Ok, let me explain..............yet again, because many people like you STILL DON'T FUCKING GET IT!!. Lets agree on one thing first. The CPF money you have is yours. You own it, right? Why? because it says so in your account, the CPF is your name, you see your deductions every month from your paycheck going to your CPF account, and finally, down the road, you get to take it all out. So, its your money.
Lets now say that you found a flat you want to "buy". You decide to put $200,000 as down payment (which you have available in your CPF account). But lets say that you also have $200,000 in a savings account sitting in a bank, also earning 2.5% per annum. In other words, you have also available $200,000 cash in addition to the $200,000 in your CPF. Where you got the cash from its not important. Maybe you strike lottery, maybe it was an inheritance, maybe you sold a business, whatever. But this $200,000 cash you have, you were also saving it for a planned retirement.
Now, you decide to take the $200,000 down payment from your cash savings instead of from your CPF. Are you legally obligated to pay yourself interest on it? Of course not, its your own damn money. But what about the 2.5% interest that you could have earned, but have foregone now? You have lost the opportunity to earn this interest. This is the argument that CPF uses for making you repay the interest. However, when you monetize or "sell" your flat years from now, you could have made $300,000 in capital gains due to the appreciation in the price of the flat. Therefore, even though you have lost the opportunity to earn 2.5% per annum, you have recovered the lost interest and more through a one time capital gains of $300,000. If you have used your CPF's $200,000 instead, you would still have the gain of $300,000 (of which the original amount you borrowed plus interest) would be put back into your CPF account. Therefore, you should not have to repay the interest to CPF, that would be double counting your gains. Once from the capital gains, and a second time from the interest repayment.
The reason why HDB makes you pay back the interest that you would have received is because they want to match their pension obligations as closely as possible. Its an actuarial nightmare if you don't include the interest back, because CPF has to anticipate their pension disbursements down the road, and at the same time take into account amounts that have been withdraw for flat "purchases", with out having to replace the lost interest. Its just an admin thing for them