HDB monthly mortgage repayments can be cheap – provided you have money for a lump sum downpayment, that is.
In our initial article analysing PM Lee’s assumptions regarding home financing, we looked at one possible method he could have used to get the monthly home repayment below the psychological $1000 barrier – for instance, to use a lower bank interest rate which would most certainly rise over the course of 25 years. In this follow-up article, we explore an another way PM Lee could have gotten a nice sub-$1000 monthly mortgage repayment. After reading, you can decide for yourself which scenario better fits your own criteria.
Scenario 1 – For the cash-strapped and those who just started working
If you are a young couple, chances are you are in the stage in life where you have a lot of big ticket items you need to be planning and paying for. We mentioned home renovations previously. There is also the wedding, saving up for your children, looking after your parents, and so on. You might also not have build up sufficient CPF contribution as both of you have just started working. This being the case, many Singaporeans will choose to take advantage of the housing grants to help off set their 10% HDB flat downpayment.
Cost of Flat: $285,000
Downpayment Required (10%): $28,500
Total Value of Grants: $39,000
Grant Value After Downpayment: $10,500
Mortgage Required:
285,000 – 28,500 – 10,500 = $246,000
Monthly Repayment for 25 Year Mortgage at 2.6% (HDB rate):
$ 1,116.03
Scenario 2 – PM Lee’s Way
This method assumes that you have taken care of the not so insignificant 10% downpayment for your flat and thus will able to use the entire housing grants to offset the loan amount you need to take. This method of financing your HDB home gets us to within the dollar of PM Lee’s figures – we are almost sure he used this calculation method.
Cost of Flat: $285,000
Downpayment Required (10%): $28,500 [Cough this amount up somehow without touching the grants – cash, wipe out your CPF OA, ask your parents]
Total Value of Grants: $39,000 [Untouched thus far]
Mortgage Required:
285,000 – 28,500 – 39,000 = $217,500
Monthly Repayment for 25 Year Mortgage at 2.6% (HDB rate):
$ 986.73 [PM Lee’s figure was $987]
The CPF Fine Print
Another thing Singaporeans might want to consider is this: PM Lee said that if you were to use your CPF contributions to offset your mortgage repayments, the cash outlay would be even lesser. However, remember that CPF contribution ratios change as you grow older, so your cash outlay might actually increase as the years go by. Also, as we here at DollarsAndSense.sg always keep in mind – your CPF money is a finite pie. The more slices you cut it up into, the smaller each slice gets.
We understand as well that it would be convenient for many of us to assume that our salary will increase as we grow older. While that is a fairly realistic assumption, do bear in mind that there is no guarantee of that, just as there is no guarantee of constant job security throughout the next 25 years or that both couples will continue working.
Conclusion
So there you have it – how you can afford a HDB flat for less than $1,000 a month. It is possible, if you are able to cough up the entire $28,500 for your downpayment. Not to mention the renovation and furniture costs to convert your barebones prefab concrete box into a liveable space. Also, remember to seriously look at planning for your retirement – because if you dug into your CPF in a big way, at retirement time, you might be left with an expensive property you need to live in and not much CPF monies for your retirement.
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Original photo by Benjamin Lim. Used with permission.
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