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Mortgage Interest : The True Cost of Buying and Owning Properties in Singapore

Posted by Jayson Ang on March 16, 2023

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TLDR

When considering buying a property in Singapore, it’s crucial to understand the true costs and risks involved. High monthly repayments can be challenging, especially with fluctuating interest rates. Buyers should assess their holding power and not overextend themselves financially. Strategic decisions like selling, downgrading, or gear refinancing can help manage repayments effectively. It’s essential to weigh the potential capital gains and losses against interest rates before making a property investment in Singapore.

Are you thinking of buying a property in Singapore? Whether you are already a homeowner or just starting to explore the market, it is important to understand the true cost of owning a property, especially with prices reaching all-time highs.

In this article, I will share one of my client’s experience of owning a condominium worth $2 million, with a 75% loan at a floating rate. After four years, the property has appreciated to $2.48 million, but the interest rate has increased from 1% to 3.55%, making the monthly repayment of $6,700 with $4,000 going into interest servicing.

If you are feeling the pain of owning a property due to high monthly repayments, it may be time to consider your options. I advised my client to either sell and downgrade to a lower-priced property, cashing out the difference of $400,000 to $500,000 to use as a buffer for monthly repayments, or do a gear refinance to retain the property while cashing out a certain amount of money. By doing either, my client would be able to realize the profit he made, nearly 100% on his capital of $500,000, after taking into account the down payment.

I emphasise the importance of understanding the risks and rewards of buying a property in Singapore, particularly in terms of interest rates and potential capital gain and loss. Most home buyers in Singapore take up mortgage loans, with many going for the full 75% loan in a low-interest environment. While this is a good strategy to ride the wave up, it also means that buyers are highly leveraged, with a 25% down payment. If the property price goes up by 25%, they will gain 100% return on capital. However, if the property price goes down by 25%, they will lose their entire capital if they sell.

I will advise buyers to consider their holding power and not to overstretch themselves when committing to buying a property. Monthly mortgage repayments include the principal and interest, with interest being an expenditure. In a high-interest environment, someone who borrows 75% to buy a house will have to pay 3.75% of the property price in the first year in the form of interest, translating to roughly $75,000 for a $2 million property or around $6,000 a month in just interest payments alone.

In summary, while buying a property in Singapore can be a good investment, it is crucial to understand the risks and rewards, particularly in terms of interest rates and potential capital gain and loss.

Be mindful of your holding power, and don’t overstretch yourself when committing to a property. Consider your options if you are feeling the pain of high monthly repayments, such as selling and downgrading or doing a gear refinance.

With the right strategy, you can realize the profit you make and enjoy the rewards of owning a property in Singapore.

Should You Buy, Sell or Wait?

If you’re reading this, you must be trying to figure out the best course of action right now: is it the right time to buy or sell?

It’s difficult to give an exact answer since everyone’s situation is unique and what works for one person may not necessarily work for you.

I can bring you a wealth of on-the-ground experience and a data-driven approach to provide clarity and direction. From beginners to experienced investors, our top-down, objective approach will help you on your real estate journey.

I can help you by:

Offering Strategic Real Estate Advice – I can help create a comprehensive plan to guide you through your property journey.
Connecting Your Home with the Perfect Buyers – Through stunning visuals, an effective communication strategy, and an in-depth knowledge of the market, we’ll ensure your home is presented in the best possible way to fulfill your goals.