- Joined
- May 16, 2023
- Messages
- 31,745
- Points
- 113
How Interest Rates Turned the “Sell 1 HDB & Buy 2 Condo” Strategy Into a Debt Nightmare
OhmyhomeMon, 28 October 2024 at 10:52 AM SGT5-min read
With another interest rate hike announced recently and new mortgage offers by the banks increasing in tandem, we revisit the highly popular “Sell 1 HDB & Buy 2 Condo” scheme promoted by many agents a few years ago.
Contents:
At a time of low interest rates, where new money was practically free, this might have made some sense, but very quickly (some projects launched then aren’t even completed yet), this “asset progression” strategy turned into a debt nightmare especially when new rates are hovering around 4.1-4.3% p.a.ADVERTISEMENT
Let’s dive deep into the proposed plan and why many could end up losing their homes or declaring bankruptcy soon.
The Sell 1 HDB Buy 2 Condo scheme had a few requirements to make it work:
- You are in a dual-income household
- You both qualify for enough financing
- You receive sufficient funds from selling your HDB
So, the typical scenario looked like this:
- You and your spouse earn an annual household income of $60,000 and $40,000 respectively.
- You purchased a 5-room HDB for $500,000.
- You sell it after 10 years for a 50% profit at $750,000.
- You receive $95,000 in cash and about $345,000 in CPF.
- During the 10 years, you managed to save 20% of your take-home pay totalling $160,000 in cash.
- With this total of $600,000, you decide to purchase 2 condos each. The first, a 2-bedroom condo for your residence at $1.2m under your name and, the other, a studio unit for investment at $800,000 under your spouse’s name. (You buy it separately to avoid paying ABSD.)
- You borrow the remaining $900,000 at 1.2% p.a and pay $2,980/mth for 30 years, and your spouse borrows $500,000 at 1.2% p.a. and pay $1,655/mth.
- Immediately, you rent out that $800,000 unit for $2,000/mth (fully paying off your mortgage).
Now, this is where it gets dicey…
Just 2 years ago, as shown, mortgage rates were at 1.2%. Even though it was a stretch, the two of you were paying 50-60% of your income to service the 2 mortgages within the old 60% TDSR limit.
However, with the new rates, you aren’t so lucky.
You | Your Spouse | |
Annual Income | $60,000 | $40,000 |
Previously Monthly Mortgage (1.2% p.a.) | $2,890 | $1,655 |
Current Monthly Mortgage (4.25% p.a.) | $4,430 | $2,460 |
How Much Mortgage Is Eating Up Your Monthly Income | 88.6% | 73.8% |