Anonymous
How much should I stretch myself on the mortgage when I am buying a new launch condo?
I am in my late 20s and looking to buy a new condominium launch. I know I can comfortably afford a 2 bedroom apartment with my partner, but I am thinking if we should stretch ourselves and get a 3 bedroom apartment so that it is easier to live with together and possibly a newborn in the future when the condo is built.
To get the 3 bedroom, I expect my partner and I to both fork out about 50% of our take home salary on top of cpf oa contributions to the mortgage if I assume a 5% interest rate.
Is that unwise to do stretch ourselves that way? Resale is an option, but we personally prefer new launches.
If the property prices increase a lot, and we really think we cannot afford the mortgage, we are happy to sell it after MOP.
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Why are u so sure it will inrease after MOP? What happen if u cannot afford and it's still within MOP period?
What is this house to u? Why do u want to get a 2 bedroom apartment if u want a newborn in the future? Is resale not an option?
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I was considering this recently and this is how I assessed it. I was looking at The Botany (Dairy Farm).
1) Calculate the breakeven price appreciation rate - the rate at which the condo needs to appreciate in order to breakeven, given assumptions of flat interest rate (I set it at 4%) and the standard progressive payment loan scheme (since this means you don't borrow the full loan amount right at the start). The breakeven rate stood at about 2.5% if you sell after 5 years and more.
2) Look at the surrounding developments and see their price appreciation trajectory - there's gonna be much variance about this so a bit of discretion is needed, I arrived at a "fair" rate of about 2.8%.
3) Determine the fair value of your new launch by looking at latest average prices of surrounding condos - was around 1200-1700 psf. Since this is a new launch, it should be around 1800 psf or more.
So I concluded by setting my fair price at around 1800 psf, giving myself some buffer since (a) I feel rate hikes have yet to bite property prices, and (b) need more buffer for capital appreciation for such a large investment.
On launch day, it was 1900-2000+ psf, so the answer is clearly no. 1800 psf is breakeven (means I don't earn anything), so 1900 is in "probable loss territory".
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OK, I see a lot of people talking about your 50% of the salary to pay your mortgage. Indeed 50% is really high. I remember the bank had a method of calculating the repayment amount, it's not as much as you wanted to pay each month, but a cap according to MAS. You better check with banks first.
As for the remaining 50% enough to live on? First, it makes a big difference if you have children or not. All I can say is that when I was a student, I lived on $400 a month and was very happy.
But you ask me to use 50% of my income to pay the instalment. Absolutely can't take it.
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First of all. The increase in value of a new launch in the short term will hardly cover your initial...
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IMO definitly not wise. Do not underestimate the cost of having a child. Always go for what you can afford when your young, and upgrade when you can afford to. Why the rush to go all in?