Home is a place of sanctuary where you know your family will be safe.
Holding on to a huge mortgage loan will destroy the very place you and your spouse have tried so hard to build. I believe the best way to buy a home is 100% upfront payment.
It may be hard but it will be worth it.
There are Singaporeans out there who save for years and use various grants to achieve this goal, and they have done so with careful planning and teamwork.
A home should be a blessing to your family, not a financial nightmare. But if you are going to buy a home with a mortgage, the next best thing is a smart home mortgage loan plan.
*Do take note that the plan requires that you pay your home using cash.*
Here are 5 basic checks to follow when building your dream home:
1. Pay off your debts
Make sure you are completely debt free.
To name a few – study loan, wedding loan, motor vehicle loan and credit card bills. All of these must be paid first before taking any additional loan.
Owning a property is not just about paying the mortgage. There will be maintenance cost and bills that we tend to underestimate. Taking additional loans will increase strain to your financial portfolio.
2. Set aside 6 months of fully-funded emergency fund
Life is unpredictable and anything can happen within the next 6 months. This emergency fund includes the mortgage payments that you are going to incur.
For example, if you and your wife spend $2,000 each month before having a home, and your new monthly mortgage payment is $1,000, you will need to save at least $18,000 ($3,000 X 6 months) in a joint savings account first before securing a loan.
The UOB One account currently gives the highest saving rate for individual accounts only.
For joint account, I would recommend banks, which do not have as many ATMs islandwide so as to avoid unnecessary withdrawal.
You can use the Mortgage Calculator to find out the estimated monthly mortgage payment of the property you wish to own, before making a decision.
3. Make at least 25% of the down payment
You need to work and save to afford a home. There are no two ways about it.
Fortunately for us Singaporeans, we can use our CPF to pay for our home. The grants are there to help us secure a home, but do not be too overeager to use it to get a bigger property that you cannot afford. Use the various housing grants to pay down the mortgage downpayment.
You can read more on the various grants here.
If you have the spare cash or CPF, pay more of the mortgage downpayment. Make at least 25% of the downpayment using cash, CPF and the various grants.
4. Choose a 15-year mortgage
Always go for a conventional, fixed-rate mortgage with 15 years or less. Do not go for the longest loan tenure.
With effect from 9 May 2019, the maximum loan tenure is 25 years.
A $300,000, 25-year mortgage with an interest of 2.6% interest rate will cost you $108,303, which is one-third of the loan that you took.
That’s 33% of your hard-earned money used just to pay interest!
A 15-year mortgage will cost you $62,613, which is only about one-fifth of the loan you took. A savings of $45,000!
That’s a lot of money out can use to build up your retirement fund or save for your child’s education.
5. Do not exceed 25% mortgage to income ratio
Mortgage to income ratio is more commonly known as mortgage servicing ratio(MSR). It is the formula when you divide the monthly mortgage payment to your gross monthly income.
My recommendation is to not exceed 25% of the mortgage to income ratio. Any more than that will tie up too much of your income and slow your progress to build a resilient home for your family.
The more disposable income you have, the more options you have to enjoy what you love doing together with your family.
Make your home a sanctuary to keep your family safe and happy.
House hunting time
Once you have your bases covered financially, it’s time to start house hunting.
Talk to a professional agent about your financial goals so that together, you can find a home that fits your budget.
I understand how important it is to buy a home that you can afford. You can trust that I will provide you reliable solutions and not homes that will bust your budget.
If you decide to use your CPF monies, then, we need to be more strategic about your plan.
Buy a house with an agent who serves, not sells. Talk to me today!