Committing to stupendous long term mortgage is becoming a norm in Singapore. From the outset, Singapore has one of the highest rates of home ownership in the world so it is not exactly surprising that a higher proportion of young and married couples are slapped with mortgage loans. For many of us, mortgage is probably the single largest debt that we will take up during our lifetime. The size of mortgage differs, depending if you go for a HDB unit (subsidized goverment flats) or private developments that can go up to an average price of $800 k – $1.2 mil ( USD 570k – USD 860k). Unless you have a huge inheritance, or managed to sell your start-up to a listed company, it is highly likely that you will need to obtain a mortgage loan. Most of these loans stretched for 30 years at $2500 – $3700 (USD1800 – USD2700) monthly (assuming they only took 80% loan with 20% deposit under current interest rate environment in Singapore.)
Can you imagine paying that monthly installment for the next 30 years? Depending on the interest rate, you might even have to fork out even more if you opted for a floating rate loan. In a nutshell, you most probably have to work through your 50s – 60s in order to fully repay this loan. We have not even discussed any other possible financial commitments you might have (which will most definitely exist for most of us).
Mortgage payment primarily financed through our salaries will mean that we will need to keep working to generate this source of income (unless you have strike lottery or have a windfall). As such, most of us are at the mercy of our jobs and it is understandably why many Singapore workers are so stressed up.
For many individuals (or even family units), financial planning is based on the sole income source (which is mainly your day job). Kudos to you if you have a side hustle to generate some extra income or an investment portfolio to generate passive income. A more experienced ex-colleague once told me not to worry too much on the mortgage, as salaries will rise over time and there will also be bonus payouts. But with salaries rising at an average 2-3%, its not even sufficient to cover our rate of inflation. Thus, trying to pay off your loan early will be near impossible with large mortgages.
A huge mortgage loan limits your choices in life and brings you unnecessary stress once you are burden with it. When we first started planning to purchase a new house, we went through our finances and figured out that we should plan the monthly mortgage payment according to our own comfort level. We should be comfortable paying the monthly installment with just one salary to ensure continuity of these payments should one of us lose our job. Eventually, we choose something manageable and purchase our simple yet dream minimalist home.
We are targeting to pay off our mortgage in 5 years’ time so that we could have the flexibility to choose what we want to do after the mortgage is cleared off which includes taking a 6 month sabbatical to travel with Ally. Kate and I always believe that life is about choices and not following the majority. So do not feel trap by this social pressure about having a bigger house. Since we have only this lifetime, make good use of it.