Your home ownership goals change as your life progresses. Those in their twenties are probably just getting their foot on the property ladder; thirty-somethings might be planning for their growing families; while forty-somethings could be on the market for investment properties. For advice on what to be mindful of at each stage, we turned to an independent mortgage consultant Sean Lim. Lim is the founder and director of FindAHomeLoan. He works with banks in Singapore, Malaysia, Australia, the UK, and others to help buyers find the right mortgage solution.
In Your 20s
As a twenty-something, you’re likely to be a first-time buyer. Assuming you didn’t inherit a fortune, and only entered the workforce recently, your finances are going to be lean. Not only do you have to set aside the downpayment, but there are also renovation and furnishing costs to consider. It’s best, then, not to overstretch your budget. “Be pragmatic,” advises Lim. “(Ask yourself if) you really need a 5-room HDB or condo as your first property. (And then) borrow based on what you can afford.”
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Once you’ve worked out how much you can afford, evaluate the different loan options available. “For those buying a HDB flat, consider the pros and cons of borrowing from HDB and banks,” offers Lim. Then consider whether a fixed- or variable-rate mortgage is best. Fixed rates provide stability, but if you plan to keep the property for less than 10 years, a variable rate might work in your favor.
Which leads us to the next point: how long do you intend to keep the property? Given the transaction costs, agent fees and fluctuating market conditions, there’s no guarantee you’ll make a profit if you flip the property after a few years. Conventional wisdom has it that buyers should hold on to their properties for a minimum of five years. (In any case, HDB’s Minimum Occupation Period only allows sellers to put their flats on the market after five years). This allows you to build equity as well as gives the property time to increase in value.
In Your 30s
Now that you’re in your thirties, an upgrade seems to be in order. This is when you might be planning for a bigger home to accommodate your growing family needs. More space equals more luxury, but other factors also come into play, especially for those with young kids in tow. “Think longer term for the children. Consider buying a home that is near to schools of choice,” says Lim.
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Or maybe you simply yearn for a more desirable address. “If you’re seeking an upgrade, calculate the transaction costs before deciding to sell and buy,” he adds. “For those eyeing a brand new EC (Executive Condominium), do note that banks will lend based on their Mortgage Servicing Ratio (MSR) or Total Debt Servicing Ratio (TDSR) limit, whichever is lower. Decoupling might be a good method to allow each party to own a property.”
It’s also important to time the sale of your existing home with your new home (if it’s a resale unit). Negotiate your move-out and move-in dates with the buyer and seller, respectively, to ensure a smooth transition. If you’ve not finished paying off your existing mortgage, consult your financial adviser about a bridging loan.
In Your 40s
In your forties, it’s time to reassess your needs, depending on the stage of life you’re in. If you’re a couple with no kids or are soon to be an empty-nester, then consider a smaller property. Downsizing has many advantages: lower mortgage payments (and therefore lower monthly expenses), lower home maintenance (for example, conservancy fees, utility bills and general home upkeep), more cash to spend on traveling etc.
Having established yourself in your career, you could also be keen on additional properties for investment. In which case, Lim advises: “Always check your borrowing capacity and costs. There’s the Additional Buyer’s Stamp Duty (ABSD) and lending restrictions to be considered. Plan it well up front and all will be good.” In other words, don’t take on a second property if it will affect your retirement plans.
Lim adds: “Refinancing and borrowing on the equity of your property is also worth exploring. Over time, your loan amount will decrease and the property value may have gone up. Always seek professional advice to review and plan your options. Use other people’s money – in this case, banks – and you could be building up a sound property portfolio for retirement.”
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