Fraud Blocker
Your search results

Ouch! How Owning a Million-Dollar Home Can Sting with a Whopping $300K Interest in Just a Decade!

Posted by Jayson Ang on November 28, 2023
| 0

TLDR

When considering property investments in Singapore, it’s crucial to monitor home loan interest rates closely. Even a slight increase can significantly impact your finances over time. Keep an eye on your CPF withdrawal limit, as overspending could lead to complications in the future. Rising interest rates may also affect the Total Debt Servicing Ratio (TDSR), potentially requiring a larger down payment and posing challenges for refinancing. Seek strategic real estate advice and consider market trends before deciding to buy, sell, or wait.

Gotta admit, the whole subject of financing, especially home loans, can be a snooze fest. It’s all sorts of complex and makes your eyes glaze over just thinking about it. That’s probably why most folks don’t pay much attention to home loan interest rates. But hey, you might’ve heard some chatter about rates going up. What you might not have caught on to is just how big of a deal this is shaping up to be. So, let’s break down why we need to keep a closer eye on these mortgage rates:

1. You could be paying much more than you think

A minor hike in home loan rates might not seem like a big deal, right? You might think it’s just a tiny bump because you’re making payments each month, and it feels like you’re only adding a little bit extra. Or maybe you’re paying with CPF, which makes it feel like you’re not even noticing the increase.

Let’s break this down a bit further. We’ve calculated how these rate changes could impact different property values, ranging from $500,000 to a whopping $3 million. Our calculations are based on a mortgage that’s 75% of the overall price, and we’ve used a 25-year loan term for the $500K property and a 30-year term for those juicy $1 million+ properties.

Just imagine, if you’re paying roughly 3.5% each year (which is the average home loan rate in 2023), over time you’ll end up shelling out nearly a quarter of your property’s value just on interest alone.

If you’re living in your own home, this can be a real worry when you think about how much – or how little – is left in your CPF for when you retire. For those who own properties as an investment, your place needs to increase in its worth quickly enough to make up for the extra cost of that interest.

A popular solution is to rent out your property. This way, the rent you get can cover the interest and you can even use the interest portion for a tax write-off. But, if you don’t rent your place, you’re basically crossing your fingers and hoping the property’s value goes up quicker than the interest on your loan.

2. There is a CPF withdrawal limit 

Imagine your house is worth a cool million. Your CPF lets you tap into up to 120% of that value, so you’ve got $1.2 million to play with right off the bat. But once you’ve used up that amount, it’s cold, hard cash from then on.

Now, if you’re just using CPF to cover your home loans and nothing else, you’re unlikely to max out this limit due to interest alone. However, most folks in Singapore are also dipping into their CPF for the initial down payment (capped at 20% of the property price or value, whichever is less), footing the bill for things like the Buyers Stamp Duty (BSD) or Additional Buyers Stamp Duty (ABSD), and even covering the conveyancing fees.

We can’t give you an exact picture because everyone’s different. Some people have taken more from their CPF than others, putting them in a riskier position.

By logging into your CPF account, you can see how much more you can withdraw before you hit the ceiling.

But here’s the thing: overspending from your CPF could mean hitting the withdrawal limit earlier than expected. If you’re not careful, you might find yourself in a sticky situation when you’re 55 or 65 and suddenly realize you’ve reached the limit but don’t have a job to cover the monthly expense.

3. The floor rate for the TDSR will rise along with interest rates

The Total Debt Servicing Ratio (TDSR) is a fancy term that puts a cap on your monthly home loan at 55% of your income, counting all your other debts too. When we work out this TDSR thing, we use a minimum rate of four per year.

This rate is usually higher than the common home loan rate. Why? It’s to make sure you can handle things if interest rates decide to go up. So, if the typical home loan rate climbs, our minimum rate needs to climb with it.

With the way home loan rates are skyrocketing, it’s going to be tricky for borrowers to keep up with the TDSR.

If you overshoot that 55% TDSR boundary, you’ll need to cough up a bigger down payment, until the loan repayment tucks itself nicely under the TDSR limit. And that’s how rising interest rates could end up squeezing more cash out of your pocket when you’re buying property.

For current borrowers, there’s also a higher risk of refinancing problems.

Let’s say you want to switch your home loan to a different bank. You’ll need to go through all those checks again. You know, the new bank will want to peek at your credit score, see if you fit into the TDSR, and stuff like that.

This could be a headache if you took out your home loan a while back. For instance, those who bought in 2013 had it easy – the minimum rate for the TDSR was only 3.5%, and the limit was 60%. Some borrowers would’ve qualified under those conditions, but they might not make the cut with today’s higher minimum rate and lower TDSR limit (55%).

Borrowers who don’t meet the criteria for a new loan can’t refinance. That could mean they’re stuck with their bad loan package for years on end.

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:

  1. Offering Strategic Real Estate Advice – I can help create a comprehensive plan to guide you through your property journey.
  2. 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.

You May Also Like …


6 Indicators and Measures to Determine if Your Home Has Unrecognized Profits
All Blog Posts Buying Tips Opinion Selling Tips

6 Indicators and Measures to Determine if Your Home Has Unrecognized Profits

TLDR The booming real estate market presents opportunities for homeowners to profit from selling their properties. Two key signs that...
Read More
Why Some New Condo Releases Outperform Others
All Buying Tips Opinion

Why Some New Condo Releases Outperform Others

TLDR When it comes to the real estate market, familiarity plays a crucial role in the success of larger condo...
Read More
When Should You Consider Investing in Singapore Property, and When Should You Avoid It?
All Buying Tips Selling Tips

When Should You Consider Investing in Singapore Property, and When Should You Avoid It?

TLDR Investing in real estate is a complex decision influenced by personal goals, investment horizon, rental plans, and financial liquidity....
Read More
Will New Launch Condos See a Drop in Prices Soon?
All Buying Tips Opinion Selling Tips

Will New Launch Condos See a Drop in Prices Soon?

TLDR The real estate market in Singapore is experiencing a trend of lackluster bids for prime properties in various locations....
Read More
Downpayment For Condo: How Much Do First-Timers Need In Singapore?
All Buying Tips

Downpayment For Condo: How Much Do First-Timers Need In Singapore?

TLDR The blog post delves into the complexities of condo downpayments in Singapore in light of the impact of Covid-19...
Read More
How Can You Prepare for Retirement in an Expensive Real Estate Market? Discover Your Options Now!
All Blog Posts Buying Tips Opinion

How Can You Prepare for Retirement in an Expensive Real Estate Market? Discover Your Options Now!

TLDR The article discusses the challenges of investing in a second property for retirement amidst Singapore's real estate market conditions....
Read More
5 Tips : How To Invest In Singapore Property Without Losing Sleep Over It
Mandarin Top 5

5 Tips : How To Invest In Singapore Property Without Losing Sleep Over It

Investing in Singapore's property market can be a lucrative venture, but it's important to approach it with caution and a...
Read More
The Psychology of Property Investing: 5 Reasons Why Singaporeans Love Real Estate
Mandarin Top 5

The Psychology of Property Investing: 5 Reasons Why Singaporeans Love Real Estate

Real estate investing has always been a popular way to grow wealth and secure financial stability. In Singapore, the love...
Read More
Singapore’s Urban Landscape Transformation: 5 Key Things You Need to Know
Mandarin Top 5

Singapore’s Urban Landscape Transformation: 5 Key Things You Need to Know

Singapore's urban landscape has undergone significant changes over the years, with the city constantly evolving to create a sustainable and...
Read More
Top 5 Reasons : Is It Still Worth It For A Foreigner To Invest In Singapore
Mandarin Top 5

Top 5 Reasons : Is It Still Worth It For A Foreigner To Invest In Singapore

Singapore, a small yet prosperous city-state in Southeast Asia, has long been an attractive destination for foreign investors. Its strategic...
Read More
Top 5 Best Non-Touristy Things to Do in Singapore
Mandarin Top 5

Top 5 Best Non-Touristy Things to Do in Singapore

Singapore, a vibrant city-state known for its iconic skyline and diverse culture, offers a plethora of experiences for both tourists...
Read More
Top 5 Rooftop Bars in Singapore with Amazing Views
Mandarin Top 5

Top 5 Rooftop Bars in Singapore with Amazing Views

Top 5 Rooftop Bars in Singapore with Amazing Views Singapore, the Lion City, is known for its stunning skyline and...
Read More
Top 5 Reasons Why Singapore’s Luxury Property Market Is Booming – Expert Analysis!
Mandarin Top 5

Top 5 Reasons Why Singapore’s Luxury Property Market Is Booming – Expert Analysis!

Singapore's luxury property market has been experiencing a significant boom in recent years, attracting the attention of investors and high-net-worth...
Read More
What If Sellers Back Out of a Deal?
All Buying Tips Opinion

What If Sellers Back Out of a Deal?

TLDR When a seller unexpectedly withdraws from a property transaction before a contract is signed, they are legally allowed to...
Read More
4 Fresh Trends among Young Homebuyers Could Shake Things up in Singapore’s Real Estate Scene
All Buying Tips

4 Fresh Trends among Young Homebuyers Could Shake Things up in Singapore’s Real Estate Scene

TLDR Younger generation in Singapore is reshaping house hunting by showing a preference for quality of life over location. Millennials...
Read More
Uncover the Secrets of Buying Older Properties – What They Won’t Tell You!
All Blog Posts Buying Tips

Uncover the Secrets of Buying Older Properties – What They Won’t Tell You!

TLDR When considering the appeal of older properties in hipster neighborhoods in Singapore, it's crucial to understand the benefits and...
Read More
The Hidden Hurdles of Purchasing a BTO Flat in Singapore: Unveiling 4 Lesser-Known Challenges During the 5-Year MOP
All Buying Tips Opinion Selling Tips

The Hidden Hurdles of Purchasing a BTO Flat in Singapore: Unveiling 4 Lesser-Known Challenges During the 5-Year MOP

TLDR When contemplating the purchase or sale of a property under the Minimum Occupancy Period (MOP), it's crucial to consider...
Read More
Discover the 7 Unique Attributes of Real Estate Investing
All Blog Posts Opinion

Discover the 7 Unique Attributes of Real Estate Investing

TLDR The post highlights the benefits of investing in real estate, such as high leverage, capital appreciation, income generation, usability,...
Read More
Top 5 Key Factors that Affect Singapore’s Property Prices?
Mandarin Top 5

Top 5 Key Factors that Affect Singapore’s Property Prices?

Singapore's property market has always been a topic of interest for both local and international investors. The city-state's real estate...
Read More
Top 5 : Must-Do Experiences to Make the Most of Your Singapore Trip
Mandarin Top 5

Top 5 : Must-Do Experiences to Make the Most of Your Singapore Trip

Singapore, a vibrant island city-state located off the southern coast of Malaysia, is a melting pot of cultures and a...
Read More
1 2 3 29

Compare Listings