What do you mean I have to pay more than the down-payment and mortgage that I have already finished paying off? How can there be any more money that I need to pay? This is because there are some things that the PAP has not told you upfront (or you might have missed amidst all the confusion that they have intentionally created).
When you take money out from your CPF to pay for the mortgage, when this money is taken out, you wouldn’t be able to earn interest on this money since the money is taken out, right? – which is understandable.
What this means is that the government won’t need to pay you this interest and you won’t be able to earn interest. So, that’s the easy part. Here is what you have not been told. Now, what the PAP has then said is this – since you have taken this money out and are not able to earn the interest, you will now have to pay the interest back into your CPF. You will have to pay the 2.5% interest that is “lost” back into the CPF. The PAP calls this the CPF accrued interest.
This is what the PAP says: “If you sell your HDB flat, you need to refund the principal amount you had earlier withdrawn for the purchase of the flat, including the accrued interest, to your CPF account. This interest is the amount you would have earned, had the savings not been taken out.” Wait, no one ever told me about this! I thought it’s only the mortgage! So, see if you get this – if you had left your money inside the CPF, the government will pay the interest.
But when you take the money out, the government wants you to pay the interest back. In the first place, since you have taken the money out, the interest can no longer be earned and even if the government wants you to earn the interest, they should be the one paying the interest, right? Well, you are right. The basic principle works like this – if you decide to put your money into a bank, it is the bank that would pay you interest.
And if you take your money out, the bank doesn’t pay anymore interest to you. Obviously, you don’t have to pay interest to the bank on money that is no longer there. So, similarly, if we had taken our money out from CPF, the government stops paying interest to you. But why is the PAP then making you pay “back” the 2.5% interest that they should be paying?
Now, note this – what this means is that you are paying an interest of 2.5% on money that is no longer in the CPF. You are paying an interest into the CPF on nothing (Chart 12). You have to fork out money from your own pockets to put into the CPF for the government.