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 …


4 Key Factors to Consider When Purchasing a Private Property for the First Time
All Buying Tips Opinion

4 Key Factors to Consider When Purchasing a Private Property for the First Time

TLDR When considering buying or selling property in Singapore, it's crucial to understand factors like Additional Buyer’s Stamp Duty, Loan-To-Value...
Read More
Does Sell 1 Buy 2 Strategy Still Works Today in 2024?
All Blog Posts Buying Tips Opinion

Does Sell 1 Buy 2 Strategy Still Works Today in 2024?

TLDR When considering the "Sell One By Two" property investment strategy, keep in mind that it involves selling your previous...
Read More
6 Key Contrasts Between New Launch and Resale Condos to Assist You in Making the Right Choice
All Buying Tips Opinion

6 Key Contrasts Between New Launch and Resale Condos to Assist You in Making the Right Choice

TLDR When deciding between a new condo or an older resale unit, consider the differences in design features. Older condos...
Read More
Singapore’s Real Estate Market: Disproving 5 Common Misconceptions
Mandarin Top 5

Singapore’s Real Estate Market: Disproving 5 Common Misconceptions

Singapore's real estate market is a complex and dynamic market that can be difficult to navigate for new investors. With...
Read More
Top 5 Places to Learn About Singapore’s History
Mandarin Top 5

Top 5 Places to Learn About Singapore’s History

Singapore, a thriving metropolis with a rich history and diverse cultural heritage, offers numerous opportunities for visitors and locals alike...
Read More
Top 5 Best Scenic Drives in Singapore
Mandarin Top 5

Top 5 Best Scenic Drives in Singapore

Singapore, a bustling city-state known for its modern architecture and vibrant culture, also offers some of the most picturesque driving...
Read More
Top 5 Tips : How Does One Choose Good Property In Singapore?
Mandarin Top 5

Top 5 Tips : How Does One Choose Good Property In Singapore?

Singapore, a thriving city-state known for its impressive skyline and robust economy, has always been an attractive destination for property...
Read More
Making Sense of 99-Year Landed Home Investments in Singapore
All Buying Tips Opinion

Making Sense of 99-Year Landed Home Investments in Singapore

TLDR Investing in a 99-year leasehold landed property in Singapore can be a lucrative venture due to the country's land...
Read More
Top 5 Factors : Buying Resale vs New Launch Property in Singapore: Which is Better?
Mandarin Top 5

Top 5 Factors : Buying Resale vs New Launch Property in Singapore: Which is Better?

The decision to invest in a property in Singapore can be both exciting and daunting, especially when faced with the...
Read More
The Changing Faces of Orchard Road
All Buying Tips

The Changing Faces of Orchard Road

Should You Buy, Sell or Wait? If you're reading this, you must be trying to figure out the best course...
Read More
Is the Singapore Property Market Set for a Dip in 2024?
All Buying Tips

Is the Singapore Property Market Set for a Dip in 2024?

TLDR The Singapore property market is experiencing shifts with Morgan Stanley adjusting its outlook on major developers. A forecast predicts...
Read More
How to Avoid Forfeiting Your Security Deposit: A Guide to Your Rental Property
All Buying Tips

How to Avoid Forfeiting Your Security Deposit: A Guide to Your Rental Property

TLDR When bidding farewell to your rented property, ensure the safe return of your security deposit by: Regular Aircon Servicing:...
Read More
5 Unexpected Factors That Make Some New Launch Condos Sell Like Hotcakes
All Buying Tips Opinion

5 Unexpected Factors That Make Some New Launch Condos Sell Like Hotcakes

TLDR The Singapore property market for new condo launches in 2023 saw varying degrees of success. Factors like limited competition,...
Read More
Superstitions in the Real Estate Market : How Does it Impact Resale Value?
All Buying Tips

Superstitions in the Real Estate Market : How Does it Impact Resale Value?

TLDR When navigating the Singapore property market, it's crucial to consider various superstitious beliefs that can impact your decisions. From...
Read More
Four Things to Avoid When Renting Out an HDB Flat
All

Four Things to Avoid When Renting Out an HDB Flat

TLDR Renting out an HDB flat in Singapore can be a lucrative source of secondary income. Key considerations include adhering...
Read More
5 Singapore Property Investing Myths Debunked
Mandarin Top 5

5 Singapore Property Investing Myths Debunked

In the world of property investing, misconceptions can lead to poor decisions and financial losses. In Singapore, there are several...
Read More
7 Essential Considerations to Keep in Mind When Assessing a Floor Plan for a New Condominium Development
All Buying Tips Opinion

7 Essential Considerations to Keep in Mind When Assessing a Floor Plan for a New Condominium Development

TLDR When selecting a property unit, carefully examine the floor plan beyond aesthetics. Consider non-living spaces like ledges and void...
Read More
Top 5 Street Food Markets in Singapore
Mandarin Top 5

Top 5 Street Food Markets in Singapore

Singapore, a melting pot of diverse cultures, offers an incredible array of street food that tantalizes the taste buds of...
Read More
Top 5 : Singapore’s Most Desirable Properties: A Look at the City’s Most Coveted Real Estate
Mandarin Top 5

Top 5 : Singapore’s Most Desirable Properties: A Look at the City’s Most Coveted Real Estate

Singapore, a bustling city-state known for its impressive skyline and thriving economy, is home to some of the most desirable...
Read More
Learning Hard Truths in Property Investment: Timing the Market Can Hurt
All Buying Tips Opinion Selling Tips

Learning Hard Truths in Property Investment: Timing the Market Can Hurt

TLDR The blog post delves into the complexities of market timing in property investment, highlighting the risks and challenges associated...
Read More
1 3 4 5 6 7 23

Compare Listings