How to Work out Affordability for Property Purchase?
Below comments by Dennis Ng extracted from "The Dollars and Sense of Home Loans, Nov 2009.
Affordability issues
In order to ensure prudent financial planning, Mr Dennis Ng, spokesman for www.HousingLoanSG.com - a mortgage consultancy portal - suggests that home buyers track their total monthly debt repayment obligations.
These repayments should not exceed 35 per cent of their household income.
For example, suppose your car loan instalment is $800, other monthly bills are $1,200 and your housing loan instalment is $3,000. That adds up to a total monthly debt repayment of $5,000.
Assume a monthly household income of $10,000.
That means half your income is going into debts. In the language of financial experts, that is called a debt-servicing ratio of 50 per cent.
That is not advisable as it is well above the maximum recommended debt-servicing ratio of 35 per cent.