Why CPF cannot be used for housing loan due to valuation limit

Question: Wilfred, I received a letter saying that in a few months, I cannot use CPF to pay for my housing loan. This means I have to pay cash. However, my CPF still has $13k in my Ordinary Account. What is going on? If I use cash, I will go into negative cash flow. HELP!!

Answer: For your case, you have a private property with a bank loan. There are limits to which you can use your CPF to pay for the housing loan. The first limit is the valuation limit and the second limit is withdrawal limt.

Your property ‘s valuation at the time of original purchase was $500,000. According to your CPF statement, you have used up to $496,000 in CPF money. Hence, you have hit the first limit which is called the valuation limit. If you have half of the minimum sum, you can further use your CPF Ordinary account to service the housing loan up to the second limit which is called the withdrawal limit defined as 120% (which is the applicable percentage for your property bought after 1 January 2008) of the valuation limit. Since you have lost so much money in stock speculation and cashing out your CPF investments during the 2008 financial crisis at a very large loss, you do not even have a quarter of the minimum sum in your special and ordinary accounts. Therefore, you have to pay cash once the CPF withdrawal amount hits the valuation limit.

The reason why you are in this predicament is due to poor financial planning. Despite your high income (not many people have so much money in their CPF to buy property), you are now in a situation which you cannot even maintain a positive cash flow. Most people are just like you – you do financial planning after making a large commitment. Buying a property is a very serious commitment in which you should have done some financial planning before making the purchase. Also, as it can be seen that financial planning can be quite complicated and thus the need to have a professional financial planner.

Disclaimers: All persons / characters appearing in this Q&A are fictitious. Any resemblance to real persons, living or dead, is purely coincidental.

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