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Here’s How Singaporeans Can Better Plan Their Finances When It Comes to Their Homes

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Mark Cheng

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Owning a home that you can call your own is certainly exciting, but it is also one of the biggest purchases you will probably make in your lifetime. What’s more important to bear in mind, however, is that it’s not a journey that ends the moment you get your house keys.

While there are various schemes in place that make owning a house more achievable (and a 90% home ownership rate in Singapore is no small number!), it’s also important to be aware of ways in which you can manage your finances when it comes to your home.

It doesn’t really matter whether you’re purchasing your first flat, looking to right-size your home, or upgrading your property. We look at several ways here that you can make the most of your money while still being able to afford a home to stay in.

 

1. Refinancing your home loan

Some people may not be aware that you are not wedded to the very first home loan you take, and you can actually shift to a home loan package that has a lower interest rate. This is known as refinancing, and can be very useful in helping you save on the interest you are paying on your loan.

What is important to consider is that there are fees involved (such as legal fees) when making a switch to another loan package. While banks usually offer a subsidy if your loan amount is above a certain quantum, you should ensure that the fees you are paying do not exceed how much you can save with a lower interest rate.

 

2. Cashflow Management

There are several differences between an HDB loan and a bank loan as mentioned in our previous article. One key difference is the downpayment amount of 10% and 20% of the purchase price respectively. Homebuyers are also able to utilise their CPF for the downpayment when taking up an HDB loan, as opposed to a 5% cash downpayment for bank loans.

That said, with the different loan packages available (HDB or bank loan), you may wish to consider making a cash or CPF repayment to reduce the interest payable on your remaining loan.

 

3. Upgrade your home 

There’s certainly nothing wrong with aspiring to upgrade your home, especially as your family grows and the need for more space or other amenities becomes more important.

But remember that an HDB flat is first and foremost a home. So do not upgrade with the objective of property investment, or worse, speculation in mind.  It is important not to overstretch your finances, including available CPF monies meant for your retirement, when you make your upgrading decision. Some considerations are the length of lease that you really require, the flat size that you need, and whether you prefer to stay in a mature or non-mature estate.

If you are thinking of buying another property before you sell your current home, bear in mind that you will be liable to pay the Additional Buyer’s Stamp Duty (ABSD)of 7% (for Singaporeans) and 10% (for Singaporean Permanent Residents) of the market value of the property, if you are buying a second property.

If you are looking at a new flat, there are also available grants and priority schemes even for second-timer applicants, such as the Step-Up CPF Housing Grant of $15,000 for eligible households upgrading from a 2-room to a 3-room flat in the non-mature estates, and the Assistance Scheme for Second Timers (ASSIST), where a certain quota of 2-room Flexi and 3-room flats in non-mature estates are set aside for eligible divorced or widowed persons with young children.

In addition, should you move to another HDB resale flat to live with or near your parents for mutual care and support, within a 4 km radius, you will be eligible for the PHG of $20,000 and $30,000 respectively. You can get the lowdown on how to maximize your CPF Housing Grants in our simple summary here.

 

4. Right-sizing your home 

Right-sizing is another way that can help you to manage your finances better. For families whose kids might have moved out after marriage, are overseas to study/work, or for those planning for retirement, right-sizing is a great way to reduce your mortgage loan and free up some cash for other important things in life.

Many people might not want to give up the space that they are used to, but with fewer people in the house, it doesn’t make sense to be paying for utilities for a bigger place when that space isn’t needed. Shifting to a home that is of a more suitable size might also come with other peripheral benefits, such as less housework and the choice of a better location!

Furthermore, seniors may receive a cash bonus of up to $20,000 when you right-size to a 3-room or smaller flat with the Silver Housing Bonus. If seniors prefer to age-in-place in your own flat instead, you may also receive a cash bonus of up to $20,000 with the Lease Buyback Scheme. You can find out more about the various monetisation options here. In our next article, we will also be elaborating more on the various monetisation options, so keep a look out for it!

 

Conclusion

Regardless of whether you plan to stay in your home for a long period of time or move out after a short period of time, it’s still important to manage your finances in such a way that you are also able to live the life you desire.

While buying and financing your own place might seem like a huge undertaking, understanding the different ways in which you can budget for it will make the journey a lot easier. Being aware of the grants and schemes available will also help you to get a better sense of what you can afford and how you can ultimately have a place to call your own.

 

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Mark Cheng

I rant and rave a lot, but when I'm not busy doing that, I'm managing the content for MoneySmart. I love Singapore, but I also believe in helping it to improve bit by bit, and that's where MoneySmart comes in. Have some thoughts? Drop me an email at [email protected]