In these uncertain times, it’s even more apparent that prudence needs to be exercised when it comes to making big purchases, like your first home. With the measures put in place due to the current situation, you might have been affected. But you can make use of this time to be even more prepared to be a homeowner.
It’s easy to get carried away when you’re excited about your first home. Here are 3 things to take note of, so you can stay grounded when it comes to the expenses.
Find your perfect fit – HDB or Bank Loan
It’s possibly the biggest purchase of your life, where you’ll spend the next few decades paying it off – so you have to make sure your decisions add up. You may know about the technical differences between the loans, but here’s a look at what those differences may mean to you.
You’ll be emptying your CPF Ordinary Account (OA) before you take your loan, but don’t make the mistake of emptying your savings account too, especially when life can throw you a curveball.
In the current climate, a HDB loan is more lenient on your savings, allowing you to borrow up to 90% of your property price. On the other hand, banks will only loan you up to 75% of your property price, and 5% of the downpayment has to be paid in cash. So even if you have that 5% in your savings account, you may want to hold on to that liquidity until you’ve saved even more or when things are more certain.
If you’re having to pay cash on your monthly loan payments, you might want to consider a bank loan. They usually start with lower interest rates, but based on market forces, they may surpass HDB’s higher but fixed interest rate. However, you’re able to refinance your housing loan with a different bank, which can help you to save a pretty penny on interest.
With the current crisis, HDB and banks have relief measures in place such as extending your repayment period and deferring your monthly payments, all to help tide you through. Under normal circumstances though, banks will charge $50 per late repayment and would repossess your flat when you default on too many payments, whereas HDB charges 7.5% late fee per year.
Once the economy recovers, and should you strike gold with investments or a well-paying job and would like to pay off even more of your loan than agreed upon, HDB would not penalise you, unlike banks. So if you’re looking to pay off your flat as soon as possible, a HDB loan gives you the painless flexibility to.
Keep your eyes open for hidden renovation costs
The quote provided by your contractor or interior designer may not be all inclusive. This means you might go over budget because you end up paying a lot more due to items that were added later on.
Some things you should look out for in your quote:
- Electrical costs
- Dismantling and haulage fees
- Floor protection fees
- General cleaning fees after renovation
If you don’t see any of these in your initial quote, ask about them and make sure you’re not over budget!
Budget for additional fees and charges
Stamp duty, property tax, Service and Conservancy Charges (S&CC) – these are additional items that might make a significant dent in your savings if you’re not aware of them. For example, you could potentially be draining your savings account of a five-figure amount if you have insufficient funds in your CPF OA for stamp duty deduction.
The government issued property tax relief for Budget 2020 does not cover residential property tax – here’s a calculator to check how much your property tax is and be prepared for it. Similarly, check your Town Council page to find out exactly how much your monthly S&CC is.