Should you pay down your home loan with CASH or CPF?

In today’s market, everything that you touch or purchase in Singapore requires monies. Even for a basic lunch, you would require $3. So how do we go about to battle this rising inflation and our home loan?

There come the questions of whether you should pay down your home loan with cash or cpf. Which is a better option? Either option has its pros and cons. However, cash will be a better option.

Cash Vs CPF, which is better?

Paying down home loan with cash

Recently, many of my clients approached me and ask me how should they managed their portfolio during COVID 19. Some loan packages interest rates drop to as low as 1.1%. Refinancing is a must if you can get better savings out of the packages. The next question is for the monthly installments, should you pay by cash or CPF?

Cash is king. This is what the older generation or parents would always tell you. It is very true and try not to dismiss what they say. However, we need to find out the mechanics behind this saying.

benefits of paying home loan via cash

Let’s take a look at an example. Buying a house for $500,000 and use $100,000 (20%) for down payment. Over the next 5 years (during MOP), $1,386 per month is used to service the installment. Therefore, $183,160 has been utilized from the CPF. Including CPF accrued interest, the total amount is approximately $208,000.

After finish MOP and decided to upgrade to private property, selling the HDB after deducting all the miscellaneous costs, you are left with $250,000. However, in this instance, you have to refund $208,000 back to the CPF board. Hence, you are left with $42,000, which is only enough to cover your renovation cost for your next property. This impedes your property growth, creating a negative sale.

how does paying in cash helps to generate returns

Nowadays, during COVID, fixed deposit and home loan interest rates have fallen dramatically. Fixed deposit rates are already below 1%. Therefore, if you can service your monthly installments with cash and yet continue contributing to your CPF, it will help to accelerate growth. CPF is paying 2.5% compound interests that are nearly risk-free. Honestly, in the market right now, some bonds don’t even match the 2.5%.


Paying by cash for monthly installment is great, thus helping to generate returns from your CPF savings. However, being financially prudent is important as well. That means not to dry up your cash savings as well. This will prevent you from jumping into any good opportunities as you will be cash strapped. Hence, always have some extra cash lying around as well. Read here to know more about other costs incurred when purchasing a property.

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