Loan repayment not more than 35% of gross

[Dennis Ng]

hi Dennis,

first of all, thanks very much for providing so much info on housing loans for FREE. I would like to find out more regarding a statement that you mentioned in one of the threads.

"........... try to keep the amount of loan repayment (mortgage, car loan) to not more than 35% of the monthly gross income.............."

Does the above statement take into consideration the amount of money put into the initial downpayment of the property and car?

Example: A person who keeps to the 35 % ratio and has paid a substantial downpayment will be much well off than the other who also keeps to 35% ratio but who only paid the minimal downpayment for his car and property

Am i missing something here?

thanks for your reply!

My comments:
thanks for your words of encouragement.

Having a Housing Loan and Car Loan is ok as long as a person does not over-burden himself/herself in terms of monthly debt repayment. Thus, in my opinion, as long as a person does NOT exceed using more than 35% of his Gross income in paying for debt repayment, he is ok. Of course, the loan should be fully-paid off before his retirement. eg. if you plan to retire by age 60, your Housing Loans and other loans should be FULLY paid off by latest age 60.

Above we assume a person take a NORMAL Housing Loan of 80% financing, ie. he at least pay 20% of downpayment. And for Car Loan, in my opinion, a NORMAL car loan is 70% financing, while he at least pay 30% of downpayment.

Even if a person takes a lower percentage of financing, say he paid 50% downpayment and only takes a 50% loan. However, if the monthly instalment works out to 50% of his Gross Income, he is still deem to have OVER-BORROWED, becos he might be over-stretching his MONTHLY debt repayment commitment.

In actual fact, it is FINANCIALLY WISE for a person if he has some cash, to NOT to take a car loan at all, since interest on car loan is about TWICE that of Housing Loan. Instead he can take a higher Housing Loan, eg, 80% instead of 60% financing instead.

I've seen peopel who have fully paid off their Housing Loan but they HAVE car loans. In my opinion, they are not making financially wise decision.

I hope the above clarifies.

[Dennis Ng]

yes, this is clear now. The logic of not repaying your house loan quickly due to 'good leverage' may not be immediately clear to some (including me).. but after looking through the threads, it becomes more obvious.

thanks once again, will definitely look for your co. when i need help evaluating loans in future.

cheers,
KT

My comments:
glad that you find the information and explanation we provide useful. Looking forward to serving you as one of our satisfied clients in future.

Of course if any of your friends need any comment/advice on Housing Loans, you know where and who they can go to as well. Our tel no. is 6737 8801 and email info@HousingLoanSG.com