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Downsizing our homes for better financial health.

Thursday, September 1, 2016

Hi AK,

My husband and i are in our late thirties. 

Right now we own a 5-rm hdb flat. 

We do not have children yet, but are planning to. 

We have plans to downsize our hdb to a 3-rm flat because:

1) there's only the 2 of us. 
Even if we have children, the size of a 3-rm flat is still considered ok.

2) we can pay off a bigger portion of our mortgage loan as the loan amount will be much lesser compare to our current one. 

We do not plan to buy a 3rm which is more expensive than our current 5rm. 

(However, we may have to take up bank loan as I have already used up my 2times hdb loan quota - one with my family before i got married and the current one.)

3) i have a couple friend who downsize their hdb from 5rm to 3rm, fully renovated it nicely and was able to pay off the housing loan in full. 

Now their income are purely for living expenses and savings/investments. 

That also gave me the idea of downsizing.

Please advise if there is anything which i may have overlooked and anything to look out for.

Thank you!

Best Regards

Hi Blue,

I like the Tiny House movement. 

Very often, people over-consume when it comes to housing. 

In a country where housing is so expensive like Singapore, over consuming on housing can really set us back financially, everything else remaining equal.

1. If you feel that a 3rm flat gives you ample space, then, you don't need any flat bigger than a 3rm flat. 

You might want a bigger flat but you don't need a bigger flat. 

2. If you would like to have a smaller mortgage, downsizing and downgrading definitely makes sense. 

Keep the monthly repayment for your new home loan the same amount as what it is for your current home loan and you will pay up the mortgage faster.

Alternatively, you might want a longer term loan, taking advantage of the low interest rates now and improve your cash flow. 

However, you should have the resources to pay down the loan rapidly in case interest rates go much higher.

3. To have a home fully paid means you have both control and ownership. It is an asset

As long as a home is not fully paid, we do not have ownership despite claims to the contrary. It is a liability.

Related posts:
1. My home is a hut in the sky.

2. Housing and my CPF money.


redponza said...

Singapore flats are plain cheap comparing to HK. I do not know why you state that as expensive?o

AK71 said...

Hi redponza,

Real estate in almost anywhere in the world is cheap compared to HK. ;)

KW said...

Hi Blue,

If $ is a concern, then downsize make sense. I will downsize after my children are 21 years old. Out they go! Ha ha.

The "space" for children to play around in our home is priceless to me as I own a 5 rooms flat with 2 young children. I feel the 'space' helps all of us grow better.

It is your decision.

AK71 said...

From my Facebook wall.

Irene Peh says:

An 'abnormal' couple married with a child keeps downgrading.

1989 BTO HDB 4-room 104sqm @ 65k
2001 Resale HDB 3-room (corner unit) 82sqm @ 150k
The wife has been planning to buy a BTO 2-room flat.

The child is now 24, working and looking forward to live in a small and cosy house.

The above-mentioned couple is not facing any financial issue. Husband is running a small business and wife is a homemaker.

Size of the house is not important. What's important is the people who live there.

I am the wife mentioned above. Haha.

AK71 said...

Csky Roo says...

Actually I feel very sad that prices of houses are so high in SG. I never understand why we have come to this. Unlike HK, our early govt had foresight to start HDB to keep housing affordable. Somewhere along the way, that goal was lost.

I often think if Singaporeans were not so pressurized by the costs of living in SG, maybe there will be more time for people to tinker, explore, become entrepreneurs, or be more involved in the community, all these can make our country better and stronger rather than one so purely driven by just the economics.

AK says...

We are very fortunate to have HDB flats in Singapore, friends from Hong Kong and Taiwan remind me every time we talk about cost of housing.

Most young people cannot even hope to buy their own place in Hong Kong and Taiwan.

I am not an economist but I like to think that prices here have gone up also because purchasing power of the people has gone up. Market forces are at work here too but tempered.

I would count our blessings. :)

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