How To Calculate Mortgage Affordability in 2020!
Before buying a property, it is important to budget
This sharing will shed light on how mortgage affordability is calculated for you in 2020!
I help private clients on mortgage insurance and mortgage planning and if you've questions, I'd leave my contacts below if I can be of help/
I once calculated on OWNING A $5M property in Singapore...
This was a peculiar blog because I preach financial prudence.
Often it is about budgeting and living within financial means.
The post HOW TO OWN A $5M property was first created on Oct2018 but it was to STRETCH THE IMAGINATION!
Basically, with a $24,000/m combined income, you'd STILL NEED $2.5m in capital for the purchase!
Super BIG AMOUNTS! Maybe a TOTO win is needed on top of above average income.
An alternative to buy a $5m property is HIGH INCOME OF $30,000/m income with $1.5m in capital.
Think this is a more common permutation.
Nonetheless, it is still minimum amounts and in Singapore, there are many buying a $5m property.
# The above calculator factors in stamp duties also but is not available online now.
Disclaimer: Above calculations are done on a personal opinion basis. Please speak to a qualified mortgage specialist for your own assessment before making any decisions.
How to calculate your mortgage affordability
There are 2 constraining factors
1) Your capital.
You need to make downpayment for flat.
LTV (loan to value) is 75% now in year 2020 which means 25% downpayment (of which 5% minimum in cash).
You'd also need to factor in stamp duties (or ABSD if it is second property).
2) Your income
It will determine how much loan you can get based on TDSR (total debt servicing ratio).
Quick tip: For $12,500/m income (age 40 and before), around $1.5m can be loaned.
Note: A quick tip is to clear off all car loans and credit card loans.
There's a shortcut which is to use the Propertyguru's new calculator.
This could save you mistakes and helps you get a rough sensing before going to do your "In-principle approval" with the bank.
Case study of buying a $2m property
If you are aged40, below is a permutation done that suits your circumstance.
To own a $2m property, $500,000 needs to be made for deposit (25% of $2m).
You'd need to add in stamp duty of around $54,600.
Hence, excluding other costs, a capital of $554,600 must be ready for a $2m home.
Next, a combined fixed income of $12,500 is needed (Assuming no existing loan is held)
Private properties/condos do not have MSR (Mortgage servicing ratio) as a constrain which makes borrowing even easier.
You'd realise that many couples who sell their HDB off can fit this permutation!
Disclaimer: Above calculations are done on a personal opinion basis. Please speak to a qualified mortgage specialist for your own assessment before making any decisions.
But should you sell your HDB and Buy 2 private condos?
For couples, you and your spouse can buy one $1m condo each, instead of a $2m condo.
The above suggestion is still possible if fixed income is $6,250/m each.
However, it is dangerous levels of mortgage leveraging and I've this video for you to explain why you need to think twice before embarking on such a choice.
Mortgage insurance and conclusion
If you take on mortgage, always have insurance to cover the loan.
We compare term insurance for private clients and help in planning to insure the liability effective.
Check on the link above!
Hope this sharing helps you understand how to budget for your mortgage effectively.
Share with anyone who needs it too! =)
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Last updated on January 13th, 2020 at 10:03 pm
