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Why You Should Not Overspend On Your First HDB Flat

Don’t let your housing decision affect your retirement plans.

The purchase of your first HDB flat is an important life decision. Not only does it determine where your family would be living in, it may also decide when you are able to retire.

Paying Less Vs Paying More…

Using the price found in the most recent HDB November launch, we see that at Punngol, the cheapest 4-room unit (93 sqm) is selling for $277,000. Within the same estate of Punngol, the most expensive 5-room unit (112 sqm) sells for $489,000.

If we assume that a couple earns $6,000 per month, they will qualify for the Special CPF Housing Grant (SHG) if they buy the 4-room unit. This grant is given to first-time homebuyers who are getting a 4-room flat or smaller in a non-mature estate.

The exact amount is dependent on the combined salary of the couple. At $6,000 per month, the couple would receive a $30,000 grant. This translates to being able to get the cheapest 4-room flat at a price of $247,000.

Read Also: 3 Things To Know Before You Apply For The November BTO Launch

Two possible scenarios we will compare on.

Scenario A: Purchase 4-room flat at $247,000

Scenario B: Purchase 5-room flat at $489,000

Actual availability of these flats will of course depend on the ballot number you get. For illustration purpose, let’s just assume this isn’t a factor. We will assume that the homeowners take an 80% housing loan from HDB for 20 years at 2.6% per cent per annum interest.

Scenario A:

Purchase Price $247,000
Housing Loan (80%) $197,600
Monthly Repayment
(Based on 20-year loan at 2.6% per annum)
Total Interest Paid $56,080


The couple will have a monthly home mortgage repayment of $1,057. If they earn a combined salary of $6,000 per month, their monthly CPFOA contribution of $1,380 would be sufficient to completely cover the monthly repayment.

Scenario B:

Purchase Price $489,000
Housing Loan (80%) $391,200
Monthly Repayment
(Based on 20-year loan at 2.6% per annum)
Total Interest Paid $110,880


The couple will pay the full price of $489,000 for the flat without any further grant subsidy given by the government.

In addition to that, their monthly home mortgage repayment would be $2,092. After utilising their CPFOA, they will still need to top-up $712 in cash each month.

Some Insights To Note

Let’s compare the figures.

Scenario A Scenario B Differences
Purchase Price $247,000 $489,000 $242,000
Housing Loan (80%) $197,600 $391,200 $193,600
Monthly Repayment
(Based on 20-year loan at 2.6% per annum)
$1,057 $2,092 $1,035
Total Interest Paid $56,080 $110,880 $54,800


In scenario A, the couple pays $1,035 lesser each month. The couple can commit the funds into an investment plan. Assuming a return of 4% per annum, the couple would accumulate $379,612 by the end of 20 years.

Let’s not forget that in scenario A, the couple also pays lesser in the initial down payment. This difference in down payment is $48,400.

Even if we simply assume this difference was left in the CPFOA to earn the interest rate of 2.5% (which by the way is a silly idea because you can transfer it to your Special Account to earn higher interest if you know you are not going to use the money), this difference becomes $79,309 after 20 years.

In total, we are looking at an extra $458,921 in 20 years just by getting a more affordable flat.

We are not even considering other intangible factors such as having a lighter debt burden, which would help reduce financial stress during these 20 years.

Read Also: Why Is CPF (And The Interest Accrual) Important For Our Retirement?

Make A Wise Choice Today

Our comparisons today is not about how you should forgo the condo lifestyle and live frugally in a small flat for the rest of your life. It is also not about asking you to give up living in Toa Payoh in favour of some other underdeveloped place in Singapore. Our comparison is made between 4-room and 5-room flat in a similar estate.

Rather than to blindly follow the Singapore BTO buying norm that a lot of young people are guilty of (which is to get the biggest unit at the highest possible level thinking it would fetch the most upside during future sales), think logically about your finances and what you can comfortably afford without compromising on other important areas such as your retirement plan.

Buying a flat could be the largest financial commitment you ever made. So remember to make a wise, educated decision.

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