When it comes to investing, saving, and getting an education, the general rule of thumb is to start as early as possible – or as the refrain goes “the sooner, the better”. The same can also be said for buying a house in Singapore, where getting an HDB flat or private property will allow you to reap the benefits of an investment that has had time to grow.
While it’s true that there could be roadblocks along the way – some real and others perceived – they’re surmountable given sufficient research and forethought. So, from a personal finance perspective, here are 3 reasons why entering the property market in your youth is a good move to make!
1. You have fewer commitments while you’re still young
Like putting your own money into stocks, bonds, and cash, you’ll first have to figure out how and where best to sink your personal funds for the best yields on your personal portfolio. That’s a given – unless you’re flush with money or simply have a big appetite for higher-risk products.
More critically, though, is the likelihood that you’ll gradually have less and less flexibility to exercise your (finite) funds freely as you and your loved one's age.
Personal responsibilities – such as parenthood, caring for older family members, and building up a retirement fund – will surely test your ability to juggle between paying the bills and saving up adequately for the later stages of life.
In other words, if you’re single, aren’t a caregiver for any young or elderly kin, or don’t have any other major commitments in life currently, then now is the best time to buy a house as you’ll probably have a tougher time coping with mortgage payments in the future.
2. You can get a bigger mortgage loan quantum and more leverage
Yes, it’s true that there are risks to consider when taking on a bigger loan quantum. For one, you’ll be saddled with more debt, and that’ll translate into higher monthly repayments.
And two, if the cost of borrowing (i.e. the interest charged on your mortgage loan) is greater than the rate of appreciation or profit made from the sale of your home, you’ll end up with a net loss on your investment.
However, with adequate financial planning, leverage can be a wealth generation tool that allows borrowers to purchase a prized property with promising growth – something which they would have otherwise been unable to afford without sufficient capital.
Tying back to the point above, there’s a greater likelihood that as a younger buyer with fewer financial obligations, you’ll be eligible for a bigger loan quantum and possibly be able to purchase a high-end home.
This is due to how the Total Debt Servicing Ratio (a.k.a. TDSR) works. As a way to “ensure prudent borrowing” in Singapore, the TDSR limits the total debt of borrowers to 55% of their gross monthly income.
This sum total includes not just the dues owed on home loans, but also money borrowed on credit cards, car loans, and other forms of cash advances – all of which you may be liable for as an older person with responsibilities.
So, once again, if you’d like to take out a loan to purchase a more valuable property, it’s best to do so when you’re young and relatively debt-free.
3. You’ll have more time to pay off your home loan
Yet another notable advantage of purchasing a house early in life is that you’ll get more time to pay off the mortgage on your home.
While the Money Authority of Singapore (MAS)-stipulated maximum loan tenure for housing loans is 30 years and 35 years for HDB and non-HDB properties respectively, you can expect this cap to be lower if you’re an older homebuyer as most home loans offered by banks have an age limit of 65 years old for salaried individuals. Conversely, if you’re younger, the opposite stands true.
On the same subject, a shorter loan tenure will also result in larger monthly mortgage payments – or in other words, it’s one more downside that you can avoid by buying a home sooner in life.
To demonstrate this, here’s approximately how much you’ll be paying every month, across different tenure periods, if you were to take a loan of $1,000,000 with a 3.5% interest rate:
Monthly installment (approx.)
What does this mean?
Buying a house is a big investment and there are indeed many considerations you have to think through before making the decision. If you need a more detailed financial analysis and projection before you know whether it is the "right" time for you, do not hesitate to reach out.