Saturday, October 20, 2012

Buying a New Property - Tips For Buyers

This article is an Annex to this the post - The Journey to New Home. Just sharing some tips I learnt from my house hunting experience.

1. When buying the 2nd property, you can only borrow up to 60% bank loan if you are currently paying the loan for your 1st property. If the 1st property is fully paid, you can borrow up to 80% bank loan. Thus, if you have capacity, will suggest you pay off the loan of the 1st property before getting the 2nd.

2. To use the CPF money to pay off the downpayment for 2nd property, as well as future loans. You must set aside 1/2 of the minimum sum in the CPF based on the current rate. The rate for 2012 is 1/2 of $139k (i.e. $69.5k) and this amount it set to increase every year. This minimum sum you have is first calculated from your retirement account + investments made your your retirement account, before the rest needs to be topped up by your ordinary account. Any money beyond this in your ordinary account can be used towards your home payment.

3. Home loans usually have a lock in rate of 3 to 5 years for most banks, subsequently, you are free to get refinance with another bank, or renegotiate with your banker for better rates. Its quite hard to work out exactly how much you need to pay in total, as the interest rates fluctuates based on market conditions, as well as if there was any bank loan promotions the bank is offering at that very time. The interest rates can be either on a fixed interest rate, or a variable interest rate based on SIBOR. I would suggest you ask around all the banks for both their fixed and interest rates and do a comparison. While the variable interest rates looks more attractive, when you really do the maths, you will find that the fixed rate actually differs within the first 3 years by about a few thousands only. I would thus suggest that to take the fixed rate loans rather than the variable rates loan so that you have a more confirmed total sum you need to pay for 3 years. Variable rates, though stagnant based on past trends in SIBOR, is more likely to go up rather than down. A good loan calculator is available as an downloadable excel sheet here

4. When calculating your sums / cashflow available, you must always take into consideration this component call the Stamp Duty. The stamp duty is based on the value of your property or the selling price, whichever is higher and is charged at $1.00 per $100 for the first $180k, $2 per $100 for the next $180k and $3 per $100 for the remainder (Quick formula is property times 3% then minus of $5400). As such, you can see that it will eventually work out to be quite a substantial sum as the price you pay goes higher. There are also additional stamp duties if you happen to be a non Singapore Citizen, or you are purchasing your 3rd property. Because of the way the stamp duty deadline is structure, you will end up in a situation that the stamp duty can only be paid in cash first. There is no installment payment for it.

1 comment:

  1. A variable-rate mortgage may be a good choice if you'd be selling the house in less than 5 years or you know your income is rising. But with rates currently rising and dropping every time, opting for a fixed-rate plan is better, even if you only plan to stay in the house for a few years. If rates go up sharply, a 6% ARM can nearly double in just three years.

    Chris from