Wednesday, May 12, 2010

Mortgage on your home

This article explains how to pay off your mortage early. - but after you have built up an emergency fund and have set aside money for your children's education.

My comment
It is more important to avoid getting a large mortgage in the first place. You should buy a property within 5 years of your annual income, and pay it within 25 years with a monthly repayment of less than 25% of your income. This is explained in my book on financial planning.


Anonymous said...

It is quite impossible to buy a house based on 5 years income. if the household income is $70K a year after CPF deduction, there are very few housing choices below $350k.

It may be a stretch, but assuming the working lifespan is 25 years, the guideline of affordable housing should be 10 year's annual income (excluding the 35% CPF component), or 7 year's annual income (including the 35% CPF component). This assumption assumes that house is an appreciating asset in the long-run.

The guideline for an affordable car is 1 year's annual income.

Let's not be carried away by MIW's idea of working till 62 years old and beyond. There is so much competition, and stress, wear and tear, that by 60 years old, our physical and mental agility is only 66% that of a 40 years old. Many of my friends above 50 years old are already on long-term medication. We can only hope for the simpler part-time jobs after 60 years old, or no job at all. PC

retired at 52 said...

There are possible jobs/work for people beyond 50 years old.
The Gov may encourage you and I to work longer.. that is logical and not an issue.

The stumbling block here is in the business world, the employers. people who are above 50+ could offer part time consultancy, project management or project work on a free lance basis. It just needs an impetus.

Many companies do not calculate the cost of engaging part time professional work. They think there is lack on confidentiality or fear high costs. This is just a perception. They prefer to have their current managers go through the process.. then retire them.

On the issue of housing loans.
I bought my HDB executive flat in 1989 for $150,000. My salary then was $2000 along with my wife who earned about the same. Since I started work earlier, my CPF had more money and I used up all to pay.

I told my wife that I worry about not being able to pay: what if I lost my job? I if I became disabled?

The guidelines offered here is 5 years of annual income. That makes sense if you take my income earned in the year 1989.( 12 X 2000 = 24K
X 5 = 120,000 )

I am not sure about the current salaries of an "average" worker here, now.

One thing for sure: please buy only what you can afford and not be jealous of what others are doing like buying Audi cars or brand new homes at keppel bay.

I guarantee you will have a easier and happier life.. and in time to come, you too will move into newer and branded homes. Be patient. Wealth does not come overnight nor does it come in 5 years.. I have just built enough assets after 35 years.. and I am already 54 years old, jobless,car-less but satisfied, contended, and have sufficient to eat and travel.. with 2 kids ( 20 + 17 ). Should I wish for more?

perhaps. more rebates to stretch my retirement funds!

Anonymous said...

5 years of annual income -- this is household gross income i.e. include all full-time working adults and include employee CPF contribution.

If you cannot find flat within 5 yrs annual income, better to defer until next property downturn. E.g. My wife & I waited until SARS 2003 to buy a central point-block Toa Payoh flat for a price just equivalent to 4 yrs annual income. For the first 3+ yrs of marriage, we stayed with my parents.

Regarding the target when to pay off the mortgage, I would add that it should also be before you hit 50-yr-old. Best if by 45-yr-old.
In Singapore current situation, expecting continuous good-paying career into your late 40s and 50s is a luxury, unless you're a high-flyer or a high-demand professional like doctor or lawyer.

Anonymous said...

High flyers, doctors etc.. most will need to pay back education debt of over 150K.. on their income, it mght take 3 years or more. Thats because they will be buying big ticket items like a Audi or a Mercz to portray the image of " I've arrived"

They may also want freedom of being single, to concentrate on their careers. Then the meet an insurance agent...

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