You will be able to build a sheet that adds up what your home costs you each year.
The yearly cost of owning a home is every cost a tenant would not pay, added up for one year. Leave out the part of each instalment that repays the loan, keep rental income on its own line, and set the total beside the rent for a similar home.
In Lesson 1.4, "Rent longer or buy now: compare them honestly", Hakim compared rent with the loan instalment and declared buying the winner. Farah said his comparison was missing most of the costs. They bought a four-room flat in Bedok (an invented example), and a year into owning it they have the real numbers to put on one sheet. The exercise takes about 25 minutes. You need your loan statement, your property tax bill and a year of bills.
Use one column for the year and one row per cost. Each row is a cost of living in the home that a tenant would not pay, or would pay differently: loan interest, property tax, service and conservancy charges or condo fees, insurance, repairs, the return given up on the downpayment, and one-off costs spread over the stay. Rental income gets its own row below the cost total, because a tenant renting a similar home would not have it. Principal repayment gets no row at all.
A loan instalment mixes interest and principal. Interest is the price of borrowing, a cost that is gone once paid. Principal repayment reduces the loan and increases how much of the home you own. That makes it closer to saving than spending, so it stays out of the cost total.
Farah and Hakim chose a loan package at 2.35% on S$427,000 over 25 years. Their first-year instalments were S$22,602, made up of about S$9,898 interest and about S$12,704 principal (S$9,898 + S$12,704 = S$22,602). Only the S$9,898 goes in the cost total.
The bank's annual loan statement shows the interest paid in the year. If you don't have one, build a schedule with the IPMT spreadsheet function, or work it out month by month: each month's interest is the loan balance x the monthly rate.
Property tax, fees, insurance and the repair fund come from your bills. Farah and Hakim's figures, from Lesson 7.1, "Property tax, fees and upkeep", are property tax of S$800 a year, service and conservancy charges of S$1,080, insurance of S$400 and a repair fund of S$1,500.
People usually skip the return given up on the downpayment. The cash and CPF money used for the downpayment would have earned a return if left in their accounts, so multiply the downpayment by a rate you choose. Farah and Hakim put about S$71,000 of cash and S$136,600 of CPF into the purchase, S$207,600 in all. At an example rate of 2.5% a year on both, that is about S$5,190 a year. For the CPF part, the given-up return is the accrued interest, which they will repay into their own CPF accounts when they sell. CPF Mastery: every account and the choices you control, lesson 2.3, "Accrued interest: what you refund to CPF when you sell", explains it.
One-off costs are stamp duty, legal fees and expected selling costs. Add them together and spread them evenly over the years you expect to stay. Farah and Hakim paid stamp duty of S$11,600 (at invented rates) and legal fees of S$3,000. They plan to stay ten years and expect selling costs of about S$15,400 on a S$620,000 sale: a 2% agent fee of S$12,400 plus S$3,000 in legal fees. Together that comes to S$30,000, and S$30,000 / 10 is S$3,000 a year.
They also let out a room for S$10,800 a year (Lesson 7.3, "Renting out a room or the whole home"). Count rental income before tax and enter it below the cost total.
Their total cost of owning is S$9,898 + S$800 + S$1,080 + S$400 + S$1,500 + S$5,190 + S$3,000 = about S$21,868 a year, or about S$1,822 a month. After the room income, before tax, it is S$21,868 - S$10,800 = about S$11,068 a year.
For the comparison, find the rent on a similar home: same town, same flat type, similar condition. Recent rental transactions are published on the HDB website for flats and on the URA website for private homes. A similar four-room flat in Bedok rents for about S$3,000 a month, or S$36,000 a year, so owning costs Farah and Hakim about S$14,100 a year less than renting, even before the room income.
That lower cost of owning does not make buying right for everyone. The comparison leaves out any change in the home's value, which the course does not forecast. It depends on the interest rate, which Lesson 8.1, "Reprice or refinance when the lock-in ends", covers. It also assumes they stay the full ten years the one-off costs were spread over.
The figure changes every year. Interest falls as the balance shrinks unless rates rise, property tax moves with annual values, fees go up, and the repair fund may need topping up as the home ages. Set a date to update the sheet every year. A natural one is when the property tax bill arrives in the year-end post, since it brings one of the new figures.
A finished sheet has every recurring cost of owning on its own row, interest separated from principal, the return given up on the downpayment, one-off costs spread over the stay, rental income below the line, a yearly total, and a comparison with the rent for a similar home.
In the activity below, build it for your home or planned home.
Build the sheet for your home or the one you plan to buy. Write down what it costs you each year and what renting a similar home would cost.
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