Why buy a home early?
Jan 7, 2023
By   Internet
  • Guide
  • Real estate
  • buying a house
  • mortgage
Abstract: When it comes to investing, saving and education, the general rule of thumb is to start as early as possible, and this is also true for buying a home in Singapore.

Less burden of being young


Just like putting your own money into stocks, bonds and cash, you must first figure out where to put your personal money to get the best return on your personal investment portfolio. Unless you have plenty of money or are only interested in high-risk products.


More critically, as you and your loved ones age, you will have less flexibility to spend your money freely.


Personal responsibilities - such as parenting, caring for elderly parents and accumulating a retirement fund - will certainly test your ability to juggle paying bills and saving adequately for later life stages.


In other words, if you're single, don't need to care for any young or elderly relatives, or don't currently have any other major life commitments, then now is the best time to buy a home because dealing with mortgage payments will be more daunting in the near future.


Access to larger mortgage amounts and higher leverage


Yes, there are real risks to consider when taking on a larger loan amount. First, you will be carrying more debt, which will translate into higher monthly payments.


Second, if the cost of borrowing (i.e., the interest rate charged on the mortgage) is higher than the rate of appreciation or the profit made from the sale of your home, you will end up with a net loss on your investment.


However, with proper financial planning, leverage can be a wealth creation tool that allows borrowers to purchase excellent properties with good growth prospects - properties they would not be able to afford without sufficient capital.


Going back to the point above, as a younger buyer with fewer financial obligations, you are more likely to be able to obtain a larger loan amount and potentially achieve access to a loan to purchase a high-end home.


This is due to the workings of the Total Debt Service Ratio (also known as TDSR). As a way of "ensuring prudent borrowing" in Singapore, TDSR limits a borrower's total debt to 55% of his or her gross monthly income.


This total includes not only home loan arrears, but also credit card debts, car loans and other forms of cash advances.


So if you want to take out a loan to purchase a higher value property, it is best to do so when you are young and relatively debt-free.


More time to pay off your home loan


Another significant advantage of buying young is that you will have more time to pay off your home mortgage.


While the Monetary Authority of Singapore (MAS) sets the maximum loan term for home loans for HDB and non-HDB properties at 30 and 35 years respectively, this limit may be lower if you are an older home buyer as most home banks offer loans with an age limit of 65 years for salaried individuals.


Likewise, shorter loan terms can result in higher monthly mortgage payments - in other words, this is where you can avoid high monthly payments by buying a home sooner.