Why pay in cash instead of CPF for a Singapore property in 2025

In Singapore, buying a home is often the single largest financial decision a household will make. For decades, most owners have leaned on the Central Provident Fund to fund downpayments and monthly instalments. In 2025, that default is being questioned. A growing group of buyers prefer to leave CPF balances intact for risk-free compounding and to service mortgages with cash instead. They are not rejecting CPF. They are reframing CPF as a retirement engine first, and a housing wallet only when it truly helps affordability and resilience.

The backdrop matters. In the second half of January 2025, CPF closed the Special Account for members aged 55 and above and moved those savings first to the Retirement Account up to the Full Retirement Sum, with any remainder flowing to the Ordinary Account. The intent is to concentrate balances where they support lifelong payouts. For members, it sharpened the sense that CPF is primarily a retirement instrument that deserves protection.

At the same time, the Enhanced Retirement Sum rose to 426,000 dollars in 2025. That higher ceiling enables larger top ups and potentially higher lifelong payouts under CPF LIFE, which again nudges behaviour toward conserving balances rather than spending them on housing.

The other anchor is interest. CPF pays a floor of 2.5 percent per year on Ordinary Account balances and 4 percent on Special, MediSave and Retirement accounts, with extra interest for the first slice of combined balances. That is a government-backed, risk-free return that many households cannot replicate elsewhere with the same certainty. Seeing CPF as a compounding retirement base changes how people weigh every dollar withdrawn for property.

Once you use CPF for housing, you do not only draw down principal. You also set in motion an accrual clock. Upon sale or transfer, you must refund to CPF both the principal taken and the interest that would have been earned if the money had stayed in CPF. This refund happens before you see any net cash proceeds. If the sale price at market value is not enough to cover the outstanding loan and the required refund, you do not need to top up the shortfall in cash, but you also walk away with less or no cash in hand. These rules are not punitive. They are designed to restore your retirement savings to where they would have been. Owners still underestimate how much the accrual can erode sale proceeds, which is why negative cash sales feel so jarring.

There is also an institutional limit on how far CPF can be stretched for bank-financed properties. CPF usage is bounded by a Valuation Limit and a Withdrawal Limit that is set at 120 percent of that valuation. Many owners who automate CPF deductions discover this only in midlife when the cap bites and cash outlay becomes mandatory. The rule exists to keep members from depleting retirement savings too deeply, yet its impact is very real for households that did not plan for the switch to cash.

These mechanics are the crux of why paying in cash appeals to some buyers in 2025. Servicing instalments in cash preserves CPF compounding for retirement and avoids building up accrued interest that must be refunded on sale. When you eventually sell, you clear the outstanding loan and keep the balance as cash, rather than cycling a chunk back to CPF first. For upgraders, that liquidity can be the difference between having enough for stamp duties and minimum cash downpayment or being forced to delay plans. The preference for cash is not ideological. It is a desire for optionality at the point of sale and a cleaner link between sale price and usable proceeds.

The interest rate landscape adds a second layer. Singapore does not set mortgage rates with a policy rate in the American sense. MAS conducts monetary policy by managing the Singapore dollar’s nominal effective exchange rate, so retail loan pricing usually tracks global rates through SORA as a benchmark rather than a domestic policy rate. In 2025, SORA-pegged packages started the year elevated, then eased. By mid-September 2025, data points in the market showed one-month compounded SORA around the low one percent range and brokers marketing headline packages near 1.55 to 1.63 percent for large, well-qualified loans. These are marketing quotes and not universal rates, but they illustrate that the arithmetic is not static. At higher mortgage rates the case for preserving CPF is straightforward, since OA earns 2.5 percent risk free. As loan offers fall, the spread tightens and borrowers should compare their actual package against CPF’s crediting rates rather than relying on old rules of thumb.

None of this means you should never use CPF. For younger couples and first-time buyers with thin cash buffers, using CPF for downpayment and initial costs is often what makes homeownership possible without compromising emergency reserves. The OA will continue to receive monthly contributions, which can fund instalments while incomes grow. The key is to avoid draining CPF to zero. Keeping a modest OA buffer can smooth instalments during job transitions or parental leave. As incomes rise, many owners switch to paying instalments in cash while letting OA balances rebuild.

For self-employed and gig workers, cash servicing can be more of a necessity than a choice. Contributions to CPF OA are limited for many in this group, since mandatory contributions generally flow into MediSave. Bank assessments rely on tax Notice of Assessment income, which can be conservative for variable earners. The combination means CPF is often insufficient as a primary repayment source. Paying in cash aligns instalments with actual cashflow and avoids the false comfort of a small OA balance that would be quickly exhausted anyway.

For buyers approaching or past 55 who are purchasing a simpler home for lifestyle reasons rather than speculation, protecting CPF for higher lifelong payouts can be the priority. With the SA closed at 55 and balances channelled into the Retirement Account up to the Full Retirement Sum, many in this group prefer to minimise CPF drawdowns so that RA and CPF LIFE payouts are stronger later on. They also value the ability to keep sale proceeds in cash if they right-size again.

Negative cash sales are the cautionary tale. During the holding period, accrued interest quietly grows. If market values do not move much, or if a flat has aged in a way that limits appreciation, the refund can absorb what owners expected to be cash proceeds. You are not compelled to top up the shortfall in cash if you sold at market value, but it still leaves less liquidity for the next purchase. Upgraders feel this the most when facing Buyer’s Stamp Duty and, where applicable, Additional Buyer’s Stamp Duty that must be paid in cash. Understanding the refund first and sale proceeds second sequence of payments can prevent rude surprises.

There is a middle path that many households are adopting. One approach is to use CPF for the upfront bite such as downpayment, Buyer’s Stamp Duty, and legal fees, then service the monthly instalment in cash. That balances affordability at the start with CPF preservation over time, slows the buildup of accrued interest that must be refunded later, and helps you keep more of the eventual sale proceeds in cash. A second approach is to undo past usage progressively. CPF allows voluntary housing refunds of the OA amounts you previously used, even if you are not selling. Topping up earlier reduces future refunds, rebuilds CPF compounding, and can increase eventual CPF LIFE payouts. If you later need the OA for an approved use, the refunded amounts remain within the CPF system and continue to work for you.

For owners on floating packages, paying in cash often leads to closer monitoring of rates. A CPF-auto-deduct habit can make people sleep on refinancing opportunities. In 2025, with SORA drifting lower and promotional fixed rates reappearing in the market, attentive borrowers have been able to trim total interest costs by re-pricing or refinancing. The right move depends on lock-in clauses, spreads, and your horizon in the property, so the comparison should include all fees, not just the headline rate. The broader point is behavioural. Cash payers tend to manage their mortgages more actively.

A final word on risk. CPF’s crediting rates are floors backed by the Government. Market rates float. If your quoted mortgage rate falls meaningfully below OA’s 2.5 percent and you are comfortable with the risks in a floating package or the break fees on a fixed one, there can be a case for using CPF for part of the instalment while redeploying cash into safe instruments or to accelerate principal prepayment. That decision is highly personal and sensitive to your cash needs, career stability, and horizon in the home. It is also not binary. You can mix cash and CPF in proportions that fit your plan and change the mix over time.

Putting it all together, 2025 has reset how many households think about housing finance. Policy changes that concentrate balances in the Retirement Account at 55, higher retirement sum ceilings, and the continued appeal of risk-free CPF compounding have made people more protective of CPF. At the same time, easing mortgage benchmarks are narrowing the spread against CPF crediting rates, so the math must be done on current quotes rather than last year’s averages. What has not changed is the structure of CPF refunds and the withdrawal limits for bank-financed properties. Those mechanics continue to reward owners who preserve CPF where they can and who avoid turning instalments into a reflex that drains future retirement income.