This is fantastic. You probably got the lowest rate in town. Could you let us know when did you sign up for the loan?Originally Posted by PN
Newbie
This is fantastic. You probably got the lowest rate in town. Could you let us know when did you sign up for the loan?
TCSS
No lah. Those are just examples.
Mine is 1st yr Sibor+0.9 & another one is Sibor+1.1.
I've a friend who signed up 2H last yr has Sibor+0.7. Also from CitiBank.
Newbie
friend just refinanced last week - citibank 6month sibor+0.75 1 yr lock-in
Junior
i dun understand singaporean psychology - aren't we supposed to be super kiasu and kiasee?
say a young couple avg age 30 earns $5k a month each. That means that they can only afford a $2k/mo mortgage entirely serviced from their CPF. That's a $600k home (prob a caspian 2 bedder or something). Based on my formula of 'cover one backside', one spouse must be covered for 5 years. That means cash or CPF reserves AFTER drawdowns of at least $60,000. add another $1k per month of expenses, that brings it up to $120,000.
Thus, 'How To Survive a Recession While Covering One Backside Formula':
- Husband & Wife earn $5k each for a total of $10k monthly
- Pay 10-20% deposit, borrow the rest: You can only afford a $600k home
- You must have at least $60k-$120k in cash and CPF Ordinary reserves to cover one backside for 5 years
If you dun have the above, as Suze Orman says: 'Girlfriend, You Have Been Denied!'
TCSS
Gfoo, the kiasu and kiasi mentality applies to children education and queing up for freebies.
I don't dare to say I fully understand Singaporean mind although I'm also Singapore because not all think alike. What I can say is that not many has the habbit of keeping savings for 30yrs and below. There is no finiancial planning at all.
But from my observations, even youngster with low income of 1.5k to 2.5k, they can change handphone 2-3 times a year.
Some has nice sports car which does not match their income. Go for tour severals time a year using credit card or credit line w/o clearing them on time. There was a case of a manager who eark 8k/mth and accumulated 50-60k of credit debt. So where are the savings?
By the time they get married, they also need to spend on weddings. Let me post this question, how much loss you will incurred when you get married. Loss bet 10-20k is a norm & I've heard of as high as 30k just for the wedding dinner. I know it is once a lifetime thing but is this really necessary?
Now when come to housing, some may have enough to pay for the 1st 20% but not much left to service installments & buffering. So it's a case of struggling to cope with home, car & credit loan every month. Chinese has a saying "walk one step, count one step". This is as good as walking on a high rope. Falling down is not the question. The question is when?
That's the reason why I posted several threads on this topic. Hopefully, it will help those who plan to buy but don't know if they are in the right financial position.
http://forums.condosingapore.com/showthread.php?t=7014
http://forums.condosingapore.com/showthread.php?t=7040
http://forums.condosingapore.com/showthread.php?t=7086
DN
This is quite interesting and perhaps insightful in its own ways; and in this regard, I ask for greater guidance and enlightenment. I am just wondering how was the 5 years' reserve in cash / CPF form derived?
Against the backdrop of the 5 years' reserve, I have the following questions:-
1. Assumes tenor of loan = 30 years (mostly)
2. Assumes worse ever recession in history was the Great Depression occuring in 1929. Figures indicate that the average joe (within 2 std deviations) managed to gained employment again within 6 years post 1930. OF course, there are those who remained completely unemployed for longer periods of time, I am using confidence interval of 95% (2 std deviations).
3. Assume cash to be a proxy to risk free instrument and assume further risk free rate now is 1.5% in Singapore context of SGD.
Having 5 years of reserve in cash form means a significant portion of one's investible capital being invested at risk free rate. From an investment point of view, assuming a balanced asset allocation, this will also mean you should at least have investments in other assets (i.e. equities and bonds) in amounts of about 20 years mortgage payment in reserve. (20% risk free, 80% risky assets). AT the same time, do note risk free rate is now assumed to 1.5% (not much). This about asset allocation.
Next, lets look at probability of downside scenario which will require the extent of reserves to be 5 years. We are assuming the great depression as the worse event so far, and for convenience, we are assuming this is a one in a 100 years event and the 2 SD unemployment period is 6 years (slightly longer than 5 years).
Putting the above together (and considering I have left out many other considerations and factors which do put in place the effect of risk pooling), which begs me the question of how does one derive the number 5 years of reserve is required.
I further draw references to other established financial planning norms which appears to purport the notion of recommended liquid reserves to be in the range of 6 months to a year.
One can clearly see, from an investment point of view, there is a cost of holding an excessive (only if 5 years is indeed excessive, which I cannot conclusively prove or disprove here) cash at the opportunity cost of market premium. If you keep 5 years if reserve in cash and do not attain the nominally asset allocation of the balance 80% in risky assets, you basically run into negative carry. Note: Cash in its own form is considered as cost of capital, if you are collaterally exposed to equities market. High cost I must say.
Next, is the lowered "risk" of holding 5 years cash reserve justified with the return ?? Assuming you do not have 5 years cash reserve. You default on loan payments, bank enforce security. You lose your 20% downpayment. 20% downpayment is approximately (as a very rough guide) = 30 years / 80% * 20% = 7.5 years. Assuming having 5 years of cash reserves will completely negate the scenario of banks' enforcement. What we have will be having 5 years of mortgage payment to secure against the case of loss in cash quantum approx. equivalent to 7.5 years of mortgage repayment. I am not sure what is your view on the risk-reward profile. To me, it does not look particularly attractive to me.
I like to base my assessment and opinions on numbers. Some may not like the way I paint or approach the problem, some might think the approach is a little too loose. Yes, I do agree, my analysis is quite broad brush but my intention really is to put forward the concept of quantifying one's view. I do not know if 5 years cash reserve is enough or excessive, neither can I opine on the norm that most fund managers (investments) allocation of 20% in risk free instruments as being too conservative. The end of it all is, its easy to throw up a number but getting people down to facts and support a view they offer, not everyone can do it easily.
There are a number in this forum who clearly think deep enough and make a case - a case worth arguing for, a case worth reading about. In this regard, I ask for guidance and enlightment if 5 years reserve is indeed sufficient, inadequate or excessive.
Any ideas?
Junior
I like Suze Orman says... "You must be out of your mind, denied denied denied", lolz.
Global recession is coming....
How you derive that they can only afford S$600k home? Assuming they pay $3k per month in cash + $2k per month from CPF for instalments from both CPF & Cash, they will still have $2k savings month per after deducting $3k pm of living expenses. For total of $5k instalments over a 30 years loan period, they can still afford at least a $1.2m home and still have reasonable amount of cash on hand!
Junior
In this difficult time, $2k saving a month is not sufficient... some more spending half of gross saving for monthly installment is not a wise thing to do... personally, I think the loan should be less than 30% of total income...
Some one need to factor in insurance, medical, and other investment with better return as well.
TCSS
Firstly, to buy a 1.2mill home you need to pay 20% downpayment. That is 240k & 30.6k of stamp fee. Total you need 270.6k of cash+cpf. Assuming you manage to save enough to handle this. Let's look at the the 2nd factor.
80% loan of 1.2mill is 960k. Tenor of 30yrs with 2.5% rate, your mthly installment is 3.8k. Each earn 5k/mth, minus cpf you have 4.1k each.
Assuming installment payment using CPF + cash is $1.8k & $2k respectively. After paying loan, you have 8.2k-2k=6.2k left.
You mentioned 3k living expense. Does it include car/transport, personal insurance, your parents allowance, children education, utility bill, phone bill, condo maintenance fee, maid salary? Assuming you manage to keep this within 3k which is extremely low. You left 3.2k
How about tv license, personal income tax & property tax? Maybe another 0.6k. You left 2.4k --> looks healthy. So what's the problem?
But do you think this is realistic? You must ask yourself if 3k living expenses is enough?
This is what a typical couple expense looks like:-
Car loan + road tax + petrol + parking $1.5k
Own expense for 2 pax $1.5k
personal Insurance $1k
children expenses $700
phone bill + internet $120
utility bill $150
condo maintenance $300
This is already $5270. $6.2k minus $5270, you have $930.
Minus the taxes of $600, only $330 left. This is as good as no savings.
Do you think it is wise to live a live like this? What happen if plan or accidentally have 2nd child?
Global recession is coming....
Possible because based on my estimate and spending pattern:
Car loan + road tax + petrol + parking = $1k (not $1.5k)
Own expense for 2 pax = $1k (not $1.5k)
personal Insurance (+disability income!) = $120 (not $1k - Buy term insurance! - can even cover $1m for each)
children expenses = $200 (not $700)
phone bill + internet = $60 (not $120)
utility bill = $120 (not $150)
condo maintenance = $300 (ok)
Total < $3k! Every year, the couple will get about 3 months bonuses or $8.2k x 3 as savings = $24600. For 30 years they would have saved $738k! Why not enough?
Global recession is coming....
Property is also a kind of investment. If a person is not investing in other form of investments, then it is OK to invest in his own home and using half of savings as long as he still has some cash on hand for emergency. People should instead focus on trying to spend less on un-necessary things like LV handbag, branded clothes, branded cars, eating in restaurants etc! Insurance is cheap if one choose the correct one (buy term! - don't buy ILPs and whole-life because it do no good to one's limited finances and insurance-linked products are never about investment, just insurance!). With $2k savings a month, the couple would have saved $720k in 30 years (not factoring in returns from compounding effect yet!). Also, the couple will get about 3 months bonuses or $8.2k x 3 as savings = $24600. For 30 years they would have saved $738k! The total will be $1458k (even before factoring in returns from compounding effect!). As a rule of thumb, the total after factoring in compounding effect for 30 years would be something like $3m!
Also, 30 years later, the property would have appreciated many times over (just look at the historic property prices)! By then, the couple can downgrade to a studio property from a 3 Bedroom condo and still pocket the difference for even better and more comfortable retirement.
Junior
5 years of reserves is actually a very very optimistic forecast - i bought the Sail remember? this makes me by default overtly optimistic hence my provision of just 5 years of reserves.
this crisis of ours is unprecedented - it will stretch on for a long long time. this is what i have done:
- put half of my assets in to precious metals. this sits aside and is never touched. This forms our SHTF Reserves that shall not be drawn down. i do not count this as part of my liquid assets.
- Of my liquid assets - 90% is cash, and must at least cater for over 10 years or more buffer at current living standards. This forms our Emergency Reserves which can be drawn down in times of extreme need.
- the 10% balance of my liquid assets is spent shorting the market in an ETF and in cash. This caters for at least 12 months in immediate drawdowns, and is our spending and transactional account.
- we have cut expenses to within a single spouse's income, benchmarked at the national median. ie if the national median earns $3k per month, we live within that, even if we earn much more. If a single employed malay family of 5 can live on $1500 a month, so can we. I'm trying hard to reach that level, hopefully in a few months.
In such an environment, i do not consider property as an asset. right now, it's a lifestyle liability, just like a car.
Again, i have no methodology or mathematical formula to derive this. i'm an uneducated 'farmer' who failed A-Maths during JC. i am plucking stuff from my arse really, but it matches what i personally think will happen down the road.
TCSS
Wow - within $3k. I guess this is your lifestyle. Nothing wrong with that. But for how long?
I can see that you are making many ideal assumptions. This is scary.
Personal expenses is 1k for 2 pax? Don't forget that you need to factor in clothing, shoes, toiletories, occasional restuarant meals, festive, birthday celebrations, Angbao, etc. No hobbies? No sports?
You don't go for tour? Not even once a year? All these need $$$.
Children expenses is only $200? Your child will grow up. He/she will need to attend nursary, kindergarden, primary & secondary school? No tuition, enrichment program or extra curriculum? Children learn best going outdoors sight seeing, visit zoo, science center, etc. No toys, games or sports activities? After sec sch, they attend poly/Pre-U & University. Check with your friends & find out how much their children needs for education & other expenses. You sure can keep it to $200 constant for 30yrs?
What about medical expenses? Human do fall sick. I fall sick as well.
Medical expenses for 2 adults + one child is easily 1k per year. When you grow older, it's even higher. I know of many old folks with monthly medical expenses of $500-800 just to maintain their health conditions.
Not to mention those with more serious illness. That's why there are so many sad stories of children abondaning their parents when they aged. It's because of the heavy medical expenses.
Bonus of 3mths per pax? How I wish I'm living in a perfect world. Many companies are not giving or reducing bonuses. Of course when the economy recovers few years later, the bonus will comes back.
There is no such thing as constant 3mths bonuses in this world.
Is your job secured? I don't dare to say mine is. If one of them is jobless. What happen to the savings? I never do financial planning with ideal situation. It will give you a false picture of what you will need.
Of course, it's your own life. If you still think it's possible to keep within 3k with constant savings every month, I salute you & shall not comment further.
However, I do agree with you that by downgrading from a large to smaller unit, you will have more cash on hand for old age retirement.
Newbie
I agree with PN on this.
Just meals alone, assume that you and your wife each spends $3 (BF), $5 (lunch), $5 (dinner) everyday. That works out to $780 for a 30 days month. To me, that is not realistic but still possible if you are determined to save.
No movies? Gathering with friends / family where you have to spend more on each meal? Allowance for parents? Shopping?
We are DINKs, staying in a 2 BR suburban condo. Using me as an example, our monthly personal expenses (excluding car and insurance becos I dont buy term so not fair comparison) easily exceed $3k!
I have always wondered how a combined income of $10k can afford private property of more than $1 million when we are not even sure we can even thou we earn more than that.
And Gfoo is correct, you have to set aside savings and buffer. I dont agree with the 5 years buffer he believes in but but I make sure even if me and my wife lose our jobs at the same time, we can maintain existing lifestyle for at least 2 years, more if we are prudent in spending.
That gives us the assurance and freedom to do what we are comfortable with, not slaves to our jobs.
Global recession is coming....
I suppose it is a matter of life-style, and spending $3k per month is not too little and don't have to try hard to save really if you look at the poorer family who can go buy with a single income of $1500 per month for a family of 5, then $3k pm is no great feat.
Don't know why you need to spend so much on meals, we cook & eat at home most of the time - healthier (no MSG)! We spend more time with our kids at gardens and beaches (mostly for free). Time for us to teach our kids about simplicity in life and not revolving around movies, eating out in restaurants, branded goods etc. For example, we don't use air-con not because we can't afford but because we prefer natural air and also because we choose our house such that it is always breezy and occasionally turning on the fan will do. So many ways to save with little efforts but nowsadays people always complain money not enough but have no idea where they leaked to.
Newbie
I agree it is up to each individual family to decide how they want to lead their lives - simple vs more luxurious manner.
This whole discussion came about becos of some earlier post on how much a 10k household income can afford on a house. With reference to your earlier comments that they can afford a $1.2m property, I am just concerned it is not realistic.
According to your habits and calculations, it is do-able, but according to my experience and calculations, it is impossible.
Anyway, we are off topic already.
Even if nothing conclusion comes out of it, at least I hope it has given others some food for thought on what is affordable.
TCSS
It's important that potential buyers out there are not mislead into thinking that with a $10k household income, they can enjoy 1mil home, drive a nice car, enjoy restuarant food, pamper themselves with luxury items.
Teddybear's lifestyle is simple & I respect that. But as I mentioned earlier, a lot of factors are not considered. It's a risk one has to take & adjust with it later on.
It's a forum & discussion like this does make people think what kind of life you want to enjoy with your family.
Global recession is coming....
Well, obviously S$10k household income cannot be driving nice branded car, restaurant food, branded goods and luxury holidays and yet afford a $1.2m home. However, if you go for value-for-money car, food, goods, simple holidays, then you can have all and yet afford a $1.2m home and still have Cash for retirement. It is a matter of life-style, perception they want to project etc.
I don't see much risks as in the hypothetical case, the couple can save $2.6k pm (not including the bonuses). Increases in future expenditure can be offset by increases in income and from savings. Property is a good investment for long-term for people who don't know or does not invest in anything else and they could still downgrade later to cash-out.
Junior
i don't get it. why splurge on a $1.2m home when one has to tighten everything else so much that to make ends meet, one leads a meagre existence?
life is short, and some say the world's gonna end in 2012 according to the mayans - live life to the fullest within your means.
The root of all evil is the lack of money
Global recession is coming....
Firstly, the $1.2m home is an investment as well as a roof over the head with facilities for the family to have better and more healthy life-style (easy access to swimming pool, tennis court, fitness area, gym, playground etc).
Secondly, don't think one has to tighten everything to afford the private property as in the hypothetical case, the family still can afford a car too! If spending $3k a month is having to tighten everything, I don't know what the family spends on - may be branded goods (LV bags?), Mercedes, eating in restaurants, endless tuition & enrichment classes for the kids? Yes, Life is short and yet can be lived to the fullest with little money! To me, it is the spiritual and mental rather than the material in order to live life to the fullest. I don't see why having all the branded goods etc make one's life more full? Otherwise, more than 80% of family probably cannot have meaningful life (because their household income is below $10k per month).
May be it is difficult for me to understand why people cannot afford so many things within $3k per month expenditure (just like I don't understand how the poor family can survive on $1500 per month income).
Junior
actually my post was in general and not directed at you. but i do get your point which is very valid.
what i was trying to communicate is that in general, it's always money tightness and problems that lead to family disharmony, quarrels etc etc.
thus a general call out to pple to be more prudent.
e.g. buy a 450k 5 room flat, you can take the $800k savings to buy a country club closeby, get a chauffer-driven Toyota Crown, and live like a king without wants. This is exactly what 2 senior staffers of two of the world's largest tech firms did, just to shore up for the crisis - they are in the early 30s, late 20s, huge monthly income, but prev little savings DINKs.
Junior
With 10k income per month, why you need a $1.2mil property? For me, $1.2mil worth of property is another form of luxury item. Since you can spend $750k on condo and it can still be a good investment.
Some time we need more buffer to prepare for the rainy day... on paper is always easy... we can't always assume we get increament every year, promotion or bonuses... what if kenal axed especially in the time like this?
Global recession is coming....
There are 2 possible scenarios here:
(1) As you mentioned:
Buy a $450k 5 room flat, you can take the $800k savings to buy a country club closeby, get a chauffer-driven Toyota Crown, and live like a king without wants.
(You mentioned: This is exactly what 2 senior staffers of two of the world's largest tech firms did, just to shore up for the crisis - they are in the early 30s, late 20s, huge monthly income, but prev little savings DINKs.)
Problem with (1) is that almost all money got spent, little savings, huge monthly income cannot be guaranteed until you retire.l When these people retire (ops, they can never retire because they don't have enough savings to retire and yet fund their extravagent life-style!).
(2) As I encouraged:
Buy a $1.2m home with facilities, forget about country club memberships, self-drive a Toyota Vios/Axio (you don't need Crown), live a simple life. 30 years later, your property would have appreciated at least 2x and sell the property to downgrade to a studio unit and you can then retire like a king without worry for your old age!
I would easily choose (2) - To be able to retire at 60 years old without any monetary worry when I really need to retire.
Junior
You know how much interest you need to pay to the bank for a $1.2m property with 30 years tenure, at an average interest rate of 3.5%?
You know what is called inflation? $3k can be spent on the same item for 30 years?
You think you can downgrade from a $1.2Mil luxury home to a small tiny studio after 30 years?
Junior
wat is DINKs ??
Newbie
Double Income No Kidswat is DINKs ??
Global recession is coming....
When there is inflation, property prices has historically shown to grow much faster than inflation. Paying interest is inmaterial when there is bigger capital gain to be obtained and also is better to spend the money on interest than splurging on branded cars, country club membership and annual fees, branded goods (when cheaper alternative suffices).
With a projected savings of $3m in Cash for the hypothetical case for that couple when they are 65 years old and further cash from downgrading, the couple can now afford >$10k per month of future monthly spending (not $3k).
Why not? As long as you are willing to sell cheaper (because you have made a big capital gain anyway), there will always be takers.
TCSS
Just for general discussion not directing at anyone. (Looks familiar - I steal this from Gfoo sentence)
A typical couple with a single child. Couple are both 30yrs old & plan to retire when reach 60. Forget about the monthly expenses, it's already a given.
For the next 30yrs, below are how the spendings look like besides the $3-5k monthly living expenses
1. Child education (2yrs nursary, 2yrs kindergarden, 6yrs primary, 4yrs secondary, 2yrs Pre-U, 4yrs local University education) ===> $350k
2. Medical expenses for 2 adults + 1child $1000x30yrs = $30k
3. When you reach 40yrs old, you need to go for yearly checkup (unless you're super confident you will never get serious illness) $500 ea. $1000x20 = $20k
4. Home appliances incl TV, DVD/BlueRay, Fridge, washer, dryer, hood & hob, cooker, vaccum, etc (unless yours is unbreakable). For the next 30yrs say you change every 4yrs spend 5k for the purchase. 5k x 7.5 = $37.5k
5. Furniture purchase (unless it's super long lasting & lifetime warranty). Say you buy new furniture once every 8yrs & spend 5k ea time. 5k x 3.75 = $18.75k
6. When you move in new condo, you do renovation. For >1mil property, I guess the renovation is at least $30k
7. Living in Condo >5yrs, you will notice that things start to break down. You window/door latch, handle, water chock, shower head damage, etc. So for the next 25yrs you send $500 yearly. 500x25 = $12.5k
8. Local + Oversea tours. On average, I believe most will go for tour once a year at least for those people I know. Each trip cost 5k for 2adults + 1 child. 5k x 30 = $150k. If you don't travel, take this out.
9. Computer + Internet + handphone. Children will request for computer & you have no choice as their school work requires one. Need to do research, go to internet. Want to know where you child is & communicate with them, buy handphone for him/her. Say 3k and refresh every 3yrs (sounds like corporate std). 3k x 10 = $30k
10. Shoppings (clothings, shoes, bags, etc) for 2adults + 1child is 1.2k/yr. Again, unless you wear the same thing day in day out. Otherwise, 1.2k x 30 = $36k
11. Festive celebration (at least Christmas & CNY for chinese). $700 yearly. Some may say too low. No choice, must be prudent. Economy very bad. 700 x 30 = $21k
12 .. There are many other misc but don't want to list all of them
Add up all of the above, it's $735,750.
This is part one. To be continue ...
TCSS
After 30yrs of hardwork, both are now 60. Congratulation.
It's time to retire & enjoy life. Your child is married & has started their own family. You don't have to support him/her anymore. It's the best you can ever imagine in life.
No wories anymore. Are you sure? We shall see. Did I say retired? Yes I did. But still must eat & continue living. Life don't stop here. Assuming both live until 85. That's another 25yrs.
Can live like king now? Will shall see
1. Since both are retired so that means no work no income. Monthly expenses say 3k taking into don't need to support child anymore but $ become smaller. That is 36k per yr. 36k*25 = $900k
2. When you grow old, you will have some old folks illness. Yearly checkup + monthly medical expense for 2 say $19.2k yearly. For next 25yrs, you need $480k.
Add these 2 up, it's $1.38mil. Savings enough???????
Never mind, they still have a child who can look after them. You must be kidding. When you are young, you didn't give your parents allowance. Children learnt fast & retain this in the brain memory. Difficult to erase from the memory plus he has his own family to take care of.
They will follow your style especially for the newer generations. I don't have high hope that my child will give me allowance either. You are on your own. Remember, plan for the worst not the best.
Wait, it's not finish yet. Do you mean that for the next 25yrs, you don't need to buy things. That is item 3
3. Refresh home appliances, furniture, home maintenance, no more oversea tour (too old to travel) but still can go local tour.
Don't forget you still need to do shopping & celebrate festive seasons. For simplicity, lets put this at around $110k for the next 25yrs.
So its $1.38mil + $110k =====> 1.49mil.
OK. Times up. End of story.
What? Are you kidding? If you don't think so, do your own computation.
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