The hidden cost of homeownership: How a $1m home could lead to $300k in interest alone over 10 years , Money News

PUBLISHED ONJuly 29, 2023 8:10 AMByRyan J

One of the least interesting property topics is financing. Home loans are dry, complicated, and don't make for easy reading; which is why home loan interest rates are often overlooked. In fact, you've probably heard by now that rates are rising; but what you may not have realised is how serious it's shaping up to be. Here are some of the reasons we need to watch mortgage rates much more closely:

1. You could be paying much more than you think

A percentage point increase in the home loan rate may not seem like much. This is partly because the payments are monthly, so it may feel as if you're just adding on a few hundred per month (or you may be paying with CPF, in which case you may notice it at all).

But we've worked out the impact of the rates at different property price amounts ($500,000 to $3 million) below assuming a loan that's 75per cent of the price and a 25-year loan tenure (for the $500,000 property) and 30-year loan tenure for amounts of $1 million onwards. This is what it looks like:

Total interest paid on a $500,000 property

Period (Year)	1.30per cent	per cent Of Property Price	2.60per cent	per cent Of Property Price	3.50per cent	per cent Of Property Price	4.50per cent	per cent Of Property Price	5.50per cent	per cent Of Property Price	6.50per cent	per cent Of Property Price
1	$4,799	1per cent	$9,622	2per cent	$12,973	3per cent	$16,705	3per cent	$20,446	4per cent	$24,193	5per cent
2	$9,431	2per cent	$18,960	4per cent	$25,606	5per cent	$33,028	7per cent	$40,486	8per cent	$47,971	10per cent
3	$13,894	3per cent	$28,007	6per cent	$37,886	8per cent	$48,953	10per cent	$60,097	12per cent	$71,306	14per cent
4	$18,185	4per cent	$36,754	7per cent	$49,803	10per cent	$64,459	13per cent	$79,257	16per cent	$94,170	19per cent
5	$22,302	4per cent	$45,194	9per cent	$61,342	12per cent	$79,529	16per cent	$97,938	20per cent	$116,530	23per cent
6	$26,243	5per cent	$53,320	11per cent	$72,490	14per cent	$94,143	19per cent	$116,114	23per cent	$138,352	28per cent
7	$30,006	6per cent	$61,122	12per cent	$83,233	17per cent	$108,278	22per cent	$133,757	27per cent	$159,601	32per cent
8	$33,589	7per cent	$68,592	14per cent	$93,558	19per cent	$121,914	24per cent	$150,836	30per cent	$180,238	36per cent
9	$36,988	7per cent	$75,721	15per cent	$103,448	21per cent	$135,027	27per cent	$167,320	33per cent	$200,223	40per cent
10	$40,202	8per cent	$82,501	17per cent	$112,889	23per cent	$147,594	30per cent	$183,174	37per cent	$219,511	44per cent
11	$43,228	9per cent	$88,922	18per cent	$121,864	24per cent	$159,589	32per cent	$198,365	40per cent	$238,056	48per cent
12	$46,064	9per cent	$94,975	19per cent	$130,357	26per cent	$170,985	34per cent	$212,853	43per cent	$255,808	51per cent
13	$48,707	10per cent	$100,650	20per cent	$138,351	28per cent	$181,757	36per cent	$226,600	45per cent	$272,713	55per cent
14	$51,155	10per cent	$105,937	21per cent	$145,828	29per cent	$191,874	38per cent	$239,564	48per cent	$288,717	58per cent
15	$53,404	11per cent	$110,826	22per cent	$152,770	31per cent	$201,307	40per cent	$251,700	50per cent	$303,757	61per cent
16	$55,454	11per cent	$115,307	23per cent	$159,157	32per cent	$210,024	42per cent	$262,962	53per cent	$317,769	64per cent
17	$57,300	11per cent	$119,368	24per cent	$164,971	33per cent	$217,992	44per cent	$273,300	55per cent	$330,685	66per cent
18	$58,941	12per cent	$122,999	25per cent	$170,190	34per cent	$225,177	45per cent	$282,663	57per cent	$342,431	68per cent
19	$60,373	12per cent	$126,189	25per cent	$174,793	35per cent	$231,544	46per cent	$290,995	58per cent	$352,929	71per cent
20	$61,594	12per cent	$128,925	26per cent	$178,758	36per cent	$237,054	47per cent	$298,238	60per cent	$362,095	72per cent
21	$62,601	13per cent	$131,196	26per cent	$182,064	36per cent	$241,668	48per cent	$304,331	61per cent	$369,840	74per cent
22	$63,391	13per cent	$132,989	27per cent	$184,686	37per cent	$245,344	49per cent	$309,210	62per cent	$376,069	75per cent
23	$63,962	13per cent	$134,293	27per cent	$186,600	37per cent	$248,041	50per cent	$312,804	63per cent	$380,680	76per cent
24	$64,311	13per cent	$135,094	27per cent	$187,780	38per cent	$249,712	50per cent	$315,042	63per cent	$383,565	77per cent
25	$64,434	13per cent	$135,378	27per cent	$188,202	38per cent	$250,312	50per cent	$315,848	63per cent	$384,608	77per cent

Total interest paid on a $1,000,000 property

Period (Year)	1.30per cent	per cent Of Property Price	2.60per cent	per cent Of Property Price	3.50per cent	per cent Of Property Price	4.50per cent	per cent Of Property Price	5.50per cent	per cent Of Property Price	6.50per cent	per cent Of Property Price
1	$9,628	1per cent	$19,302	2per cent	$26,021	3per cent	$33,502	3per cent	$40,998	4per cent	$48,503	5per cent
2	$18,986	2per cent	$38,163	4per cent	$51,529	5per cent	$66,449	7per cent	$81,426	8per cent	$96,445	10per cent
3	$28,072	3per cent	$56,573	6per cent	$76,508	8per cent	$98,814	10per cent	$121,252	12per cent	$143,788	14per cent
4	$36,882	4per cent	$74,519	7per cent	$100,937	10per cent	$130,572	13per cent	$160,442	16per cent	$190,491	19per cent
5	$45,412	5per cent	$91,989	9per cent	$124,798	12per cent	$161,693	16per cent	$198,960	20per cent	$236,513	24per cent
6	$53,659	5per cent	$108,971	11per cent	$148,070	15per cent	$192,149	19per cent	$236,768	24per cent	$281,807	28per cent
7	$61,618	6per cent	$125,451	13per cent	$170,733	17per cent	$221,909	22per cent	$273,826	27per cent	$326,325	33per cent
8	$69,286	7per cent	$141,417	14per cent	$192,764	19per cent	$250,941	25per cent	$310,093	31per cent	$370,014	37per cent
9	$76,660	8per cent	$156,856	16per cent	$214,141	21per cent	$279,212	28per cent	$345,522	35per cent	$412,820	41per cent
10	$83,735	8per cent	$171,752	17per cent	$234,842	23per cent	$306,688	31per cent	$380,068	38per cent	$454,682	45per cent
11	$90,508	9per cent	$186,092	19per cent	$254,841	25per cent	$333,330	33per cent	$413,679	41per cent	$495,539	50per cent
12	$96,974	10per cent	$199,862	20per cent	$274,114	27per cent	$359,101	36per cent	$446,304	45per cent	$535,321	54per cent
13	$103,130	10per cent	$213,046	21per cent	$292,635	29per cent	$383,962	38per cent	$477,887	48per cent	$573,959	57per cent
14	$108,971	11per cent	$225,629	23per cent	$310,378	31per cent	$407,869	41per cent	$508,369	51per cent	$611,374	61per cent
15	$114,494	11per cent	$237,594	24per cent	$327,314	33per cent	$430,780	43per cent	$537,688	54per cent	$647,485	65per cent
16	$119,694	12per cent	$248,927	25per cent	$343,415	34per cent	$452,648	45per cent	$565,778	57per cent	$682,205	68per cent
17	$124,567	12per cent	$259,610	26per cent	$358,651	36per cent	$473,426	47per cent	$592,570	59per cent	$715,441	72per cent
18	$129,109	13per cent	$269,626	27per cent	$372,992	37per cent	$493,064	49per cent	$617,991	62per cent	$747,092	75per cent
19	$133,315	13per cent	$278,957	28per cent	$386,405	39per cent	$511,509	51per cent	$641,964	64per cent	$777,054	78per cent
20	$137,181	14per cent	$287,586	29per cent	$398,858	40per cent	$528,706	53per cent	$664,406	66per cent	$805,212	81per cent
21	$140,702	14per cent	$295,493	30per cent	$410,317	41per cent	$544,599	54per cent	$685,232	69per cent	$831,446	83per cent
22	$143,875	14per cent	$302,661	30per cent	$420,746	42per cent	$559,127	56per cent	$704,349	70per cent	$855,628	86per cent
23	$146,694	15per cent	$309,070	31per cent	$430,108	43per cent	$572,227	57per cent	$721,663	72per cent	$877,619	88per cent
24	$149,155	15per cent	$314,698	31per cent	$438,366	44per cent	$583,834	58per cent	$737,071	74per cent	$897,273	90per cent
25	$151,253	15per cent	$319,528	32per cent	$445,480	45per cent	$593,879	59per cent	$750,465	75per cent	$914,434	91per cent
26	$152,984	15per cent	$323,536	32per cent	$451,410	45per cent	$602,291	60per cent	$761,733	76per cent	$928,935	93per cent
27	$154,342	15per cent	$326,701	33per cent	$456,114	46per cent	$608,994	61per cent	$770,754	77per cent	$940,596	94per cent
28	$155,323	16per cent	$329,002	33per cent	$459,547	46per cent	$613,911	61per cent	$777,401	78per cent	$949,229	95per cent
29	$155,922	16per cent	$330,415	33per cent	$461,665	46per cent	$616,958	62per cent	$781,540	78per cent	$954,630	95per cent
30	$156,133	16per cent	$330,917	33per cent	$462,421	46per cent	$618,050	62per cent	$783,030	78per cent	$956,584	96per cent

Total interest paid on a $2,000,000 property

Period (Year)	1.30per cent	per cent Of Property Price	2.60per cent	per cent Of Property Price	3.50per cent	per cent Of Property Price	4.50per cent	per cent Of Property Price	5.50per cent	per cent Of Property Price	6.50per cent	per cent Of Property Price
1	$19,255	1per cent	$38,603	2per cent	$52,041	3per cent	$67,005	3per cent	$81,996	4per cent	$97,006	5per cent
2	$37,973	2per cent	$76,326	4per cent	$103,058	5per cent	$132,898	7per cent	$162,852	8per cent	$192,890	10per cent
3	$56,144	3per cent	$113,145	6per cent	$153,015	8per cent	$197,629	10per cent	$242,503	12per cent	$287,575	14per cent
4	$73,764	4per cent	$149,037	7per cent	$201,874	10per cent	$261,143	13per cent	$320,883	16per cent	$380,983	19per cent
5	$90,824	5per cent	$183,978	9per cent	$249,596	12per cent	$323,386	16per cent	$397,919	20per cent	$473,026	24per cent
6	$107,317	5per cent	$217,941	11per cent	$296,141	15per cent	$384,297	19per cent	$473,536	24per cent	$563,614	28per cent
7	$123,236	6per cent	$250,902	13per cent	$341,466	17per cent	$443,818	22per cent	$547,652	27per cent	$652,649	33per cent
8	$138,573	7per cent	$282,835	14per cent	$385,528	19per cent	$501,883	25per cent	$620,185	31per cent	$740,028	37per cent
9	$153,320	8per cent	$313,711	16per cent	$428,283	21per cent	$558,425	28per cent	$691,044	35per cent	$825,639	41per cent
10	$167,471	8per cent	$343,504	17per cent	$469,684	23per cent	$613,375	31per cent	$760,135	38per cent	$909,364	45per cent
11	$181,016	9per cent	$372,185	19per cent	$509,682	25per cent	$666,660	33per cent	$827,358	41per cent	$991,077	50per cent
12	$193,949	10per cent	$399,724	20per cent	$548,228	27per cent	$718,202	36per cent	$892,609	45per cent	$1,070,643	54per cent
13	$206,260	10per cent	$426,092	21per cent	$585,270	29per cent	$767,923	38per cent	$955,774	48per cent	$1,147,918	57per cent
14	$217,943	11per cent	$451,257	23per cent	$620,755	31per cent	$815,738	41per cent	$1,016,738	51per cent	$1,222,748	61per cent
15	$228,988	11per cent	$475,189	24per cent	$654,627	33per cent	$861,560	43per cent	$1,075,376	54per cent	$1,294,971	65per cent
16	$239,388	12per cent	$497,854	25per cent	$686,829	34per cent	$905,297	45per cent	$1,131,556	57per cent	$1,364,411	68per cent
17	$249,134	12per cent	$519,220	26per cent	$717,302	36per cent	$946,853	47per cent	$1,185,141	59per cent	$1,430,882	72per cent
18	$258,217	13per cent	$539,251	27per cent	$745,984	37per cent	$986,128	49per cent	$1,235,983	62per cent	$1,494,185	75per cent
19	$266,629	13per cent	$557,914	28per cent	$772,811	39per cent	$1,023,018	51per cent	$1,283,928	64per cent	$1,554,108	78per cent
20	$274,361	14per cent	$575,171	29per cent	$797,717	40per cent	$1,057,413	53per cent	$1,328,812	66per cent	$1,610,424	81per cent
21	$281,404	14per cent	$590,987	30per cent	$820,634	41per cent	$1,089,198	54per cent	$1,370,463	69per cent	$1,662,893	83per cent
22	$287,750	14per cent	$605,322	30per cent	$841,492	42per cent	$1,118,253	56per cent	$1,408,699	70per cent	$1,711,256	86per cent
23	$293,388	15per cent	$618,139	31per cent	$860,217	43per cent	$1,144,454	57per cent	$1,443,326	72per cent	$1,755,238	88per cent
24	$298,310	15per cent	$629,397	31per cent	$876,732	44per cent	$1,167,668	58per cent	$1,474,142	74per cent	$1,794,547	90per cent
25	$302,506	15per cent	$639,055	32per cent	$890,961	45per cent	$1,187,758	59per cent	$1,500,931	75per cent	$1,828,869	91per cent
26	$305,967	15per cent	$647,071	32per cent	$902,821	45per cent	$1,204,582	60per cent	$1,523,466	76per cent	$1,857,869	93per cent
27	$308,684	15per cent	$653,402	33per cent	$912,227	46per cent	$1,217,989	61per cent	$1,541,507	77per cent	$1,881,192	94per cent
28	$310,646	16per cent	$658,003	33per cent	$919,094	46per cent	$1,227,821	61per cent	$1,554,801	78per cent	$1,898,458	95per cent
29	$311,843	16per cent	$660,830	33per cent	$923,330	46per cent	$1,233,916	62per cent	$1,563,080	78per cent	$1,909,261	95per cent
30	$312,267	16per cent	$661,834	33per cent	$924,841	46per cent	$1,236,101	62per cent	$1,566,061	78per cent	$1,913,167	96per cent

Total interest paid on a $3,000,000 property

Period (Year)	1.30per cent	per cent Of Property Price	2.60per cent	per cent Of Property Price	3.50per cent	per cent Of Property Price	4.50per cent	per cent Of Property Price	5.50per cent	per cent Of Property Price	6.50per cent	per cent Of Property Price
1	$28,883	1per cent	$57,905	2per cent	$78,062	3per cent	$100,507	3per cent	$122,994	4per cent	$145,510	5per cent
2	$56,959	2per cent	$114,489	4per cent	$154,588	5per cent	$199,347	7per cent	$244,277	8per cent	$289,335	10per cent
3	$84,217	3per cent	$169,718	6per cent	$229,523	8per cent	$296,443	10per cent	$363,755	12per cent	$431,363	14per cent
4	$110,646	4per cent	$223,556	7per cent	$302,812	10per cent	$391,715	13per cent	$481,325	16per cent	$571,474	19per cent
5	$136,236	5per cent	$275,966	9per cent	$374,394	12per cent	$485,078	16per cent	$596,879	20per cent	$709,539	24per cent
6	$160,976	5per cent	$326,912	11per cent	$444,211	15per cent	$576,446	19per cent	$710,303	24per cent	$845,421	28per cent
7	$184,854	6per cent	$376,354	13per cent	$512,199	17per cent	$665,727	22per cent	$821,479	27per cent	$978,974	33per cent
8	$207,859	7per cent	$424,252	14per cent	$578,292	19per cent	$752,824	25per cent	$930,278	31per cent	$1,110,042	37per cent
9	$229,980	8per cent	$470,567	16per cent	$642,424	21per cent	$837,637	28per cent	$1,036,566	35per cent	$1,238,459	41per cent
10	$251,206	8per cent	$515,256	17per cent	$704,525	23per cent	$920,063	31per cent	$1,140,203	38per cent	$1,364,047	45per cent
11	$271,524	9per cent	$558,277	19per cent	$764,523	25per cent	$999,990	33per cent	$1,241,038	41per cent	$1,486,616	50per cent
12	$290,923	10per cent	$599,586	20per cent	$822,342	27per cent	$1,077,304	36per cent	$1,338,913	45per cent	$1,605,964	54per cent
13	$309,390	10per cent	$639,138	21per cent	$877,905	29per cent	$1,151,885	38per cent	$1,433,662	48per cent	$1,721,877	57per cent
14	$326,914	11per cent	$676,886	23per cent	$931,133	31per cent	$1,223,607	41per cent	$1,525,108	51per cent	$1,834,122	61per cent
15	$343,482	11per cent	$712,783	24per cent	$981,941	33per cent	$1,292,339	43per cent	$1,613,064	54per cent	$1,942,456	65per cent
16	$359,082	12per cent	$746,781	25per cent	$1,030,244	34per cent	$1,357,945	45per cent	$1,697,335	57per cent	$2,046,616	68per cent
17	$373,701	12per cent	$778,829	26per cent	$1,075,953	36per cent	$1,420,279	47per cent	$1,777,711	59per cent	$2,146,322	72per cent
18	$387,326	13per cent	$808,877	27per cent	$1,118,975	37per cent	$1,479,192	49per cent	$1,853,974	62per cent	$2,241,277	75per cent
19	$399,944	13per cent	$836,871	28per cent	$1,159,216	39per cent	$1,534,527	51per cent	$1,925,892	64per cent	$2,331,161	78per cent
20	$411,542	14per cent	$862,757	29per cent	$1,196,575	40per cent	$1,586,119	53per cent	$1,993,218	66per cent	$2,415,636	81per cent
21	$422,107	14per cent	$886,480	30per cent	$1,230,951	41per cent	$1,633,797	54per cent	$2,055,695	69per cent	$2,494,339	83per cent
22	$431,625	14per cent	$907,984	30per cent	$1,262,238	42per cent	$1,677,380	56per cent	$2,113,048	70per cent	$2,566,884	86per cent
23	$440,082	15per cent	$927,209	31per cent	$1,290,325	43per cent	$1,716,680	57per cent	$2,164,990	72per cent	$2,632,858	88per cent
24	$447,465	15per cent	$944,095	31per cent	$1,315,099	44per cent	$1,751,501	58per cent	$2,211,213	74per cent	$2,691,820	90per cent
25	$453,759	15per cent	$958,583	32per cent	$1,336,441	45per cent	$1,781,637	59per cent	$2,251,396	75per cent	$2,743,303	91per cent
26	$458,951	15per cent	$970,607	32per cent	$1,354,231	45per cent	$1,806,873	60per cent	$2,285,199	76per cent	$2,786,804	93per cent
27	$463,026	15per cent	$980,103	33per cent	$1,368,341	46per cent	$1,826,983	61per cent	$2,312,261	77per cent	$2,821,789	94per cent
28	$465,969	16per cent	$987,005	33per cent	$1,378,641	46per cent	$1,841,732	61per cent	$2,332,202	78per cent	$2,847,687	95per cent
29	$467,765	16per cent	$991,245	33per cent	$1,384,994	46per cent	$1,850,874	62per cent	$2,344,620	78per cent	$2,863,891	95per cent
30	$468,400	16per cent	$992,752	33per cent	$1,387,262	46per cent	$1,854,151	62per cent	$2,349,091	78per cent	$2,869,751	96per cent

Notice that, at around 3.5 per cent per annum (a typical home loan rate as of 2023), you would have paid around 23 per cent of your property price, in interest repayments alone.

For homeowners, this raises concerns about how little is left in your CPF for retirement. For owner-investors, this means your property must appreciate fast enough to cover the added cost of interest.

Renting out the property is a common way to cope with this (as rental income can pay the interest, and landlords can claim the interest rate portion as a tax deduction). But if you don't rent out the unit, you're left with hoping that property prices continue to rise, at a faster pace than the interest on your loan.

2. There is a CPF withdrawal limit

You can use your CPF to pay up to 120 per cent of your property valuation (based on the valuation at the time of purchase). So if your property is valued at $1 million, you can use up to $1.2 million from your CPF to pay for it. After this, further repayments need to be in cash.

Now if you just use CPF to pay the home loans - and nothing else - you're unlikely to hit the valuation limit due to interest rates alone. But most Singaporeans also use their CPF for the initial down payment (up to 20 per cent of the property price or value, whichever is lower), the Buyers Stamp Duty (BSD) or Additional Buyers Stamp Duty (ABSD) applicable, and even the conveyancing fees.

We can’t simulate this for you as every buyer has used different amounts from their CPF — some are more at risk than others.

(If you log into your CPF account, it will tell you how much more you can spend before hitting the withdrawal limit).

But just know that if you've spent too much from your CPF, then a single percentage point increase can mean reaching the withdrawal limit much sooner. This could cause cashflow issues, if you suddenly find out at 55 or 65 years old that you've hit the withdrawal limit, but no longer have a job that can handle the monthly cost.

3. The floor rate for the TDSR will rise along with interest rates

The Total Debt Servicing Ratio (TDSR) caps your monthly home loan to 55 per cent of your monthly income, inclusive of other debts. For the purposes of the TDSR calculation, a floor rate of four per annum is used.

The floor rate is higher than the average home loan rate, to ensure you can cope if interest rates should rise. As such, the floor rate used must increase as the average home loan rate rises.

At the pace home loan rates are rising, it will be increasingly difficult for borrowers to meet the TDSR.

If you bust the 55 per cent TDSR limit, you'll have to increase your down payment, until the monthly loan repayment shrinks under the TDSR limit. In this way, rising interest rates can indirectly mean higher cash outlays when buying property.

There's also greater refinancing risk for existing borrowers

When you refinance your home loan with another bank, you need to go through the necessary checks again. That is, the new bank needs to check your credit score, determine if you meet the TDSR, and so forth.

This can be a problem if you got your home loan a while ago. For those who bought in 2013, for example, the floor rate for the TDSR was just 3.5 per cent, and the limit was 60 per cent. Some borrowers would have qualified under those terms; but they might fail to qualify given the higher floor rate plus lower TDSR limit (55 per cent) today.

Borrowers who can't qualify for a new loan can't refinance. That could mean they're stuck with whatever bad loan package they have, for years to come.

4. You have to care about this even if you're just a tenant

Interest rates eat into returns, and raise monthly repayments. It’s almost inevitable that, probably by the end of your existing lease, your landlord will try to push for higher rent.

The rental hike won’t correlate to the increase in loan rates either: it will be more than the loan rate, as landlords prepare for further rate hikes this year. On the ground, we’ve noticed a greater number of landlords who turn away long lease periods, preferring to keep it to no more than 12 months.

Usually, when a landlord does this, it’s because they expect their costs (read: their home loan interest rate) to rise — and they want to make sure they’re not still stuck with giving the same rate to tenants.

ALSO READ: Why your en bloc dreams might need to wait beyond 2023

This article was first published in Stackedhomes.

property Property prices Home Buyers