The government is putting in measures to cool the property market. The latest measure is to prevent someone from over-extending his ability to pay up mortgage loans. All home loans are now capped at 35 years. Even at 35 years, it is far too long to service the housing loan.
Back in July 1997, we bought an investment property directly from a developer, a freehold property located at a popular matured estate near to a MRT station. (Then the Asian financial crisis hit us in 1997/98. That is another story.)
When my wife and I made the decision to buy, we consider our financial ability to service the mortgage loan. We even consider whether we could still service the loan if one of us was out of work and what if we could not rent out the unit. When we looked at out CPF Ordinary Account balances and our cash on hand, we had enough to pay half the purchase price. We then took a housing loan that was only half the property price.
We used our monthly contributions to CPF accounts to service the monthly repayments that included interests. Whenever when we had sufficient money in CPF Ordinary Accounts (because of year-end bonuses, etc), we took the opportunity to reduce the loan quantum by partial capital repayments. By managing this way, we redeemed the whole mortgage loan in seven years (June 2004). Hence, we reduced interests payments to the bank.
Our stand was to minimize exposure to long loan period. We could not see ourselves taking 20 to 35 years to pay up housing loan and be “slave” to the bank. Back then interest rates were 5.75% when we first took up the loan and 3.5% towards the end. At its highest, monthly repayment amount was $4,000. This amount was gradually reduced as interest rates came down and loan quantum was reduced.
I urge caution and financial prudence in buying property. The idea of early redemption of housing loan is recommended. In addition, take loan only within one’s means. Consider also worst case scenario when planning the servicing of housing loan.
Copyright © 2012, limkimtong for Living Investment
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