Retirement Checklist: Real Estate Planning for Future Financial Security
CONSIDER INTEREST RATES
Another consideration – whether to take a fixed or variable rate loan.
According to MoneySmart, most customers end up choosing floating rates because the rates are only fixed for a limited period.
“And if interest rates tend to go up, then you know that in two to three years the corresponding fixed rates will also end up being higher. You get a certain period of time where you have certainty of your monthly rates and payments, but eventually after that it will revert to a floating rate,” Mr Nair said.
Because loan rates will change, experts say it’s important to think about refinancing or repricing home loans after the lock-in period.
“It is good practice to regularly review our current mortgage against mortgages that exist in the market,” said Mr. Tan Chin Yu, Client Advisor at Providend.
“Especially when interest rates are low, there is a good chance that what you have in the market will be better than what you have and this can lead to savings in the long run. However, it is also important to note that you could incur penalties, and there could be other fees involved when you choose to reprice or refinance, especially if you are still within the current lock-in period of your existing loan.
In Singapore, the CPF is an additional avenue for financing real estate. Money from the CPF Ordinary Account can be used to pay the mortgage down payment, service the housing loan, and cover stamp duty and legal fees.
Those who buy HDB apartments can also use it to pay their Home Protection Scheme insurance premiums.
The amount of CPF that can be used depends on several factors, such as whether it is an HDB or a bank loan, whether the CPF is used to service more than one property, as well as the remaining lease of the property.
However, more CPF money used on the property means there may be less for retirement.
It all comes down to individual investment choices, Tan said.
“If you have that money in the bank that gives you a lower rate of return than the CPF gives you, then it’s best to use the money to pay for your housing, leave your CPF intact and let it grow to this guaranteed level 2.5% (interest rate).
“But if you are investing that money reliably and getting a higher return than what the regular CPF account gives you, you might consider using your CPF to pay for housing and then in turn using that money to invest. and at some point in the future use it for your retirement as well.
As they approach retirement and their house is fully vacated, they may end up asset-rich but cash-poor, experts warn.