Already 5 years into the workforce. What have I built?

It was a sudden awakening - I've already worked for more than 5 years.

But what have I achieved?

I stepped into the rat race as a noob (nobody uses this word now, I admit I'm old), being tekan by unhelpful "seniors" who thankfully left after 1+ year of torture and earning lesser than my peers, to slowly building up my confidence, emerging stronger and being more courageous to say "No", proving myself along the way and getting rewarded with better bonuses and increments.

I know I'm working just for the money (and the medical benefits that comes with it).

If I look at the money, so far, I should be doing it right in my career. I've decent bonuses and decent increments. I'm in a general profession, but I'm doing pretty ok.

So what has my 5 years of work got me?

Money. 

Through employment, coupled with my thrifty habits, I managed to hit $100k savings at 25 years old. And it took me another 2-3 years to get another  $100k at 28.

But, along with it,…
6 comments

The $10 bet


Having dated my partner for 4 years and knowing that he's the one I want to spend the rest of my life with, the natural step is to purchase a flat together.

I thought purchasing a flat was going to be easy and smooth - apply and you'll get it. Haha, I probably thought I was very lucky. But I was so wrong. It's all about the timing and luck - whether there are estates you like and whether you'll get a unit based on your ballot number. I've applied for 2 rounds of BTO since 2015 but were unsuccessful because they were mature estates.

Location is very important to me. So does the thousands who think so. Honestly, getting a flat now would feel like striking lottery. And, I've only won $10 from TOTO once.


So in the latest round of BTO/SOBF, I've made my 3rd try and submitted my $10 bet. It's a gamble, isn't it? This time, I've applied for a SOBF near my estate. The units that I want are less than 15, and my area is HOT, but I hope that I'll have a higher chance considering that I am eligible for MCPS? *prays hard*

Downside is the cost of my SOBF purchase. The 4-room flat costs an average of $570,000...for a 83-87 sqm! It's insane! As Graduates, I consider my bf and I to be of medium-income earners. Since we're still young, we will likely have room for higher salaries provided we continue to perform well and continue working (and stay healthy).

I've henceforth came out with a table to estimate the minimum combined income we should have if we do not wish to have a hard time paying off our loans.

Assuming my flat is $609,900, and the loan interest rates remains at 2.6%, a 25 year loan and a 20 year loan would mean we should have at least a combined income of $8,300 and $9,800. I hope we'll be able to have such combined incomes within 5 years' time BUT as my SOBF are ready to move in, it means I might have a really hard time paying my loans now.

Also, regarding the downpayment of $60k, our combined CPF are nearing this but upon paying the downpayment, it will be wiped out.

My consolation is that I've at least 6 mths worth of savings but then again, this will have to be used for renovation, furniture and whats not lol  My savings will have to go towards the highlighted...?

Assumptions (ref to HDB web)

Home price

$609,900

Down payment (10%), includes option fee of $2k, excludes stamp duties (still blur about this)

  • CPF and/ or cash 
  • You can use your CPF Ordinary Account (OA) savings to make the downpayment in full. 
  • If the CPF OA amount is insufficient, the balance is to be paid in cash.

$60,990

HDB loan required (90%)

  • Loan ceiling is 80% of home price i.e $487,920
  • That means I will need to pay $60,990 in cash? :O

$548,910

Interest rate p.a

2.60%

Tenure (years)

25

Monthly mortgage repayment

2,490

Minimum combined income (if monthly loan is 30% of income)

8300


Assumptions

Home price

$609,900

Down payment (10%), includes option fee of $2k

$60,990

HDB loan required (90%)

  • Loan ceiling is 60% of home price

$548,910

Interest rate p.a

2.60%

Tenure (years)

20

Monthly mortgage repayment

2,936

Minimum combined income (if monthly loan is 30% of income)

9786


While researching online, there were contentions on whether we should pay off our HDB loans ASAP or to max out the 25 years. I haven't grasp this yet, cause it seems confusing for me. Would welcome all the korkors jiejies uncles aunties' advice on housing loans and matters on 1st flat purchases :)

Argh, being an adult is so stressful. I wonder how my parents managed to handle so many things when they were my age. Now I appreciate what my parents did so much more, and I'm sure I will feel more when I become a parent myself!

Comments

  1. Derek Lim1 June 2016 at 07:20

    Hi Cherry,

    Have you applied for the HDB Loan Eligibility (HLE)? It will give a more accurate assessment on how much HDB loan you can get. It will also show you your monthly instalment based on different loan tenure.

    I also took part in HDB May launch. Wishing the both of us luck.

    ReplyDelete
    Replies
    1. Cherry1 June 2016 at 20:04

      Hi, I did. Awaiting their reply on my loan :) Good luck to you! Did you apply for BTO or SOBF?

      Delete
    2. Derek Lim1 June 2016 at 22:57

      I applied for SOBF in Dec but failed. Now trying for BTO.

      Delete
  2. ruby1 June 2016 at 12:29

    It depend which instalment amount you are more comfortable. It is ok to take the 25 years loan as you can pay off a lump sum later on to shorten your tenure. Check the HDB for more info or you can always email them.

    ReplyDelete
  3. senorita1 June 2016 at 13:03

    Did your bf propose to u first? :D You will understand after reading my article on my BTO experience.

    Honestly, there is no "right" answer between getting a HDB loan and paying off the property with cash, if you are in the fortunate position of being able to choose.

    Heartland Girl and I have already decided on taking the maximum loan allowable, and thus transferred all our surplus $ in the OA to SA. We intend to pay off our monthly mortgage using $ credited into our CPF OA, assuming we are still gainfully employed then. In this scenario, the interest cost is 2.6% compared to 4% guaranteed interest rate in the SA.We have already transferred the $ right after we made the downpayment, so our $ in the SA is already working harder compared to being in the OA, furthermore with the extra 1% awarded to the first $60K of your combined balances in the CPF. Of course, the drawback is that $ in the SA will be "stuck" till age 55.

    The other side of the coin is that some people are just uncomfortable with loans. So being able to sleep soundly at night is something that you cant put a price on. So at the end of the day, it boils down to the risk appetite of the couple.

    Best of luck,
    Heartlandboy

    ReplyDelete
    Replies
    1. Cherry1 June 2016 at 20:07

      Hello! HAHAHA he proposed, but...it was kinda fail ANYWAY....thanks for your sharing and advice! :)

      Delete
  4. Stoical Keynes1 June 2016 at 15:59

    Hi Cherry,

    All the best and hope you get all the luck you need!

    If you are worried before you even start servicing the loan, you should really max it out first. If your incomes increase and you would like to speed things up, that's always possible. If you want to do the reverse, there would be many conditions you might have to fulfil.

    For a SOBF, make sure you can get the loan that you need, since you could be receiving your keys within a year.

    ReplyDelete
    Replies
    1. Cherry1 June 2016 at 20:12

      Hi!! yes, currently waiting for the HLE letter to come to see how much loan we're eligible for. A bit apprehensive about whether my partner and I can afford the flat, if we get it, as we'll have to start paying the monthly instalments using our CPF which we've only accumulated for less than 3 years...

      Delete
  5. Bigcatblue1 June 2016 at 17:43

    Hello Cherry,

    Here is what I would do. I want flexibility.

    1. I would take the maximum tenure possible. I can do a partial loan repayment every year, gives me flexibility in repayment.

    2. Move 20k or so into say STI ETF or a safe investment for a while but you may not be able to implement this becuase of 60k downpayment. HDB loan will wipe out our CPF OA balance. The reasons for not using up our CPF are:

    a) The first 20k earns an interest exceeding the loan interest.
    b) I want to build an OA emergency fund in case I want to stop work for a while, the loan is still paid. I will not have mortgage pressure.

    This builds in flexibility and gives me life options. For example, take a year off to take care of a child or study?

    3. Time value of money concept. If we take a loan at 2.6% and our OA balance earns 2.5%, there is only a 0.1% cost to our loan. For example, I have mortgage of 200k now. My wife and I have 100k each. At the end of the loan, we would have only paid interest of 0.1%. Our 200k is earning 2.5% every year that "cancels" out a chuck of the 2.6% loan interest. CPF OA interest in computed monthly and given out annually. The mortgage loan is a monthly reducing balance loan.

    I found Principles of Valuation: Time Value of Money course useful. (https://www.coursera.org/learn/time-value-money). After my wife did this course, she was able to build up scenarios in Excel and compare the various repayment options.

    4. I know getting a house is a major milestone. It is worth exploring taking a smaller unit with less debt. When more financial strength, we can upgrade to another unit. Also if I have to use cash to pay a mortgage, that is an investment opportunity cost.

    ReplyDelete
    Replies
    1. Cherry1 June 2016 at 20:24

      Hi, appreciate your sharing!

      Regarding point 2, the $60k downpayment will wipe out both my partner and my CPF already. So, we will have to rebuild our OA from scratch, which again leaves us to nothing every mth because our mthly OA contribution is around $1.8-$1.9k and we will have to top up $500+ cash for monthly installments. A bit overwhelming thinking of these...will have to fret when I really get the flat

      Delete
  6. Shokus2 June 2016 at 08:16

    Hi Cherry,

    I believe I'm in a similar boat as you! Just purchased a 4rm SOBF for almost 600K, which makes monthly payments rather daunting... and the flat is smaller!

    If you take a loan from HDB, you should be able to loan up to 90% of the purchase price. If you take a bank loan, you can loan up to 80% of the purchase price. So you can keep your 60k cash for other purposes if you take up the HDB loan :)

    I am fortunate to have purchased my flat just before the new HDB measures kicked in, so I managed to secure a loan tenure of 30 years instead of 25 years.

    I would suggest maxing the loan tenure to allow yourself some flexibility - after all, if you have sufficient savings after every month, you can do partial repayments if you so wish. Moreover, the loan interest of 2.6% is really one of the lowest possible, and as you are just starting out, you might need the capital for other expenses that will come your way (wedding, renovations, children, they usually cost more than what we plan for).

    ReplyDelete
    Replies
    1. Cherry12 June 2016 at 09:24

      Huh? There's an even smaller 4 room than 83-87sqm?! OMG..

      Thanks for your sharing! :)

      Delete

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