Is It Dangerous to Invest Your CPF OA to Offset Your Mortgage Interest? – Investment Moats

I would commonly tell a lot of people: It is good to go through the numbers first, before drawing a strong conclusion.

I am quite a numbers person (if you cannot tell), relative to others. But even in my experience, I can cite numerous times when I concluded something as risky, difficult, or too easy, and it turns out otherwise.

We have to think about numbers very frequently at work. A prospect comes in with seemingly stretched resources would make me easily draw the conclusion: I think this person cannot have all he or she wants and even then, he or she would not have a decent plan even by my own standards.

Sometimes working through the numbers made me realize actually my original conclusion was wrong.

We have this guy that came by our Singapore Financial Independence Telegram group once in a while and this time, he complained about the recent toxic work culture he is facing but also tried to validate his plan to be financially independent, be based in Chiang Mai, and do long and cheap travels.

Many of us critiqued his plan. Some say it is flimsy, pointing to a lot of life’s curve ball that can happen with retiring at 39 (5 years from now) that he will have difficulty from, to how risky his travel and personal insurance plan is. And you know I am going to tell him planning for income based on a 5% dividend yield is not the most conservative, relative to using a gauge like the Safe Withdrawal Rate.

Can You Invest Your CPF OA, with the Returns from the Investment Used to Pay Off the Mortgage so that You have a Mortgage Free Home after 25 years?

One of his idea that I cannot wrap my head round was this:

1. He plans to apply for 2 room BTO after 35.
2. It would come up to $130,000.
3. He would invest his CPF OA and get 5-8% p.a. return. This return will offset the 2.5% p.a. HDB housing loan interest.

Then I am like… How the heck does that work out successfully?

Firstly, a housing loan is an amortizing loan which means you pay the principal + interest monthly and not paying interest only. In my mind, your CPF OA value will go down more than just the interest and that would put stress on the whole equation.

Secondly, how much is the capital we are talking about to generate the returns? How can returns conservatively just cover the 2.5% p.a. HDB housing loan interest.

Okay while we are at that, the HDB housing loan interest is not 2.5%. It is 2.6%.

I think many have this idea that:

1. I don’t want to pay off my mortgage loan.
2. I take the money that I could pay off my mortgage loan, plus some more, invest in relatively safe stuff.
3. The returns I am looking for can be equal or conservatively more than this bank interest.
4. Then it make sense for me not paying off.

So this is how this guy’s idea might have come about. Another good example of someone having similar idea is my friend at Cents of Independence.

The most common push back for this is: What if you go through a period where you don’t get the return that you want? Most people like to use an assume planning return, sometimes the median return, sometimes is a return they see or experience in the past few years, and use that for their planning.

Totally forgetting that you don’t earn 5-8% return but in the Great financial crisis, their CPF OA portfolio will go down 55% and take 6 years to make it back.

Then where is your 5-8% p.a. return?

Now… mentally, being a student of the Safe Withdrawal Rate framework have trained my mind to be open to the possibility that actually this might work. Which goes back to my original advise: Let’s work out the numbers and then we conclude. Don’t conclude too early.

It is also that I see before 25-year sequence (which is what a 25 year mortgage loan is) can have a decent return that is higher than 2.6% p.a. and it is not as bad as people think.

But the actual success mental model… is definitely not what this 34-year-old guy has in mind.

We Simulate Investing, Keeping some in OA and see If My Telegram Group Member can Successfully Pay Off the Mortgage in 374 25-year Mortgage Period.

I don’t know why people in this time and age of LLM like Gemini, Chat GPT and Claude don’t just… answer the question.

I think you have to be able to mentally “build” that model of what you want to simulate to progress far enough to ask that question.

Looks like as a human being, I still have value currently!

So I clarified with him what is this “Invest CPF OA” strategy is about and I think the permutation is like this. By age 39/40 or 5 years later:

1. The 2-room HDB cost S$130,000.
2. Need to pay S$30,000 down payment.
3. The CPF OA would be $210,000 by then.
4. Invest $100,000 of the remaining $180,000 in an Endowus portfolio like how his current $21,000 is doing.
5. The rest is in CPF OA and that is where the mortgage payment would firstly come from. Once that is exhausted, he would have to tap upon his Endowus portfolio.
6. Success is after 25-years he paid off the mortgage and own that flat and have somewhere to stay or rent out. Failure is that he have to find other means to pay for the mortgage because it will run out of money prematurely.

What immediately jumps to mind was: Got $130,000 why not just pay the whole damn thing and not take mortgage?

This is the problem with this world. So many like to do these complex optimizations. Don’t pay off mortgage take that capital and trade because they are confident their skills can earn more.

Any way, what I am curious about is the outcome.

I didn’t ask what kind of portfolio invested but I can safely assume it is a 100% equity portfolio that tries to beat or track the MSCI World Index. Everyone can invest in the Amundi Index MSCI World A12S (C) SGD with their CPF OA money.

We have monthly MSCI World Index return from 1970 to the start of 2026, we can simulate how having $80,000 in CPF OA, $100,000 in an MSCI World would do in 374 mortgage pay off scenario. The CPF OA earns 2.5% and the MSCI World just gyrates as they are in the past.

374 sequences is more robust than a lot things people can come up with.

I did two simulations and you can review the Interactive HTML to see it more detail here:

1. The base simulation report.
2. Reducing the CPF OA by $40,000

I will talk about the second simulation later.

As we see, all of them ended up with successes.

The average surplus after 25 years, after paying off the mortgage is $966,916. Essentially… there are still retirement money!

Here is how it look in threads:

All green threads.

I want to show the worst sequence. You can click into each to see how each sequence look:

The worst sequence went through 2 bears, the 2000-2002 one and the GFC. This is the one that started in 2000.

It is a good and challenging test if you ask me.

So the OA money runs out in year 19. All of them ends in year 19. There is no surprise there because the CPF OA return is fixed and the numerical dynamics is fixed. But by then if you tap the portfolio which has $198,000 to pay for the yearly $5.4k mortgage, it is no problem.

Let’s Reduce the CPF Money by $40,000

I am not sure if I heard $210,000 right, so I decide to do a more conservative case where we have a less CPF OA money. In this scenario the CPF OA is depleted at year 9 instead of year 19.

This will put the stress on the MSCI World portfolio.

You can take a look at the Interactive HTML of this second simulation.

It is still a 100% success and you can see the 374 nice threads below:

The CPF OA depletes 10 years earlier and the average surplus is lower.

Lets take a look at the worst case:

Now one thing you will immediately notice is the surplus at the end is $166k instead of $345k. Less capital less compounding.

But what you might not realize is… since the OA depletion is in year 9, You actually need to tap upon the MSCI World portfolio while it is in the GFC drawdown (take a look at here the depletion is).

The portfolio then was slightly less than $100,000, which means that after 9 years, the portfolio didn’t grow much because it just experienced a really poor sequence.

This is really the ultimate test if you asked me and the strategy passes.

The Critical Elements of this Strategy that Made it Work

I reflected upon this, and its down to these few things:

1. Not all are invested. The money that is not invested creates a cash/fixed income buffer to cushion potential negative sequence of return. This guy plan has a 19 year, or 9 year run way before you need to touch the equity allocation.
2. The “income withdrawal” is not inflation adjusted. This significantly puts less stress on this.
3. Generally the money he has is adequate la!
4. Equities is like a 20-year duration security. If you are able to invest long enough, and if the investment is diversified, has a rejuvenation mechanism, returns are decent.
5. The investment is diversified, and it is realistic for us to simulate like this.

There is a way for this plan to be dangerous. Less capital, no fixed income run way as an example.

I was glad to do this. Now it feels like what is missing is a way to vary the amount, and also the allocation between OA and the equity portfolio.

Now I feel the urge to take a peek at my friend Cents of Independence case and simulate it HAHAHA.

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Kyith worked as an IT operations engineer from 2004 to 2019. Currently, he works as a Senior Solutions Specialist in Fee-only Wealth Advisory Firm Providend. All opinions on Investment Moats are his own and does not represent the views of Providend.

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