How much would it take to pay off your flat by 30, 40, 50 or 55?

For many Singaporeans – heck, for many people across the world – paying off the mortgage early is a common aspiration. We get it too: most of us don’t like the thought of owing money, especially on something as major as our home.

The good news for Singaporeans is that, unlike the Singapore private property market, HDB flats are affordable to most. But if you want to take it further and go for early retirement, FIRE, etc., here’s how much you’d need to do it:

How are the following figures derived?

In all of the following, we assumed full financing from available loans. This is 90 per cent of your flat price if using an HDB loan, and 75 per cent if using a bank loan.

We have also assumed the flat is a new 4-room flat, which is the most common first-home choice among Singaporeans. We will use an assumed cost of $320,000 for this flat (this is a typical amount after subsidies).

We have excluded stamp duties, renovations, and furnishing, as these are not covered by the home loan.

For the purposes of bank loans, we have used an interest rate of 1.3 per cent, which is the present-day average. However, for the purposes of determining the minimum income only , we have used an interest rate of 3.5 per cent. This is the rate that banks will use when factoring your MSR (even if the real interest rate is a lot lower).

The HDB loan rate is 2.6 per cent, and seldom changes.

In each of the following, we have assumed that the buyers’ obtained their flat at age 25. We have also assumed a loan tenure of 25 years.

How did we derive the minimum income required?

Under the Mortgage Servicing Ratio (MSR), your monthly home loan repayment cannot exceed 30 per cent of your combined monthly income (among all borrowers). We’ve used the MSR to determine the minimum income level, for a loan of the given tenure.

How much do you need to pay off your flat in just five years?

Using an HDB loan

The income ceiling for buying a BTO flat is currently $14,000 per month. This means such a loan wouldn’t usually be possible, and you’d need to either (1) buy a resale flat (for which there’s no income ceiling), or (2) make a much bigger down payment, to reduce the monthly loan repayment.

Using a bank loan

Details	Amount
Downpayment (25 per cent of $320,000)	$80,000
Loan quantum	$240,000
Monthly repayment on usual 25-year loan tenure	$4,133.57
Total interest paid on 25-year loan tenure	$8,014.42
Minimum combined income required	$14,553.40 (exceeds income ceiling for BTO flats, see above)

ALSO READ: HDB loan vs bank loan: Which one should you pick?

How much do you need to pay off your flat in 15 years?

Using an HDB loan

Details	Amount
Downpayment (10 per cent of $320,000)	$32,000
Loan quantum	$288,000
Monthly repayment on 15-year loan tenure	$1,933.94
Total interest paid on 15-year loan tenure	$60,109.15
Minimum combined income required	$6,446.46

Using a bank loan

Details	Amount
Downpayment (25 per cent of $320,000)	$80,000
Loan quantum	$240,000
Monthly repayment on 15-year loan tenure	$1,468.28
Total interest paid on 15-year loan tenure	$24,289.48
Minimum combined income required	$5,719

How much do you need to pay off your flat in 25 years?

Using an HDB loan

Details	Amount
Downpayment (10 per cent of $320,000)	$32,000
Loan quantum	$288,000
Monthly repayment on 25-year loan tenure	$1,306.57
Total interest paid on 25-year loan tenure	$103,970.45
Minimum combined income required	$4,355.23

Using a bank loan

Details	Amount
Downpayment (25 per cent of $320,000)	$80,000
Loan quantum	$240,000
Monthly repayment on 25-year loan tenure	$937.46
Total interest paid on 25-year loan tenure	$41,237.63
Minimum combined income required	$4,005.00

To pay off the home loan only after 30 years:

HDB loans are capped at 25 years. If you start servicing the loan at 25, it’s not possible to stretch the loan tenure past the age of 50.

It is possible for bank loans though. The catch is that if the loan tenure exceeds 25 years, the maximum financing falls to 55 per cent. So you will need a bigger down payment, if you want to stretch the loan this far.

Do also note that the maximum loan tenure for bank loans financing HDB purchases is 30 years.

Details	Amount
Downpayment (45 per cent of $320,000)	$144,000
Loan quantum	$176,000
Monthly repayment on 30-year loan tenure	$590.66
Total interest paid on 30-year loan tenure	$36,639.28
Minimum combined income required	$2,634.40

In a bid to make things easier, we have also broken down how much it would cost to pay off a BTO in both a mature and non-mature estate. For this example, we’ve used prices from the recent BTO sales launch in November 2020 – Tengah (non-mature) and Toa Payoh (mature).

Minimum combined income for HDB loan

Min. Income (HDB LOAN)	3-Room	4-Room	5-Room
Mature BTO Price	$324,000	$466,000	$627,000
By 30 Years Of Age	$17,293*	$24,873*	$33,466*
By 40 Years Of Age	$6,527	$9,388	$12,631
By 50 Years Of Age	$4,410	$6,342	$8,534
Non-Mature BTO Price	$194,000	$288,000	$394,000
By 30 Years Of Age	$10,355	$15,372*	$21,030*
By 40 Years Of Age	$3,908	$5,802	$7,937
By 50 Years Of Age	$2,640	$3,920	$5,362

Do note that at 25, the maximum tenure is just 25 years for HDB loans.

Minimum combined income for bank loan

Min. Income (BANK LOAN)	3-Room	4-Room	5-Room
Mature Estate BTO Price	$324,000	$466,000	$627,000
By 30 Years Of Age	$14,735*	$21,193*	$28,516*
By 40 Years Of Age	$5,791	$8,328	$11,206
By 50 Years Of Age	$4,055	$5,832	$7,847
By 55 Years Of Age	$2,667	$3,836	$5,162
Non-Mature Estate BTO Price	$194,000	$288,000	$394,000
By 30 Years Of Age	$8,823	$13,098	$17,919*
By 40 Years Of Age	$3,467	$5,147	$7,042
By 50 Years Of Age	$2,428	$3,604	$4,931
By 55 Years Of Age	$1,597	$2,371	$3,244

*Not possible to do so given these income exceeds the ceiling for BTOs.

Do note that for bank loans exceeding 25 years in tenure for HDBs, the financing changes from an LTV of 75 per cent to 55 per cent.

ALSO READ: Want to buy flat? Read our guide to HDB's new portal

What about paying off the entire loan with a windfall?

Sometimes, occurrences like winning the lottery, getting an inheritance, etc., provides an opportunity to pay off the outstanding home loan.

For HDB loans, you can do this anytime you want, without any penalty. For bank loans, you need to check for prepayment penalties. There is usually a period just after you take the loan (around three to five years is the norm), when you pay a penalty for trying to pay off the loan early.

With most banks, this comes to 1.5 per cent of the amount redeemed (e.g., if you try to pay off $100,000 at one go, you would pay $1,500 in penalty). This isn’t true of every loan package, so do check before you pay.

Finally, an important note on paying off your home loan early

Please keep in mind that it’s not prudent for everyone to pay off their flat loan by 30 or 40, even if they could.

A fully paid-up flat can’t pay for needs like meals or healthcare (unless you’re willing to sell the flat, which defeats the purpose). It’s a mistake to empty one’s savings on early home loan repayments, and end up needing personal loans in emergencies.

The typical unsecured loan has an interest rate of six to nine per cent, whereas HDB loans are only 2.6 per cent. In most such cases, the borrowers would be better off keeping cash for emergencies, paying their home loan slowly, and avoiding the use of other loans.

ALSO READ: Million-dollar HDB home: What's the hype all about?

This article was first published in Stackedhomes.