Steadynomics 101: Housing

18 Oct 2016 


[ˈstɛdi 'nɒmɪks]   |   The state of being where you:

1.  Are attached to your money instead of parting with it frivolously.

2.  Diligently practise smart budgeting and good money habits.

3.  Earn yourself financial confidence for the future.


If you're in your late 30s and beyond, life probably looks very different for you now as compared to years ago, when you bought your first HDB flat. Today, it's no longer just about making sure you meet the housing instalments. Depending on your current lifestyle, you're likely to be juggling with the costs of raising a family, managing your other loans (e.g. car and credit cards), supporting your elderly parents and planning for your own retirement, all while also trying to ensure a quality lifestyle.


Regardless, the fact remains that your housing loans still remain a significant commitment that has the ability to impact the rest of your finances.


So if you're looking into your financial planning for the future, what's next? Should you cut corners, relook your loan terms, or figure out how you can better plan for the long-term? How will your CPF be affected by these decisions? What if you decide to downsize or upgrade your home?


If you're sweating over the details, relax. Steady your finances by arming yourself with the following pointers.


Managing your housing loan is all about planning and adjusting along the way. 

Ok, let's put things in perspective. You've already gone through the entire process of buying a home – picking a neighbourhood, balloting for a BTO or navigating your way through the resale market, figuring out your loan terms and all of that.


That took a fair amount of "steady" planning. Now, you're at a point where you can afford to relook some of those decisions you made earlier on, and adjust them according to your current financial situation.


Let's start with managing your housing loan payments. If you had previously taken a bank loan to pay for your house, now will be a good time to look ahead and check that you're on track for meeting your payments for the rest of the loan period. Take into consideration any additional expenses you're likely to incur along the way, such as the costs from raising a family or supporting aging parents, as these could impact your ability to meet your loan payments.


If you're using your CPF to finance your housing loan payments, it will be useful to check whether your CPF savings are sufficient to cover the housing loan in full. If it isn't, take some time to calculate how much additional cash you will need to set aside. The CPF Housing Limits Withdrawal calculator may come in handy to help determine when you will reach the withdrawal limits for your housing payments.


If you find yourself unable to juggle your housing loans with other commitments, consider how you can adjust your monthly housing loan instalment (interest and repayment period), as well as how you can reduce your spending elsewhere.


Bear in mind that there are long-term consequences of your current actions. Most importantly, you need to make sure that your current liabilities don't come at the expense of your future retirement savings.


Which brings us to our next point...


Balance your housing and retirement goals.  

Take a look at the 'bigger picture'. It's like a dish of chicken rice – it's not really complete unless the chicken, rice, and sauce are in perfect balance. Except in this case, we're talking about your housing plans in relation to your other commitments – in particular, your retirement.


Having a home fully paid-up by the time you retire is ideal, as that will mean that you won't have to worry about housing loan or rental payments post-retirement, when you're no longer earning a regular monthly income.


However, if you foresee spending a large chunk of your OA savings on your housing loan for the next 20 years or longer, you can consider topping up your CPF accounts with cash to build your retirement savings. This way, your housing loan payments will not come at the expense of your retirement plans.


Always be prepared, insured, and ready 

While you're focusing on the big financial decisions, don't neglect the small stuff – that's where you'll find that the little things really add up.


Firstly, ensure that you're adequately covered in terms of your housing insurance. If you're using your CPF savings to pay for your monthly instalments, you'd be required to be insured under the Home Protection Scheme (HPS), a mortgage-reducing insurance that protects you against losing your HDB flat in the event of death, terminal illness or total permanent disability. HPS insures you up to the age of 65 or until the housing loans are paid up, whichever is earlier.


HPS does not cover private properties, so if you own one, you may want to consider getting a similar mortgage-reducing insurance.


Another thing you can look into is a personal 'Housing Emergency Fund', which will come in handy for any of the following situations:


  • Replacement / Repair

Things in the house do break down, so set aside some spare cash for any repair or replacement.

  • Redesign

Especially relevant if you have growing children – at 9 and 19, they have very different needs and ideas on what their rooms should look like.


  • Renovation

It's realistic to have some funding set aside for renovation plans, even if you don't envision yourself doing it anytime soon – you never know when you will change your mind!


Where is 'home' in another 20 years' time? 

20 years is just an arbitrary number we picked out to get you to think of the future, but you get the picture. To really be steady with your finances, you should start thinking about the future, now.


Realistically speaking, you could be looking at any one of these possible scenarios within the next decade or so:

  • Upgrading your home to accommodate your growing family;

  • Right-sizing to save on housing payments once your children move out; or

  • Modifying your existing home (e.g. with renovated safety features) to accommodate your elderly parents' needs


While all of these are just mere possibilities at this stage, moving to a new home may easily turn into a reality in the near future, and prudent planning will help you be better prepared for it.


Here's a quick steady tip: bear in mind these three things before you decide to buy a new home.


Go ahead and call it 'home sweet home'!  

If you've read this far, there's good news: you're now ready to make even more "steady" decisions where your home is concerned!


With enough planning and foresight, you'll be in the best position to ensure that you'll be set for not just your housing payments, but also your retirement later on.


Look out for the next article in our Steadynomics series for more "steady" financial tips!

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