As residents of the little country that could, we’re always looking upwards to the next best thing. Bought your first HDB flat? Great, now let’s look to upgrading to a condo. Many people think nothing of taking a 30 year mortgage, not realising that they’re going to spend almost their entire lives paying for their property. Before you sign up to buy the most expensive home you can afford, here are 4 things to consider.
The possibility of a break from work or a fall in income
Buying your dream home, complete with rooftop jacuzzi and personal butler, might sound like a dream, but it’s also a ball and chain. If your mortgage repayments are so hefty that you’re taking a big chunk out of your monthly salary to make them, this essentially means you can’t afford to quit or lose your job for a long time to come.
You might be young and ambitious right now, but don’t discount the possibility of a break from work or a fall in income somewhere down the road. For instance, someday an unexpected illness might put you out of work for a while. Your company might tank and you might retrenched. Or you might simply decide to take a sabbatical or make a career switch. If any of the above should happen, you’ll want to know that you can still comfortably continue paying for your home, for very obvious reasons.
The state of the property market
If you’re buying a property mainly for rental income and investment potential, you’ll want to take into account fluctuations in the economy when calculating your returns. While the Singapore property market is traditionally thought of as stable, private residential property values have actually been on a downward slide for nearly two years, and condo rents are likewise falling steadily. In addition, rental income depends to a large extent on immigration policy, which can be changed fairly quickly. We’ve already seen changes implemented on the hiring front for foreigners which will also affect their residency here. You might have an urge to buy the most expensive home but, will the state of the property market let you go for it?
As such, even if you’re going to rely on rental income to make your mortgage repayments, always ensure that in the event of falling rents, an inability to find a replacement tenant or a property downtown, you’re still able to make your loan repayments without having to moonlight after hours.
As a property purchaser, never forget that the property price isn’t the only thing you’re paying. Each month when you make your mortgage repayments, you’re also paying a tidy sum in interest to the bank. But interest rates do fluctuate, and a 0.5% increase can result in your having to pay the bank thousands of dollars more in interest.
As such, when you’re calculating whether you’re able to comfortably afford a property, don’t forget to factor in not only the cost of interest payments but also the possibility that interest rates will rise. Continue to monitor your interest rates even after you’ve signed up for a loan, as it might be prudent to refinance at some point. Check out MoneySmart’s home loan and refinancing wizards to make sure you’re not overpaying on your home loan package.
Your expenses might increase
A property might look affordable to you at this point in your life, when your only responsibilities are keeping your alcohol tab under control and making sure Rover doesn’t bite your neighbours. But at some point, as you make the transition to being a full-fledged grown up, financial responsibilities often start to pile up, and those home loan repayments just might start looking more onerous than before. Things doesn’t stop after you buy the most expensive home, they just start getting bigger and bigger.
The most obvious expense would be children, should you choose to have them. If you intend to be a parent of the kiasu variety, you may multiply all child-related expenses by five. You might also decide to one day go to grad school, or purchase a car. As such, ensure that you leave some breathing room when trying to determine just how much you can afford to pay for a property, or you might find yourself having to give up a lot in life just for that rooftop jacuzzi. Need more tips on how to plan for that properly? Then you should definitely be following MoneySmart on Facebook!
What factors have you taken into consideration when deciding whether you could afford to purchase a property? Tell us in the comments!
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