Is borrowing 80% Housing Loan OK?

Post by **Dennis Ng** » Mon Jan 28, 2008 1:18 pm

Originally posted by b0rderc0llie
Hi Dennis, I would like to ask you something. For an average singaporean age 30+, how big a loan does he/she has compared to his overall networth?

Networth = Assets - Liabilities

So, supposing a networth of 100, how much assets and how much liabilities will an average person have? Housing loans and loans with low interest rates which are very long term, are considered good debt by Robert Kiyosaki. What is a conservative amount to loan to maintain without over stretching oneself?

Hi b0rderc0llie,
when a person just got married, and bought a property, it is OK to take a 80% Housing Loan.

Thus, at this point in time, this person might not have much other assets, and thus, his Debt-to-Asset ratio might be very close to 80%.

Is he over-borrowing? Might not be. For a young person, it is NOT unusual for people to start with such debt-to-asset ratio.

Thus, the next ratio comes into play: Debt-servicing ratio.

This is a measurement of how much his total debt repayments per month works out as a percentage of his total monthly income.

As long as the ratio does not excced 35%, this person is deemed NOT to have over-borrowed.

I started this way too, 13 years ago when I bought my resale HDB flat.

Now that I'm in the 13th year of repaying my 25 year Housing Loan (age 38 currently), and with increase of my NETWORTH (tripled in the last few years from investing into stocks and properties), currently my debt-to-asset ratio has dropped from (close to 80% 13 years ago) to about 10% currently. My debt-service ratio is also less than 10% as over the years as I increase my income, I didn't increase my loan.

With sale proceeds of a property coming in the next few months, my Cash as a percentage of my total investible funds would rise to over 60%. My Cash is about 3 times the amount I owe in Housing Loans.

As my personal view is that Cash will be KING soon, I'm not using any of my precious Cash to reduce/pay off my Housing Loan.

I'm just sharing what I do and WHY I do what I do, not trying to advise anyone to follow me or do what I do.