HDB thoughts - Car dreams

Read my previous article: http://leothoughts.blogspot.sg/2014/06/hdb-thoughts-let-cpf-pay-it-slowly-or.html


In Singapore, the car is a very common aspiration people strive for besides wanting a home of their own. After several years of working, it is inevitable that one may start to toy with the idea of buying a car to pamper oneself. It is sort of a social progression where people want to start enjoying the fruits of their labour and graduate out of public transport.

In most countries, this is very achievable because cars are rather inexpensive. A friend of mine currently working in New Zealand, bought a 2nd hand Nissan Cefiro for less than SGD$5 000. In Singapore, even the most "budget" 2nd hand car you can buy would cost $20 000 or thereabouts all thanks to the COE and the relatively young fleet of cars roaming around the roads here.

Some people might want to buy a new car altogether. Foreigners will baulk at how the price of our average Japanese saloon can fetch a smacking good BMW or a Merc, we have no choice but to accept this pricing. Let's say our imaginary couple have their hearts set on a Chevrolet Cruze, a frugal 1.6 litre sedan which costs $110 000. It is one of the cheapest reasonable car you can get now, if you would ignore the Chinese brands.

To even think of getting such a car, one must be able to afford the mandatory 40% down payment for the little beast. That works out to be $44 000 - not an unreasonable sum if both husband and wife are Uni graduates and had been planning up for this for at least a year (their bonuses included).

Ok, let's assume that the couple has a combined net income of $6 000/mth and they take it as slow as possible to repay the HDB loan such that they do not need to touch their CPF, their monthly repayment for the remaining amount would be $1200/mth.

Coming back to our two imaginary couples,

Couple Relac would then have a Total Debt Servicing Ratio (TDSR) of slightly below 42%

Couple Quick-e would then have a Total Debt Servicing Ratio (TDSR) slightly below 67%, or is it?

*I'm saying slightly below because I'm too lazy to calculate their gross income to include employer's CPF contributions. But it won't differ much for our discussion.

According to the new MAS regulation regarding TDSR, Couple Quick-e would have exceeded the maximum permissible TDSR of 60% (30% max for house, the other 30% may be used for other loans).

On first look, it seems that Couple Quick-e will not be able to buy a new car during the 10 year housing loan. This is not the case. If Couple Quick-e was prudent enough to get a full 25 year HDB loan (with the minimum monthly repayment the same as Couple Relac's). Couple Quick-e's TDSR is exactly the same as Couple Relac. Although it may be difficult for Couple Quick-e to pay so much of their monthly income towards both loans, there is no worry that the bank or HDB would come breathing down their neck because they are paying above and beyond for their housing loan.

The moral of the story here is to always get the maximum loan possible so that your hands are not tied when you wish to buy something as expensive as a new car. Sometimes, a car is really important depending on the situation.