Something that foreigners would most likely describe as truly distinctive about Singapore is its impressive public housing system, characterised by the omnipresent building constructed by the Housing Development Board and fondly referred to by the locals as “HDB flats.” These high-rise apartments are ubiquitous across the city-state and are the veritable default dwellings for a vast majority of Singaporeans. At present, there are more than a million flats located in 24 towns and three estates that house more than 80 per cent of the total population.
As mentioned, “HDB” stands for the name of the government agency in charge of providing Singaporeans primary but quality and affordable housing. Its predecessor was the Singapore Improvement Trust, which laid the foundation of public housing with more than 20,000 flats built from 1947 to 1959. Expectedly, this was not sufficient to meet the burgeoning population of Singapore residents, which was estimated at 1.6 million at that time. Some were already resorting to squatting and living in slums.
In order to remedy this, the HBD was formed in 1960 and immediately dealt with the situation by creating more than 3,000 flats in its first three years of operation alone. The dwellings were simple but provided decent shelter and all the basic necessities such as clean water and sanitation. By 1964, a more systematic method of homeownership for Singaporeans was put in place with the Home Ownership for the People Scheme, along with the provision for use of their Central Provident Fund (CPF) in amortising these dwellings, which took effect by 1968.
Through the decades, this homeownership scheme has proven successful and has resulted not only in meeting the Singaporeans’ basic human need for shelter but in improving their quality of life, leading to a more prosperous society, economy, and nation. Today, it is estimated that as much as 90 per cent of HBD dwellers own their homes.
However, this does not mean that owning an HBD flat does not come with struggles. Consider that the average price of a four-bedroom unit is pegged at SGD 430,000. With a bank loan that covers a maximum 75 per cent of equity payable over a maximum of 25 years, a homeowner owes SGD 322,500. This comes to around SGD 1,400 in monthly payments, which most ordinary Singaporeans may have difficulty meeting.
Understandably, this is a cause of stress and concern for the working commonfolk. If you are one of those homeowners who are fretting over looming due dates and finding difficulty making ends meet, there are concrete ways that you can manage home mortgage payments. Here are some tips and hacks that might help you:
Use your CPF
As mentioned, you can pay for monthly amortisations on your property using your CPF Ordinary Account (CPF OA). Keep in mind though that there is a limit to the amount you can withdraw from your CPF. This is 120 per cent of the valuation limit (VL) of the property, with VL being the lower of the price or value of the property. Thus, there might be a balance that you need to cover with cash. Using your CPF is a relief but you need to manage your finances carefully as this fund is meant for your retirement down the road, after all. It is best to seek help from a financial adviser on how to adjust CPF payment for housing loan.
Seek Refinancing or Extend Your Loan Term
Shop around for lower rates among other creditors and take advantage of a restructuring of your loan. It may not seem as much but if you compute it, an interest rate that is lower by even just 1 per cent makes a huge difference in the total savings you can pocket in terms of payments. The restructuring may also mean extending your loan term to make your monthly repayments more affordable. While this will accrue higher total interest payments in the long run, this may provide immediate relief if you are finding it difficult to meet monthly amortisations.
Plunk in Cash
If you have cash resources to spare, consider lowering your monthly repayments by paying off a chunk of the principal amount. You can also bring in a co-borrower who is more liquid and willing to share in your debt. Obviously, this person should be someone trustworthy and easy to deal with such as a loved one, because this means they will become a co-owner to the property as well. Another possible source of income that can offset your monthly amortisation is a tenant. It may be a difficult arrangement though and there are a number of regulations you need to observe in doing such, most important of which is that you need to have a minimum occupancy period of five years before you can let out a room.
Go for a Lower Mortgage Servicing Ratio
HDB sets a Mortgage Servicing Ratio (MSR) ceiling of 35 per cent of a borrowers’ monthly household income to prevent Singaporeans from taking out loans that would require them to make repayments that far exceed what they can comfortably afford. When someone is taking out a loan for a private property, however, the Total Debt Servicing Ratio (TDSR) becomes the basis for the maximum allowable percentage of gross income instead, going as high as 60 per cent of the borrower’s monthly income.
It isn’t wise to max out your MSR, and certainly not if you’re working with a loan that is subject to TDSR. If you do, there’s a very high chance that you won’t be able to afford much of anything else. It is highly recommended that you work with an MSR or TDSR that is lower than 35 per cent. This way, you’ll still be able to afford your daily needs, save money, and acquire investments.
There’s a reason why owning a home of your own is considered one of the biggest tests of “adulting.” It takes commitment, discipline and prudence in your finances to make it through your housing loan. It might help the most to keep you on track if you remind yourself often of the ultimate goal of enjoying your very own home in your retirement years.