You probably already know this, but property is expensive in Singapore. Homes can cost anywhere from hundreds of thousands for HDB flats to millions of dollars for private condos and landed homes. So for many of us, buying a home is our biggest single expense and our home loan (or mortgage) repayments the biggest liability in our lives.
Let’s not talk about the Crazy Rich Asians. Say you’re an Average Joe: Even if you buy a modest under-500k HDB flat - assuming you take 75% to 90% in home loans to finance it - you’re looking at mortgage repayments of at least $1,200 each month (depending on the interest rate and tenure). Considering the median salary of Singaporeans is $4,563 (Ministry of Manpower, 2019), that’s about a quarter of our monthly income!
Most of us take decades to pay off this debt, but not Clara Lim, 34, and her husband, Jon Phay, 37. Yes, it’s not uncommon to hear of couples who pay off their homes by their mid-thirties, but what’s interesting is that unlike couples who marry early in their twenties and live frugally for the next 10 years, Clara and Jon actually only tied the knot and bought their Bishan HDB flat two years ago.
So how did the couple manage this feat at such a young age? After all, Clara and Jon both hold pretty average-earning jobs as a writer and engineer respectively.
Well, first of all, Clara and Jon most definitely didn’t save hundreds of thousands in two years. The saving up took place before they bought the property.
In fact, with their savings combined, they actually had just about enough to pay for their $468,000 resale flat in full at the point of purchase. They only took up a home loan because Jon wanted to utilise his CPF funds while he continued working.
Clara’s savings: $120,000
Jon’s savings: $80,000
Combined CPF OA: $191,000
CPF housing grants: $70,000
Given this, you’d expect that the couple must have spent their entire twenties staying home and eating cup noodles, but that was not the case.
“Frankly, I don’t think Jon put that much effort into saving up that $80,000. He just doesn’t have expensive hobbies,” says Clara. For her, however, it was a different story: “For most of my twenties, I spent all my money on going out with friends, drinking, shopping, etc. But when I was 29 years old, a bad breakup caused me to go on a big lifestyle detox.”
Saving $120k after a bad breakup
Clara changed her job, changed her mobile number, and as far as her friends were concerned, fell off the face of the earth.
For a year or so, she went home straight after work every day. She turned to solitary (and free) hobbies like exercising at the company gym, reading library books, hiking and cycling.
Even after she had healed and was able to socialise and date again, those frugal habits still persisted.
“Without really planning to, I had saved a ton of money. I earned about $60,000 a year, and saved about 80% to 90% of my take-home pay. After about three years, I had saved up about $120,000 in cash,” she shares.
Debt-free in 24 months
As mentioned earlier, Clara and Jon took a small home loan to keep aside some cash savings and utilise the CPF they were earning.
“Although we could have paid off the entire flat in cash and CPF, Jon suggested we take a housing loan because he wanted to utilise his CPF contributions while he continues working.
I, on the other hand, did not want too much financial commitment,” says Clara.
In the end, they compromised on a $53,000 loan for two years, which seemed like an acceptable commitment period to Clara. The amount is too small for a bank loan, so they went for an HDB loan. Here’s the breakdown:
Flat price: $468,000
Down payment: $261,000 in CPF (including grant) + $149,000 in cash
Deposit: $5,000 in cash
HDB home loan: $53,000 at 2.6% p.a. for two years
Monthly repayments: $2,276 using CPF
WTF???!!!!! A couple has to pay monthly installments of $2130 for a 4-room HDB flat that costs $555K ????
“We Always Knew We Were Paying More”: After 9 Years, This Couple Finally Decided to Refinance their HDB Loan
For many first-time HDB flat buyers, the HDB housing loan seems the easiest option. Since the Loan-to-Value limit (LTV) is higher than that of bank loans, most young couples end up being able to borrow a larger sum from HDB, making financing the HDB flat more manageable. Not only that, but you can also get everything settled at one go with HDB, adding to the convenience.
Like many others, those were the two main reasons Justina Tan, 40, and her husband, Bernard Loh, 41 decided to take a HDB loan to pay for their current home – a 5-room flat in Depot Road that they bought in 2011.
Back Then, the HDB Loan was the Most Feasible
At the time, the HDB loan seemed the best choice as Justina and Bernard had little savings and wanted to pay the least possible cash up front.
“When we first submitted the paperwork to HDB, we were told that we had to fork out more in down payment if we took a bank loan. That was not ideal as we weren’t earning enough at the time,” says Justina. HDB allows home buyers to borrow up to 90% of the HDB flat’s price, versus only up to 75% for banks.
With their then-income, the couple’s monthly CPF contributions were insufficient to cover the mortgage repayments, so they still had to pay about $500 in cash every month. It was only after three years when they both started earning more that they were able to fully rely on CPF to pay the instalments.
Using CPF to Pay Their Mortgage Instalments Meant It Was “Out of Sight, Out of Mind”
Did the couple know that the HDB housing loan interest rate of 2.6% was significantly higher than the 1.4% to 1.8% that the banks were offering?
Yes, they did. They had also heard about refinancing before, and knew that they could explore their options after a few years to save on interest costs. However, as the years went by, they got increasingly busy with work and other aspects of their lives, and the mortgage gradually became something they just never spared much thought to anymore.
It was easy to fall into the rhythm and get comfortable, especially since Justina and Bernard no longer saw the instalments being deducted from their bank accounts. “It was all paid out of our CPF, so out of sight, out of mind,” says Justina simply. “Moreover, the interest rates are in a percentage, so I never bothered calculating how much I would save,” she adds.
Refinancing Was The “Last Thing On (Their) Mind”, Until A Dinner Date with A Close Friend
Things changed when a good friend of Justina’s brought up the topic of refinancing over dinner a few months ago.
“(My friend) was gushing about how easy it was and how much she saved. Since we had a bit more time on our hands, we decided to look into it. It was also around the time our insurance agent was discussing saving plans with us so it just seemed like a good time to get all our finances in order,” shares Justina.
With that, they decided to do some research and got down to refinancing their HDB home loan. Here’s a breakdown of how much they saved:
Home loan balance (to refinance) : $374,021
Previous home loan: HDB loan, 2.6%
Monthly instalments before refinancing: $1,928
New refinanced home loan: DBS, fixed rate of 1.5% for 5 Years
Monthly instalments after refinancing: $1,718 to $1,779
As you can see, after refinancing, Justina and Bernard now save about $150 to $210 per month. On top of that, they also received a $2,000 cash subsidy from DBS, which covered their legal fees ($1,400 from CPF OA) and valuation fees ($214 cash).
When asked if she’s happy that she finally refinanced and whether she’s satisfied with her decision, Justina said yes. “Why pay more interest when you can pay less? It doesn’t seem like much monthly, but over nine years, we could have saved around $20,000! When you look at it like that, it’s substantial,” she says.
Justina also shared that the process was pretty straightforward – “it was a breeze!” – save for some paperwork that still had to be done. Thankfully, with all the government platforms easily accessible via the SingPass app, she felt that getting the necessary paperwork was still quite manageable.
She adds that her best piece of advice for others looking for guidance on refinancing is to speak to a mortgage advisor. "It is really very helpful, especially for people like me who aren’t great with numbers!” she says with a laugh.
https://www.propertyguru.com.sg/property-guides/pgf-refinance-hdb-loan-after-9-years-42690
Some rethink BTO plans, current living arrangements
First apply for a Build-To-Order (BTO) flat, then have a wedding three to four years later.
Such is the plan - one might even call it a template - for so many young Singaporean couples that the pragmatism has passed into urban legend here.
But in a time of Covid-19, the "BTO first, marriage later" path in life has come under strain.
In the August sales exercise of these flats, which are available to Singaporeans who do not own any other property, the expected completion date of some BTO projects was pushed back to four to five years, instead of the usual three to four.
For content creator Charlotte Wang, 27, and her boyfriend of two years, Mr Matthew Lee, the longer wait for a BTO flat means they would have to either live with their parents or rent a flat - neither of which appeals to them.
On top of that, Ms Wang quit her role at a marketing agency at the beginning of the year to take a two-month break, which then turned into a period of extended unemployment when she could not find a new job.
Mr Lee, also 27, who works as a financial consultant, saw his income dip as well.
The couple are now forsaking their BTO plans and thinking of buying a resale flat next year.
Says Ms Wang: "The pandemic made things a little uncertain for us financially. So we agreed we would save up for a year and, hopefully, by the end of next year, we will be able to afford a resale flat and a small wedding."
Their target is to save $100,000.
"My own spending has gone down significantly as I'm fixated on saving up for bigger things such as the house," she says, noting that she now puts aside about 75 per cent of her income, compared with 50 per cent in the past.
Several other young Singaporeans interviewed by The Straits Times expressed similar concerns about the long waiting time for a flat, as well as their ability to pay for one.
Ms Christine Sun, head of research and consultancy at real estate agency OrangeTee & Tie, says the reluctance to wait - for those who can afford it - could have fuelled the recent spike in demand for resale flats.
She adds: "Many BTO launches were also heavily oversubscribed, and unsuccessful candidates may have bought resale flats as an alternative."
Data from the Housing Board (HDB) showed a total of 7,787 HDB resale flats were sold in the third quarter of this year, compared with 3,426 in the second quarter. This is a 127.3 per cent quarter-on-quarter increase.
Prices of HDB resale flats also rose by 1.5 per cent across the board in the third quarter, compared with the previous quarter.
Dr Sing Tien Foo, director of the Institute of Real Estate and Urban Studies at the National University of Singapore (NUS), says the pandemic may have led some young people to rethink their finances and adjust their spending and saving habits so that they can buy a home.
This is particularly true if they do not want to wait for a BTO flat and are thinking of a resale flat, which may continue to increase in price, he adds.
Dr Sing notes that there is also the added worry of not being able to find a full-time job with steady Central Provident Fund contributions, which may affect their ability to afford the flat.
Still, experts feel that the demand for a BTO flat before marriage is a cultural norm that is not likely to change any time soon for the majority of young Singaporeans, even in a post-Covid-19 world.
But, says Assistant Professor Jeffrey Chan, from the Singapore University of Technology and Design's humanities, arts and social sciences faculty, they may have to make adjustments and adapt to situations such as a longer waiting time.
Temporary arrangements could include taking short-term rental or delaying marriage, says Prof Chan.
A recent survey commissioned by the National Population and Talent Division and the Ministry of Social and Family Development found about 30 per cent of respondents said they were likely to delay marriage or have a child later because of the Covid-19 pandemic and its effects on the economy.
The survey polled about 4,100 Singaporeans, of whom about half were aged 22 to 32 and in serious relationships, while the rest were married individuals aged 21 to 45.
The pandemic has also caused others to rethink their current living arrangements.
A week into the circuit breaker in April, 19-year-old Zoey (not her real name) decided to start saving up for her long-time goal of moving out of her family home.
The experience of being cooped up at home with her parents and younger brother in what she described as an "unconducive living and studying environment" spurred the second-year polytechnic student into action. She currently has a "couple of thousands" stored away for future rent.
"I had thought about moving out since I was 13 but it was not possible, so I stuck it out. But now that I'm older, I can work towards this goal by saving more and working part time," says Zoey, who declined to be named for fear of her parents finding out.
She acknowledges that it may be one or two years until she can realistically move out, and even then, she may have to "live uncomfortably", such as in a backpacker hostel. But she does not mind.
However, Adjunct Associate Professor Steven Choo, from the department of real estate in NUS, says many young Singaporeans are typically "quite pragmatic" and are unlikely to move out of their parents' house if they do not have the financial capacity to sustain themselves in the long term.
"The last thing you want is to have to move back home when you run out of money. Usually it's the more enterprising ones who will take the opportunity to get out of their homes," says Prof Choo.
More at https://www.straitstimes.com/singapore/housing/some-rethink-bto-plans-current-living-arrangements
Misleading article. They didn't pay for their flat in merely two years. They saved till they reached their mid-30s before proceeding with the property purchase, subsequently using another 2 years to clear the outstanding loan amount.
I can smell this is some blatant advertising bullcrap by property guru from a mile away.
Wah how come their flat looks so shitty on the inside?