http://www.businesstimes.com.sg/sub/...09540,00.html?
Published October 17, 2009
Commentary
Hold your horses, house-hunters
By SIOW LI SEN
SENIOR CORRESPONDENT
IT seems that now one can get a home loan in 15 minutes, if you believe the latest hype from Standard Chartered Bank. Okay, so it's not really a water-tight yes from the bank but just approval in principal (AIP). But why is the bank doing it, other than to trump some rivals who can provide AIP in 60 minutes?
Why the rush to let prospective borrowers know their credit's good for that dream home in less time than it takes to wash one's hair? A decision such as buying a house with the attendant mortgage burden of the next 20-30 years or so around one's neck should be a measured one.
It's already strange enough that house hunters are nowadays lured to view show flats erected in posher areas, far away from the actual site, so one forgets that your dream flat is actually plonked off the Ayer Rajah Expressway. That you have to then jostle with other hopefuls to look at the model of the development can be pretty stressful, to the point of hysterics, some have said.
Serious house buyers should do their research before venturing to showrooms. Figuring out if one could afford the purchase would be the most critical element.
In fact knowing if one has enough money and being firm on the amount one can pay or borrow is crucial. Otherwise, it is very easy to get tempted by other add-ons along the way and end up borrowing unnecessarily.
I remember going to a DBS branch in 1996 to ask about a home loan for an investment property. I wanted to borrow $800,000 for a $1.2 million transaction. It was suggested to me that I could take on a bigger loan since it was supported by valuation. The bank officer helpfully said all legal fees and stamp duty could also be added to the bank loan.
In the end, I decided to borrow $830,000. When the 1997/98 Asian financial crisis hit, the value of the flat nosedived, went way below $800,000 at one point. I was dangerously heading towards negative equity.
The rent for the flat went from a high of $6,000 a month to $3,800. I remember selling off shares so as to reduce the capital outstanding. Not that the bank asked me to, but it was unnerving to owe more that what the property was worth.
During the decade-long financial crisis, my company made two pay cuts and there were also lower contributions to the CPF - all of which made dents towards the amount available for mortgage instalments.
The current euphoria surrounding the property market fuelled by low interest rates can tempt people into taking on high levels of debt. It is easy now to forget that economic cycles are getting shorter and shorter.
Interest rates when they move can be quite fast. Taking an hour or two even to reflect on a decision which could have quite severe consequences down the road on one's mental and financial health - should circumstances change - is really not very much at all.
