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Oral Answer by Mr Tan Chuan-Jin, Minister of State for National Development and Manpower, to Parliamentary Question on Using CPF for Monthly Mortgage Repayments by Low Income Earners

Notice Paper No. 114 of 2012 for the Sitting on 09 April 2012
Question No. 330 for Oral Answer

MP: Mr Yee Jen Jong

Question:

To ask the Deputy Prime Minister and Minister for Manpower whether the CPF Board will allow low-income earners who have reached the valuation limit of their HDB flat in total payments via CPF to continue using their CPF balance to make monthly mortgage repayments even if they do not have the required minimum sum in their CPF account.

Answer:

  1. Our CPF helps to meet various needs, amongst which is to help provide for our retirement needs as well as helping us own our own roof over our heads. It is therefore important that the CPF savings used for property are carefully spent. The Valuation Limit (VL) helps us ensure this.
  2. The VL limits CPF savings used for property to the purchase price or value of the property at the time of purchase, whichever is lower. This discourages the use of CPF savings to pay for property when prices exceed fair value. It also encourages members to be prudent in their property purchase and take up a housing loan that is within their means, since once the VL is reached, they can no longer service their monthly instalments using CPF savings and have to use cash.
  3. If a member wishes to use more than the VL for his monthly mortgage repayment, he would first need to set aside the Minimum Sum Cash Component in his CPF account. This cash component is currently half of the Minimum Sum. This requirement ensures that a member has at least some level of cash savings available for retirement before we allow more CPF savings to be used for housing.
  4. The number of members who can no longer use CPF savings to pay for monthly instalments after reaching the VL is small. At any one time, almost 700,000 CPF members use their CPF savings to service their housing instalments. Of these, fewer than half a per cent are unable to use further CPF savings for monthly instalments as they have reached the VL limit.
  5. Nonetheless, we recognise that some members may find it difficult to continue servicing their housing loans after they reach the VL. On a case-by-case basis, CPF Board has allowed members some flexibility where the case merits, for example, where giving such flexibility helps them tide over a period of temporary hardship, or where the member is in the midst of right-sizing his property to avoid defaults.
  6. There is no Valuation Limit on the amount of CPF savings the low-income earner can use when he buys a new HDB flat and takes up a HDB loan to pay for the property.
  7. While we try to facilitate home ownership, the VL plays the important role of ensuring prudence in the use of CPF savings, and strikes a balance between housing and retirement needs. We remind CPF members to buy a home within their means, and to factor in the VL in their plans for financing their home.