You will build a sheet that totals the yearly cost of owning your home.
Back in lesson 1.4, Rent longer or buy now: compare them honestly, Hakim compared rent with the instalment and declared buying the winner. Farah said the comparison was missing most of the costs. A year into owning the Bedok flat, they finally had the real numbers, and this exercise puts them on one sheet: what owning the home costs each year, set against what renting a similar one would. Allow about 25 minutes, with your loan statement, property tax bill and a year of bills to hand.
All figures below are examples from Farah and Hakim's case.
Make one column for the year and these rows: loan interest, property tax, service and conservancy charges or condo fees, insurance, repairs, the return given up on your downpayment, one-off costs spread over your stay, and any rental income.
Each row is a cost of living in the home that you would not pay, or would pay differently, as a tenant. The one row that doesn't belong is the part of your instalment that repays the loan.
Your instalment mixes two things. Interest is a cost: it is the price of borrowing, gone once paid. Principal repayment reduces your loan, which raises how much of the home you own. It is closer to saving than spending, so it stays out of the cost total.
Your bank's annual loan statement shows the interest paid in the year. If you don't have one yet, build a schedule with the IPMT function, or work it out month by month: each month's interest is the balance times the monthly rate.
For Farah and Hakim, the first year of the package they chose, at 2.35% on S$427,000 over 25 years, came to S$22,602 of instalments. Of that, about S$9,898 was interest and about S$12,704 was principal. Only the S$9,898 goes in the cost total.
From lesson 7.1, Property tax, fees and upkeep, they had property tax of S$800, service and conservancy charges of S$1,080, insurance of S$400 and a repair fund of S$1,500.
Then the row people usually skip: the return given up on the downpayment. They had put about S$71,000 of cash and S$136,600 of CPF into the purchase. Left in their accounts, that money would have earned something. At an example 2.5% a year, which they used for both, that is about S$5,190 a year. For the CPF part, this is the accrued interest explained in CPF Mastery: every account and the choices you control, lesson 2.3, Accrued interest: what you refund to CPF when you sell. They will pay it back into their own CPF accounts when they sell.
Next, the one-off costs. Stamp duty of S$11,600 at the invented rates, legal fees of S$3,000, and their expected selling costs of about S$15,400, an example 2% agent fee on S$620,000 plus legal fees, come to S$30,000. Spread over their ten-year stay, that is S$3,000 a year.
Finally, rental income. The room they let out from lesson 7.3, Renting out a room or the whole home, brought in S$10,800 a year before tax. Keep it on its own line, below the cost total, because a tenant renting a similar flat wouldn't have it.
Add the cost rows: S$9,898 of interest, S$800, S$1,080, S$400, S$1,500, S$5,190 and S$3,000. The total cost of owning is about S$21,868 a year, or about S$1,822 a month. After the room income, before tax on it, it falls to about S$11,068.
Now look up the rent for a similar home: same town, same flat type, similar condition. Recent rental transactions are published on the HDB website for flats and on URA's for private homes. In the example, a similar four-room flat in Bedok rented for about S$3,000 a month, S$36,000 a year.
So in this example, owning costs Farah and Hakim about S$14,100 a year less than renting would, even before the room income. That doesn't make buying right for everyone. The figure leaves out any change in the flat's value, which this course doesn't forecast, and it depends on the interest rate, which lesson 8.1, Reprice or refinance when the lock-in ends, deals with. It also assumes they stay the ten years the one-off costs were spread over.
The figure changes each year. Interest falls as the balance shrinks, unless rates rise. Property tax moves with annual values. Fees go up. The repair fund may need topping up as the flat ages. So set a date to update the sheet. When the property tax bill arrives in the year-end post is a natural one, since it brings one of the new figures with it.
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 your 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 planned home and write the yearly cost of owning it compared with renting a similar one.
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