If you depend on financing your home property loan using your CPF OA, do you know that you might be hit with a scenario where you can’t use your OA to pay for your housing many years down the road? (This does not apply to new HDB apartments purchased using a HDB loan)

Here are three terms you need to be aware of:

• CPF Withdrawal Limit
• Valuation Limit
• Available Housing Withdrawal Limit (AHWL)

CPF Withdrawal Limit

This is the maximum amount of CPF that you can use to pay for your housing. It varies from 150% to 120% of the loan amount depending on when you bought the property. From 1st Jan 2008 onwards, the limit is 120%. Note that if you refinance your housing loan, the prevailing CPF withdrawal limit will apply to your new loan.

Depending on the interest rate of the loan, the CPF withdrawal limit is likely to be hit towards the 2nd half or tail end of the loan.

Once this limit is hit, you can’t use any more CPF monies to pay for your housing loan.

Valuation Limit (VL)

This is the lower of:

• Purchase price of property
• Valuation of property at time of purchase

Once your CPF withdrawals (for paying the property) reaches the VL, you will not be able to use your CPF to pay for your housing loan unless you have the Avaliable Housing Withdrawal Limit (AHWL).

Obviously, the Valuation Limit will be hit before the CPF withdrawal limit is hit. It can also be reached in the early years of a loan if someone uses spare monies in the OA to pay down the housing loan rapidly.

Use this CPF calculator to estimate your CPF Withdrawal Limit and Valuation Limit.

Avaliable Housing Withdrawal Limit (AHWL)

For those below 55, the AHWL is the balance available after setting aside the Minimum Sum component. Savings in the OA, SA and amounts withdrawn for investment can be used to meet the prevailing Minimum Sum cash component.

CPF has a  calculator that helps you estimate your AHWL.

While the terms might sound confusing, any potential property owner should definitely try to understand the implications of these limits on their housing loan repayments before they buy any new property (or refinance an existing one).

Not doing so might result in an unpleasant surprise many years down the road, especially if there is not enough free cashflow to be diverted towards the housing loan.