"I have a friend, just married and lives in a lovely but huge HDB flat. Just two of them. Price of flat stunned me, almost 300K. Friend tells me loan is for 30 years (no choice leh, he says), and by my quick calculation, total interest payment can buy a Subaru WRX (My dream car!) at today's prices.Today Mr Wang is busy. So he will do a short reply. First - a side note. Read tomorrow's newspapers. Mah Bow Tan will be announcing some policy changes to excite the property market. ("Damnit .... how on earth does Mr Wang always know these things?!")
I also have a colleague, about to buy flat. He has PhD in Engineering, and tells me, "I did my calculations and it seems to me that I should take the smallest loan, or to put it in another way, buy the smallest flat. Then I can slowly upgrade along the way when I have kids etc etc". PhD-colleague says, "unlike buying shoes, buying flat is not a decision you can reverse easily".
I think - I am inclined to agree with PhD-colleague, and hope that if I do get a wife, the wife is not the sort who wants big flat."
Now for the question proper. A 30-year housing loan need not actually be repaid over the full 30 years. Along the way, you can make prepayments. This means that if you have extra cash, you can prepay part of the loan ahead of time. Thus you can repay the full loan sooner than 30 years. By prepaying part of the principal loan amount, you also reduce the interest you have to pay each month.
Many newlywed couples who have just purchased a home do not think that they can afford to make prepayments. They look at their monthly salaries and expenses - nothing much is left over. However, what they earn today is not what they would be earning in five or ten years' time. With a little bit of luck (that is, their careers go well and they don't get retrenched), they will steadily earn more and more over the years, and save more as well. Prepayments then become possible.
Check with your bank to find out the prepayment conditions. Some banks have an initial lock-in period (for example, no prepayments in the 1st three years). Some banks may impose administrative charges or a prepayment fee. Most banks will also have a minimum prepayment amount (for example, at least $10,000 per prepayment). And so on.
Buying a smaller flat, with a view to upgrading later, is not necessarily a good idea. Each time you buy and/or sell a property, you incur certain costs (property agent's commission, stamp duty, legal fees, administrative costs). If you buy twice, you incur the fees twice. If you buy thrice, you incur the fees thrice. The fees can add up to a significant amount. If you renovate your flat very nicely and then move out within a few years, well, that is also a waste.
On a more philosophical note, Mr Wang notes that life is not all about money. In particular, buying a property is not all about money (unless the property is purely for investment purposes). Some things just cannot be reduced into pure dollars and cents.
Mr Wang lives in a HDB flat. Although Mr Wang can definitely afford a private condo, he intends to continue living in his humble HDB flat for many, many years to come. Why? Because it is Mr Wang's home. He feels happy in it. It is the home that Mr and Mrs Wang built together. Many fond memories are here.
Besides Mr Wang's favourite roti prata stall is nearby. Mr Wang MUST have his roti prata every Sunday morning.
Mr Wang is not sentimental about his bonds or equities - he will buy, hold or sell without emotion. But roti prata - ahhh, it is just not the same.
a major influence on Asian property markets.