Read This Before Upgrading To Condominium or EC!

​I came across an article featuring The Brownstone EC having strong response from the market.

The great part about an EC is that it has amenities like function rooms to host parties and a swimming pool for children to play. 

It is little wonder that Singaporeans are keen to upgrade to it..

Should you sell old place or buy new place first?

Sell first is the safer route. If you only have a short period of time to sell, the price might not be the price you want.

While, there's a point on ABSD remission (which is to get ABSD refund from IRAS), isn't it better to avoid paying ABSD in the first place?

Don't underestimate the time you may need to sell a home.

​How much cash and CPFOA for the deposit?

To book an EC, you will need to pay an option fee equivalent to 5% of the flat's selling price in cash.

If you do not exercise the option subsequently, the developer will refund 75% of the option back to you.

​If you exercise the option, you will need to pay an additional 15% of the flat's selling price with cash & CPFOA according to the timeframe as stated in your option (usually around 8 weeks). This 15% can be borrowed from a bank under a "Bridging loan". However, interest rates for this amount will be at 5-7%/y, thus I personally feel that the loan would be an unwise decision.

You will also need to prepare for the stamp duty which is 3% of the flat's selling price less $5,400.

This amount is frequently overlooked and can be quite large (For a $800k purchase, the stamp duty is $18,600!!). You may also need to be subjected to the resale levy.  

This webpage shows a good summary of which EC's are affected and the levy is in the range of $15,000-$50,000. Do note that unlike first time applicants, you will not be entitled to the CPF housing grant if your current HDB flat was previously subsidised.

In conclusion, the amount to get ready for deposit phase for a $800k purchase will be $180k to $230k.

#Note: current deposit is 25% with 75% loanable

Graph is a summary of factors to consider

​Understand how much mortgage loan you qualify for

Propertyguru has a fantastic mortgage calculator to help you understand your maximum loan affordability. Click on this link to try it.

There are a few factors that will affect the amount of loan that you can qualify for:

1) Income-weighted average age and loan duration

Mortgagewise has come up with a great article on how to calculate this. Click on this link to read it. Basically, the calculation is not just the average of your age but also takes into account your salary.

MAS restricts the loan payment period to age of 65 and the income-weighted average age eventually affects the loan duration of your bank loan.

2) Combined income and Mortgage servicing ratio of 30%

There is a $14,000 income ceiling for families looking to apply for ECs. From your combined income, you can only use up to 30% of it to service the housing loan.

Chart to summarise for you how these factors affect your qualifiable loan amount

​Using the Deferred Payment Scheme (DPS) for loan amount

​Deferred Payment Scheme (DPS) allows you to loan up to 80% of the EC purchase price while still keeping your current flat.

​However, if you opt for this, you would need to pay a slightly higher price for the property which may be 2-3% more than when using the progressive payment scheme.

Summary of the DPS schedule

​HDB only requires you to dispose off your existing flat within 6 months from the Temporary Occupation Permit (TOP) date of your EC if you are upgrading.

However, it is notoriously difficult to sell a house when the market is quiet, so try to start selling your house once you have secured your EC. Do factor in cost for a temporary place to stay and some budget for renovating your new EC unit in due time.

Last updated on March 12th, 2019 at 06:06 pm

The Astute Parent

A parent who has a sharp acumen on sieving through 'alien' financial jargon to dish out bite size financial tips from a parent's perspective.

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