A key feature of this calculator is seeing how much your initial loan increases (e.g. 150% of its initial value) if you stretch it out over a longer period of time. For example, if you take a$800,000 loan at a 2% interest rate, paying it over…
10 years: Total sum paid is $872,182 (110%) at $7,361 monthly
20 years: Total sum paid is $956,748 (120%) at $4,047 monthly
25 years: Total sum paid is $1,000,687 (130%) at $3,391 monthly
30 years: Total sum paid is $1,045,684 (130%) at $2,957 monthly
35 years: Total sum paid is $1,091,698 (140%) at $2,650 monthly!
See how the tradeoff works? You sacrifice liquidity every month for a lower total amount. In the long term, it may look like a good idea to pay off your loan quickly, but you really have to be able to give up that amount of monthly cash. This article covers both sides of the dilemma quite well I think!
If you’d like to play with it and add your own figures, you can download the calculator here:
Looking back on your timeline, how many houses did you live in?
Most of us think of:
If you live outside of Singapore, where houses are cheaper, maybe more of a:
I base these on countries like Canada or the States, where housing is a little cheaper than Singapore. Certainly helps to widen the variety of options in one lifespan.
For the lucky bunch of us who need less variety and pretty much know what they want, the options are simpler:
In these fantasies, the first house you buy is the last house you buy.
Assuming you can confidently live by yourself/yourselves, you know what house you (and your spouse) want to live in, age in, kidz in, retire in and expire in.
If you can’t afford a loan yet, rentals might be a waste of the savings+investments you’re building to afford buying this One Home.
So in conclusion…
If you crave less variety and have researched enough to have high certainty in the house you want, save up to buy.
Of course, if you have the luxury of being in a multi-generational flat, and are comfortable living with parents, you may not have to worry about buying at all. This might seem outlandish if you subscribe to the idea of independent living, but 3Gen flats are still a thing here.
I’ve met adults with children who live in the same flat as their parents, who have no intention to move out. It’s not for everyone, and it’s not for me, but I can see how 3Gen flats are a supremely convenient, secure and frugal choice.
To some, staying in the same box for 10-20 years gnaws at the soul. Comfortable routines and neighbours may be valuable to some, but life can look short. The world, your oyster, is ever ripe for the picking (well, opening). (tasting?)
What tempers variety is children and affordability.
Children of parents who travel a lot don’t recount a great experience (Check out this Reddit and this Quora). While moving is exciting and makes your kids super-adaptors, it’s hard to build lasting relationships with friends who you’re ripped away from after years of bonding. LDRs are hard enough.
My advice to variety seekers who also want kids is to go forth and move to a new setting/view/style, but relocate near the same schools and amenities to help your children grow some deeper social roots in a community. Most friendships take years to form, developing the ability to maintain long relationships later in life. See the Reddit and Quora links above for more perspectives about this!
For readers who don’t want kids, its a lot easier to move houses frequently, as long as it makes economic sense to you. Which brings us to…
Looking long term and buying a dream home for your 60-year old self can be tough for your cash!
If you’re looking to buy, say, a landed property for your retirement higher than 1000sqft (approximately a 4-room HDB flat, or 27 king-sized mattresses), most of those will cost you upwards of $800,000 SGD.
If you took an $800,000 loan for 35 years at a fixed interest of 2.6% (rates are lower now but it’s a good average), your future selves woulda paid $1,183,692 in total – 150% more than the initial loan amount. Renting 5 increasingly expensive different places over the same 35 years could save you $108,492.
$100,000+ That might look measly in a conversation about real estate prices, but if you put that sum to investments you could be saving much more than you think!
So buy or rent?
My personal opinion is that if you haven’t tried living in your own place yet, the experience is absolutely worth it (The woke salaryman covered this pretty well). If you are just trying things out first, go for a rental and go low until you learn what you really want. Renting provides the flexibility of GTFO-ing when you’ve had enough of one place.
Otherwise, jumping into a multi-year commitment to pay a monthly mortgage can be stressful if you:
Are unsure of what house you want for the next 30 years
Don’t have career stability (mortgage payments are harder to get out of than rents)
Don’t have enough savings to bolster 6-12 months of expenses on a rainy day!
However, once you’ve figured out what you want, and can afford a loan to get it, and have enough savings to buffer a year of low/no revenue, I think that buying is a legit option.
I approach the Buy vs Rent question like a buffet.
At a buffet, I’m faced with 20 options at the table.
In plate 1, I sample a small part of each food on the menu.
Some food sucks. I take note and avoid it in plate 2.
Some food is not bad. I will add it to plate 2 just to double-check if I love it or not.
Some food is MUST HAVE. Smoked salmon. Eclairs. The good stuff. These go in plate 1, 2, 3, 4 and probably be part of my last bite.
By plate 3 or 4, I already have my faves down, and don’t bother with the weak options which were in plate 1. For the notbads, I’ve decided whether or not they should be dontneeds or musthaves. Applying this to housing choices, it’s like knowing what your core wants are over time, and what things are just fluff. (Do you really need that lawn?)
Before I pick a home I gotta payfor+stayin for 30 years, I sample the whole menu to figure out what I likeand don’t like, lowering the risk that my eventual choice is one I grow tired of after 15 years.
I can’t speak for what the 70-year old me might want, as tastes change, but I intend to make his decisions easier by properly planning how I spend my money today.
I hope this post helps you in your own path. Let me know if there’s..
-Anything I missed out
-Any clear explanations you like
-Anything I coulda covered better
I’d love to hear your feedback! You can post in the comments to let me know. Cheers.