How CPF Cuts May Affect Existing Home Owners.
- As October 2003 kicks off with the CPF cuts comming into operation, we
recirculate an orld article to keep all home-owners updated. Pls forward the
article to other interested parties who will be affected by the CPF cuts.
Following Letter has been rejected by ST Forum and News TODAY;
By: Mellanie Hewlitt
21 Sep 2003
There have been much discussions in the local press and papers off-late
touching on the financial ramifications of the impending CPF cuts. Long
articles have been published which highlight how the government intends to aid
hard-hit families squeezed by the reduced CPF contributions.
One very evident effect of the CPF cut has been overlooked. Whilst policy
makers and the local press have reached the very obvious conclusion that the
cuts will necessitate home-owners refinancing their mortgages, they have
skirted a very important and glaring issue;
THAT IN REFINANCING YOUR MORTGAGE, YOU LOSE THE RIGHT TO PRESERVE THE SACRED
INTERGRITY OF YOUR CPF MONEY.
How is that so? Read on;
1. If you are an existing home owner who signed a mortgage instrument before 1
Sep 2002, it is likely that under the old mortgage, the CPF Board has a first
charge over your home.
2. That basically means that if the financing bank decides to foreclose on the
mortgage, they cannot touch your CPF money which are left intact for your
retirement. After a mortgagee sale of the property, the bank only has a right
to the residual balance of the sale proceeds after deduction of your CPF
contributions. You still have the right to whatever CPF money that has been
invested in the property upon retirement.
3. However, in recent years, policy makers have amended the statute to allow
banks to take 1st priority ranking as the first ranking creditor. New
mortgages signed in the last year (or after 1 Sep 2002) are likely to be
subject to this amended ruling.
4. Under the revised statutes, if and when a financing bank forecloses on your
mortgage, it can take everything, INCLUDING THE CPF MONEY INVESTED IN YOUR
5. With impending CPF cuts, homeowners who refinance their mortgage are likely
to be subject to the amended statutes when they sign a new mortgage. This means
basically that you would lost your right (under the old mortgage) to preserve
the integrity of your CPF funds because, under the newly financed mortgage, the
bank now has first priority as first ranking creditor over the mortgaged
6. In the event of sale and foreclosure, it is likely (in today's depressed
property markets) that you can lose all CPF money that has been invested in the
Attached below are details from the CPF board website;
PRIORITY ARRANGEMENTS BETWEEN CPF BOARD AND FINANCIER
a) Properties bought before 1 Sept 02 and/or loan contracts with financier
signed before 1 Sept 02
When the property is sold, the sale proceeds will be first used to repay the
CPF savings used for payment of stamp duty, legal costs and survey fees and CPF
principal sum up to 80% of the Valuation Limit before repayment of the balance
CPF principal sum, outstanding housing loan, CPF accrued interest, outstanding
housing loan interest, and the Board's and financier's costs and expenses and
all other sums owing to the financier;
b) Properties bought on or after 1 Sept 02 and/or loan contracts with financier
signed on or after 1 Sept 02
When the property is sold, the sale proceeds shall be applied to repay the
financier and the Board in the following order of priority:-
(i) First - repayment of the outstanding housing loan;
(ii) Second - repayment of CPF principal sum up to 100% of the Valuation Limit
plus CPF saving used to pay the legal costs, stamp duty and survey fees;
(iii) Third - Equal ranking (pari passu)
- repayment of CPF principal sum beyond 100% of the Valuation Limit and CPF
- repayment of outstanding balance of the housing loan interests;
(iv) Fourth - Equal ranking (pari passu)
- repayment of the Board's legal costs and expenses;
- repayment of financier's legal costs and expenses;
(v) Fifth - repayment of any other moneys owing to financier under the mortgage
The above will impact home owners who have signed mortgages BEFORE the 1 Sep
2002 amendments to the CPF rules were effected because under the old mortgages,
the sacred integrity of their CPF funds are still protected.
This group (who account for a significant portion of home owners) will risk
losing this crucial right if they refinance their mortgage as the banks will
probably insist that it (the bank) takes 1st priority in the mortgage. Once
again the end loser is the unwary man on the street.
This is a salient and crucial point that neither the banks, nor Singapore's
million dollar policy makers have disclosed to homeowners. And why should they
as the recent amendments to CPF rules are mainly intended to benefit large
One possible comfort is that Homeowners should also be advised that when re-
financing with THE SAME BANK (i.e. the mortgagee bank remains the same) they
should negotiate with the existing Bank for their rights in the old mortgage
instrument (signed before 1 Sep 2002) are preserved. This would preserve the
CPF as 1st ranking creditor and preserve the intergrity of CPF funds invested
in the propertry.
Unfortunately, this option may not be available for Homeowners who refinance
their mortgages with a NEW BANK because the new mortgage would be signed after
1 Sep 2002 (and subject to the revised CPF rules).
As this issue has not been covered in the press or by policy makers, I hope
that you can publish this letter and keep home-owners advised of the potential
risks (and pitfalls) involved when re-financing their mortgage. Afterall, it is
only fair that homeowners commit to new re-financing terms only after they are
fully aware of all the terms and conditions.