Saturday, October 10, 2009

How to choose a house? Part 4

The fourth consideration is cost. Most people will need to take loan especially in Singapore. First thing you must know is how much loan you need to take after buying a house. The more loans you take, the more you need to pay for interest and monthly payment. Do not buy a house that is overpriced and ended up yourself become a slave for your house. Remember what I mentioned in my last post on assets and liabilities? The price that you paid for your house will determine whether your house can be an asset or not. My advice is to limit the monthly payment to 20% of the total household income. Example if your household income is $4000, the maximum monthly payment is $800. If the monthly payment is more than $800, you might want to think twice before you make your purchase.

Second thing you must know is how much is the interest for the loan. Currently, HDB loan is fixed at 2.6%. For bank loan, the interest rate will vary from time to times. My suggestion is to take HDB loan if you are eligible. The reason is 2.6% is considered low and your monthly instalment will be fixed. If you take bank loan, it will be very hard for you to calculate the exact monthly instalment.

I have put a loan calculator on the right side of my blog. You may want to use it to check how much monthly instalment you need to pay given a total loan sum and interest rate. Of course use it at your own risk as I cannot guarantee the calculator is 100% error free every day.

1 comment:

Eric See said...

Your monthly instalment should not be above 35% of your family income. A $1 million property loan should be back up be a $12,000 family income.

Look for value not cost.

Have you started your journey towards financial freedom?