By now, you would have known that interest rates have gone by almost 200% over the past year.
You could get fixed-term interest rates for 5 years at 1.15% a year ago. Today fixed rates package for 3 years can be as high as 3.08%. While this increase may look high, how much would it affect your housing loan repayment?
How much more do I have to pay?
We assess the impact of a rise in interest rates using a base rate of 1.5% vs 3.5% in the future. The amount used will be based on a 1 million dollar loan. We will calculate loan repayment over 10,20 and 30 years to cater for different age groups
As you can see, a 2% increase in interest rates can lead to a whopping $374,128 additional interest for a million dollars loan spanning over 30 years. This would severely impact the property's profitability, especially if you intend to hold it for a longer period.
As interest rates are expected to rise further, it may be prudent to do your sums before making a large long-term commitment. There are still ways to mitigate the rise, and if you are looking at short-term investments in property, it may still be worth the purchase. To find out more, book a complimentary consultation session with us here.
Affordability vs Actual loan amount
Many calculators will help you gauge the maximum amount of loan you can take, which also helps you gauge the maximum amount you can afford for a property.
However, note that the affordability calculator does not represent the final loan you can take or the amount that may be suitable for you.
Other factors to note would be the amount of cash or CPF you have in hand. Do note the following for home purchase.
First 5% - Cash Only
Stamp Duty - Payable by cash or CPF. If you are selling a property and waiting for CPF proceeds, you would need to pay cash first and be reimbursed later if the proceeds cannot come in time for the payment of Stamp Duty (within 2 weeks of exercise option)
Next 20% - Cash or CPF
To round up the numbers, you need to have about 29% in cash/CPF before making a purchase. If you intend to purchase a second property, there are additional Additional Buyers Stamp Duty (ABSD) starting from 17%.
What to do next?
With rising interest rates, it is best to seek a realtor's and a banker's advice before proceeding with your purchase. For any home purchase, we advise clients to get an Approval in Principle (AIP) before proceeding with the purchase.
At SG Home Collection, we have a panel of bankers that we can link you up with for your AIP. With the rise in interest rates, it is best to be prepared for the worst-case scenario before deciding to purchase a property. Contact us directly at wa.me/+6596950900 for a complimentary discussion on your property finances.