585 instead at the end of 20 years, which means you don’t need to pay that big sum from your own pockets and keep all your sales proceeds upon sale?

Now, that makes it real risk-free compounded and guaranteed return of 2.50% when it doesn’t have to come from your own coffers.  

In essence, what I’m saying here is that besides borrowing from the bank, you’re also “borrowing from your CPF funds” to finance the property purchase over time.  That’s why it’s apt to call this second and often “unseen” liability a “CPF loan” on your property.  So, for many, you’re technically not completely debt free on the property yet even as your mortgage outstanding gets reduced over time.

For those who may not be aware: You don’t need to wait for the sale of your property to pay back this second loan and stop the interest accrual.  You can do a voluntary property refund to your CPF OA via FAST at any time and for any amount, albeit this is one-way street (no taking out until much later).  For private property owners, this then bags the question (which I will elaborate below) – why are you still paying accrued interest at 2.50% for CPF loan, when you could be paying much lower interest today at 1.50-2.00% with a home equity loan?

Of course, there’s this perennial debate on the other side of the aisle which argues that you should always keep your spare cash and invest for much higher return than 2.5%, rather than ploughing it back to CPF.  But that’s a separate discussion altogether.  Higher returns come with higher risks and should you lose your principal due to unforeseen circumstances, the return is not just below 2.50%, it goes negative.

This article is not about investing or to advocate for using cash to generate higher returns thus service your mortgage from CPF or to simply let it accrue for 2.50% returns compounded annually.  Rather, it’s to debunk the myth that a small remaining mortgage loan means you are almost debt free, when you still have a big chunk of CPF monies to be returned. 

Some of you may not agree totally as you may have gotten much higher returns from stock market over the years by investing with your cash.  Congratulations and give yourself a pat on the back.  You would have the funds to put back to CPF at 55 (more on that later).  

However, your real returns must reflect the “true cost of funds”, i.e. if your average annualized return had been 5% a year over the past 20 years, you need to deduct 2.50%, at least for the portion of funds coming from CPF OA.  Which means your net return is 2.50% per annum.  And rightfully you should have these funds (the 2.50% returns) ready to plough back to CPF at the end.

And that is the whole point I am making in this article – you should plough back these “cost of funds” early and not wait till the very end.  Doing that, you will avoid the need to scramble for lump sum cash for top up at age 55, provided you can still find it.  Not only that, as you return the CPF funds with accrual interest early, you stop further accruing of interest from that point on.  And 5% becomes your whole and true return henceforth.  It gets neat.

For private property owners, there’s a perfect way of achieving that – returning what you borrow from CPF early – which I will elaborate below.  But first, let me talk about something not everyone reading this blog is familiar with especially if you are still far away from retirement.  But this knowledge will help you.

What if I tell you that you could have let GIC invests for you during the same period and pay you that $191,585 instead at the end of 20 years, which means you don’t need to pay that big sum from your own pockets and keep all your sales proceeds upon sale?

CPF Life – Your base level retirement income

Over the years, we can’t help but noticed a reversal in trends.  With an aging society and rising cost of living in the coming years, less people are talking about taking out their CPF money at 55 years old and more people now actually mull over putting more money back into their CPF!  Thanks to the appeal of our national annuity scheme CPF Life for retirement, which gets further enhanced in a way with the introduction of another voluntary life-cycle investment scheme to be announced by the government in 1H of 2028.

If 55 is less than 10 years away for you, you have to seriously think about having enough CPF OA balance to join CPF Life at the highest possible tier known as ERS (Enhancement Retirement Sum) where premiums have been revised up and now set to 4x that of BRS (Basic Retirement Sum) at $440,800 (in 2026).  This minimum sum gets adjusted up by about 3.50% annually to account for inflation.

What’s most attractive about CPF Life annuity is that, for a male CPF member under the Basic plan who joins ERS at age 55 with $440,800 in 2026 and who subsequently tops up to the annually-adjusted ERS minimum sum every year for the next 10 years, the projected payout when it starts at age 65 is close to $3,950 a month based on conservative estimates!

(Note: You may use the CPF Life Estimator to check on projected payout after you login. Even for those below 55, you can still proceed by changing your birth year as if you are turning 55 this year. However, as the calculator caters for only one-time entry at age 55, projections for annual top ups from age 56 to 65 years old to the revised ERS limit each year must be computed manually where you will join the scheme at 65 with approximately total premiums of $820,000; Basic plan is used as a reference here rather than CPF’s default Standard plan.  It has a lower payout as a tradeoff in return for a bigger bequest for your loved ones as only 10-15% of your RA balance gets swept into CPF’s common premium pool at 65 where you retain the 4% interest earned on remaining balance in your RA until it gets fully depleted (payout may also drop towards the end). Should Standard plan be used to illustrate, the payout will be even higher from the start at $4,310!  Find out more information on CPF website.)

For a retiree couple both turning 65 years of age, to be able to fall back on a combined guaranteed monthly income of almost $10,000 if you also include the 2.50% interest earned on their OA balance, to meet all their basic living expenses is something not to be sneered at.  They are pretty much all set up for a decent retirement in Singapore, and for as long as they live!  That’s why it’s the best annuity plan you can possibly find though some FAs might disagree.

But to achieve that, you need to ensure that you have sufficient combined OA and SA balance to be swept as premiums to join CPF Life at the highest tier by age 55 and the best way is to let your OA funds compound early.  That way, you won’t feel the pain of having to do a huge lump sum cash top up at 55 along with more annual top-ups after that, or miss out on the high payouts when you finally stop work at 65.

Remember, this minimum sum keeps rising at the rate of 3.5%. So, you better start compounding your OA funds early.

In my own model of retirement income pyramid which I share with some, CPF Life guaranteed payouts sits right at the base of the pyramid which forms the base level income to cover basic retirement expenses, and rightly so. Build that first before moving on to build additional income on top of the pyramid for a more lavish retirement with your property and other investments and what not.

You don’t need to wait for the sale of your property to pay back this second loan and stop the interest accrual.  You can do a voluntary property refund to your CPF OA via FAST at any time and for any amount, albeit this is one-way street (no taking out until much later). 

(For Private Properties) Converting your CPF Loan to Mortgage Term Loan 

You can read more about home equity loan and how it works in a separate article in our blog, so I will not go too deep on that here.

Just understand that for now, term loan remains the privy of private property owners as I have written in to HDB previously (in Dec 2025) to inquire about this and have gotten the official response that “HDB flats cannot be used as collateral to raise credit facilities such as home equity loans for other purposes”.  The Board also sets out the rationale in its reply that the restriction is to help protect HDB flat owners from the risk of losing their homes should they be unable to service such loans, and how there are other schemes available like the Lease BuyBack and Silver Housing Bonus to help Singaporeans monetise their flats in retirement.

Yet, in my humble opinion, home equity loan remains one of the best wealth tools which I wish could be made accessible to more people, and let them assess the risk reward involved versus other means of growing their wealth.

To put it in a nutshell, you can “cash out” more from your property valuation if it has risen over the years, by taking out a bigger loan.  Yes, you do service a higher monthly instalment after that, but it certainly makes a lot of financial sense if you are taking the money and doing a voluntary property refund back to your CPF for all the reasons discussed so far. To which I’ll add one more point – manifestation of debt.

Perhaps, the best way is to think of it is that you are simply converting from CPF loan to a mortgage term loan and by so doing, you actually manifest the total debt on the property and see it for what it is, in totality.

CPF loan is like the second debt on the property which often goes unseen, hence many do not proactively seek to repay it early.  Ironically, even when they do have the funds to do so, they leave it sitting idle earning paltry deposit interests over the years.

When you manifest this second loan by reinstating for example the principal $300,000 discussed earlier back into the mortgage loan, you make that debt tangible. You see it on the mortgage statement every month which then motivates you to want to pay it off early so that you can then be truly debt free.  That should be the right perspective to adopt.  You are not assuming more debt and become liable for a highly monthly instalment all of a sudden.  You’re simply manifesting the total debt on the property!

Think about it.  When you buy that property years back, you didn’t have enough equity on hand in the form cash for down payment, you actually borrow from both the bank as well as your CPF funds.  Over the years with rising income levels, you save up the equity and hence the fair and proper thing to do is to return those funds where they belong.  Yes, you may lose some liquidity returning monies early to CPF but liquidity is a double-edged sword, you could also lose money in investments, or worse, for consumption.  There’s added impetus now to grow your OA funds safely which I have covered extensively in this article.

For a retiree couple both turning 65 years of age, to be able to fall back on a combined guaranteed monthly income of almost $10,000 if you also include the 2.50% interest earned on their OA balance, to meet all their basic living expenses is something not to be sneered at. They are pretty much all set up for a decent retirement in Singapore, and for as long as they live! To achieve that, you need to ensure that you have sufficient combined OA and SA balance to be swept as premiums to join CPF Life at the highest tier by age 55. Remember, this minimum sum keeps rising at the rate of 3.5%. So, you better start compounding your OA funds early.

The best time to cash out is during refinancing

So, for those who concurs so far, as I have pointed out, you may do voluntary refund back to your CPF via FAST payment any time.  But for those private property owners still short on funds but would like to return it early, the best way to get around this is to manifest the debt via a home equity loan and the best time for doing that is when you refinance the mortgage.

Not only does the new bank provide you with subsidies to help cover the transaction costs (legal and valuation fees) involved for cashing out on a term loan, more importantly, it ensures that both tranches of the mortgage – the housing loan as well as the term loan, will end their lock-ins at approximately the same time.  This is important to ensure you can always leverage free market competition to refinance the entire loan later.

Not to forget too that banks typically give best rates with the highest legal subsidy for bigger loans. In fact, you may not even get any subsidy if your housing loan goes below $500,000 for private property packages from some banks. All in, it certainly pays to bump up your loan quantum so you can be accorded the most favourable terms when you refinance.

Last but no least, 2026 has turned out to be a great time for doing this with interest rates crashing all the way back to near historical lows of 1.40% to 1.60% at the time of writing.  It may start to rise somewhat with the recent Fed first hike in three years.

Perhaps, the best way is to think of it is that you are simply converting from CPF loan to a mortgage term loan and by so doing, you actually manifest the total debt on the property and see it for what it is, in totality.

What if mortgage interest rate rises back above 2.50%?

A final point to note for those keen to make their CPF loan more tangible via term loan, should interest rate rise back to above 2.50% later, you won’t be able to service the term loan portion of the monthly repayment using CPF.  That’s only for the housing loan.  But does it make a difference which tranche of the mortgage you are servicing using CPF so long it helps to reduce your cash commitments until such time interest comes down?

Unless perhaps you have already reduced the housing loan to nought?  If this is of concern to you, I will simply say keep some buffer and not refund back to CPF fully the entire term loan amount disbursed.  Whatever you do, plan ahead.

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CPF loan is like the second debt on the property which often goes unseen, hence many do not proactively seek to repay it early.  Ironically, even when they do have the funds to do so, they leave it sitting idle earning paltry deposit interests over the years.

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