Downsizing our homes for better financial health.

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
Blue

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.

52 year old lost $200K and unsure about next 30 years: Discussion continues.

Reader says...
Hi AK,

Thank you so much for responding to my email and providing your thoughts. I have been thinking over it for the past few days.

1.

I am pretty frugal and current monthly personal expenses on myself is about $1k. Another $1k spending on the maid, and $500/mth on insurance.

So roughly $2.5k/month.

2.

The sad thing is I haven't been able to build up any passive income at all, except for the $1.4k monthly rental from the 2 rooms let out.

3.

Friends ask me to move to the condo and rent out the 5-room flat for passive income, but the rental market seem weak with all the property cooling measures and tons of new hdb flats launched.




4.

I do not have any dependents, just myself to take care of.  Would it be a good idea to take up a loan (6% p.a.) from the whole life and continue to let it run vs surrendering the policy?

5.

I popped by the bank and opened a SRS account today and will transfer in the annual max $15,300.  I am at the 14% income tax bracket, so hopefully it will help to bring it down a bit (maybe a few hundreds).

Hope to go into ETFs and REITS for passive income, in your view is it ok to enter at current level or i should wait for market to go down a bit?  I am very worried because i cannot afford to lose too much at my age, and am really clueless which ones to go for..

AK says...

1. Frugality can only help in your wealth building effort. Good on you.

2. Try to build up passive income to improve cash flow but it is easier to improve cash flow by reducing expenses first. You still have room for this.





3. Rental market is expected to remain soft. My stand on the condo remains the same if you are concerned about cash flow. (Readers who are interested, please see related posts below.)

4. If you have no dependents, you don't need life insurance. (Dispense with this expense and have more savings.)





5.1 SRS makes sense for anyone who is paying quite a bit in income tax.

5.2 If you are worried about losing money at your age, obviously you are worried about volatility. If you cannot stomach volatility, staying away from the stock market is not a bad idea. Peace of mind is priceless.







Related posts:
1. 52 year old lost $200K and unsure about next 30 years (Part 1).
2. Should we buy a shoebox condo in NE Singapore?