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Mastering your mortgage: How to stay on top of monthly payments amid inflationary headwinds

Finance your home with greater ease by keeping in mind debt ratios, having sufficient savings and choosing a loan that best suits your needs, says a DBS expert. 

Mastering your mortgage: How to stay on top of monthly payments amid inflationary headwinds

Kick-start plans for purchasing a property by doing your homework. Photos: DBS

Through the years, the milestone of owning a home has become synonymous with the ‘Singapore Dream’. Amid rising inflation, however, that dream may feel a little out of reach. 

In the current market, buying a property can be expensive – the Urban Redevelopment Authority reported that Singapore private home prices increased 8.4 per cent in 2022, coming off a 10.6 per cent increase in 2021.

Nonetheless, rising prices don’t have to mean rising stress. To ease the pressure, Ms Lorna Tan, head of financial planning literacy at DBS Bank, shares some tips for those working towards their first property purchase.

TIP NO 1: USE DEBT RATIOS AS YOUR NORTH STAR

Buying a home is a big financial commitment – this means purchasing one that’s within your means is a top consideration. According to Ms Tan, determining what you can afford is made easier when referencing two debt ratios: The Mortgage Servicing Ratio (MSR) and Total Debt Servicing Ratio (TDSR).

MSR refers to the portion of one’s gross monthly income that goes towards repaying mortgage loans, applicable if the property in question is an HDB flat. “Under this rule, a maximum of 30 per cent of your gross monthly income can be used for your monthly home loan repayment,” Ms Tan said.

The second ratio, TDSR, refers to the maximum proportion of an individual’s gross monthly income that can go towards repaying monthly liabilities – this applies to property loans offered by financial institutions.

In a nutshell, TDSR factors in other obligations such as credit card loans, student loans and car loans, in addition to monthly mortgage payments. The TDSR is currently set at a maximum of 55 per cent of one’s gross monthly income.

Maxing out any debt ratio isn’t necessarily the best option. Rather, prudence is key. Said Ms Tan: “Using less of your savings on property will give you more leeway for other financial commitments and allow you to save more for the future.”

TIP NO 2: BE JUDICIOUS ABOUT SAVING

Safeguard your loved ones by having sufficient savings to tide you and your family through unexpected and difficult circumstances.

Cash is king – having a rainy day buffer is essential to navigate the ebbs and flows of life. According to Ms Tan, saving three to six months’ worth of emergency cash is a good guideline. Gig workers, sole breadwinners or those with job concerns should set aside a 12-month nest egg at the minimum.

“Besides living expenses, this amount should cover your monthly mortgage payments and insurance premiums, particularly during times when you may not be able to work,” she highlighted.

Other best practices for saving include shopping wisely, reviewing expenses regularly and adopting a “pay yourself first” approach – automatically saving a pre-determined portion of your salary before spending.

Ms Tan shared that various banks offer products that can help with building one’s savings, such as the POSB HomeSaver. This solution allows homeowners to receive a bonus of up to S$700 cash when they save with a POSB Save As You Earn account, while taking up a new home loan and applying for a Mortgage Reducing Term Assurance insurance with DBS. 

“Look for products that offer benefits when you have multiple banking relationships with a single bank. For instance, you stand to earn bonus interest with the DBS Multiplier Account if you credit your salary and take up a home loan with DBS,” she added.

TIP NO 3: FIND A SUITABLE HOME LOAN PACKAGE 

Ms Tan noted that while property prices may rise slower due to the property cooling measures implemented last year, rising mortgage rates remain a key risk for those looking to take out a mortgage.

“For example, for a homeowner who took up a floating rate loan of 2.5 per cent per annum on a S$500,000 loan last year and is presently paying a higher rate of 4.25 per cent, his monthly repayments would have increased from S$2,244 to S$2,709, which translates to an increase of S$465, or 20.7 per cent per month,” she explained.

With the current economic uncertainty, many homeowners may find themselves in a bind: Should you choose a fixed rate loan to lock in current rates, or a floating rate loan since interest rates have already risen considerably in the last year and could peak soon?

To address this, some banks like DBS offer a best-of-both-worlds solution with a hybrid home loan that allows borrowers to customise their home loan with both fixed and floating-rate components.

This places part of the loan amount under a fixed rate package for some certainty, while allowing borrowers to potentially benefit from the lower interest rates of a floating rate package for the remaining loan amount. 

Said Ms Tan: “Borrowers can better manage their interest expenses in a changing interest rate environment as the blended rate of a hybrid home loan package is typically lower than fixed rates.”

POSB also offers support to home buyers and existing HDB owners earning less than S$2,500 per month via the POSB HDB Home Loan package at 2.60 per cent per annum (0.1 per cent above prevailing CPF Ordinary Account rate), which is similar to the current HDB concessionary loan rate.

START PROPERTY CONVERSATIONS EARLY

Ensure you and your partner are aligned vis-a-vis property expectations.

While buying a home involves a fair bit of number crunching, there are now digital solutions to help you with the math. For instance, DBS provides online calculators that potential homebuyers can use to get a snapshot of home affordability, or generate detailed monthly repayment schedules and assess potential home loan savings. 

“If you’re buying a home with your partner, ensure that both parties’ expectations on the type of property are aligned and discuss how expenses will be shared,” Ms Tan advised. 

The sooner you know where you stand, the better. After all, buying a home is a major financial commitment – it’s always best to start planning early for it. 

Are soaring home loan rates impacting your cashflow or putting your home ownership dreams on hold? DBS and POSB have got your back. Learn more today. 

Terms and conditions apply for all products mentioned in this advertorial. SGD deposits are insured up to S$75,000 by the Singapore Deposit Insurance Corporation. 

This article is for general information only and should not be relied upon as financial advice. Any views, opinions or recommendation expressed in this article does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability. All investments come with risks and you can lose money on your investment. This advertisement has not been reviewed by the Monetary Authority of Singapore.

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