26 Oct 2023
SOURCE: CPF Board
1. Buy within your means
Buying a home is a significant milestone and a long-term financial commitment, so it is important to find one that you can afford in the long run. Don’t forget that there are fees such as stamp duties, agent fees, home insurance and renovation expenses that you will need to pay cash for, and the monthly loan instalments!
A good gauge is to look for homes that are priced within 5 years of your combined annual income. For example, if your combined annual income is $100,000, you may want to look for a property that is priced within $500,000.
2. Keep your Mortgage Servicing Ratio (MSR) within 25%
The Mortgage Servicing Ratio (MSR) refers to the portion of your gross monthly income that goes towards repaying all property loans, including the loan being applied for. To ensure that your mortgage repayments remain sustainable, aim to keep your MSR within 25% of your gross monthly income.
3. Spend within the monthly contributions to your Ordinary Account (OA)
Your CPF Ordinary Account (OA) account is also meant for retirement needs. Avoid having monthly loan deductions that exceed your monthly contribution. Balancing these payments ensure you are financially prepared for the long-term.
4. Have sufficient savings in your Ordinary Account (OA)
If it is within your means, use cash to help pay for your housing loan, and retain an amount that is equivalent to 6 months’ worth of your monthly income. This way, you can still service your housing loan using OA savings in times of need.
5. Review life milestones and adapt your finances accordingly
Your needs, goals, and even circumstances will evolve over time. Review your finances regularly, and consider the various government schemes and benefits available to you. Be flexible and proactive in adapting your financial habits with changing life circumstances.
6. Finance your home purchase with cash or a combination of cash and CPF
A common dilemma for many is deciding whether to use your CPF Ordinary Account (OA) savings or to pay in cash when purchasing a home.
Consider financing your home purchase with cash, or a combination of cash and CPF. Spending less from your CPF account on your home means you can have more for your retirement.
It’s important to evaluate your short-term and long-term financial goals, as this will help you determine the best strategy for your home purchase!
With these six tips, you can make informed decisions while ensuring your home ownership experience is smooth and worry-free. Remember that consistent financial planning and adaptability are key to long-term financial stability.
The information provided in this article is accurate as of the date of publication.
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