In Part I of Rent or Buy your Home, the advantages and disadvantages were listed out for people to make informed decisions. Yet, with all these pros and cons, you may still find yourself questioning which path to take. It is here that we offer you, not just facts and advice, but real life experiences. In an interview conducted with Megan Tan, a finance professional in her early forties with a family of four, shared with us her thought processes in the decision making.
Megan Tan first started her wealth management journey at Goldman Sachs in 2005. Since then, she has continued to provide financial advisory and expertise — including corporate advisory, funds management, multi-family office and wealth management services. She also has provided investment advisory and dealt with ultrahigh net worth families and individuals in Hong Kong, Malaysia, Indonesia, Singapore and Thailand. In 2013, Megan became a senior client management manager executive at the ThirdRock Group, a Singapore-based independent investment management company, and has been there ever since. In 2016, she was mentioned in the 10 Top Women in Family Offices & Wealth Management That Will Motivate You Globally article by Medium.
Q1: Did you buy or rent your house?
I bought both my properties
Q2: Why did you choose to buy instead of rent?
Buying gives me an asset whilst renting is an expense! After working for a few years, I could afford the downpayment and subsequent mortgage payments, so I took the decision to buy. I wouldn’t consider renting as an option as I was comfortable living with my parents.
Q3: What mortgages / loans did you take up and why?
I took a home mortgage loan. A personal loan would not have been feasible since I did not have many assets. A few years ago, one could take a 90% loan (i.e. 10% downpayment – maximum of 50% from CFP and balance from cash). I decided to put up a 20% downpayment as I did not want to take on too much debt.
I took on a variable interest rate mortgage as I felt interest rates were coming off. My preference is to refinance after the lockup period of 2 – 3 years as the terms tend not to be as favourable beyond the lockup period.
Q4. What mortgages / loans are the most advisable in this current economic situation and why?
We are living in a time of uncertain economic climate. So, my advice would be to take up a fixed interest rate scheme. In the not so distant future, the United States Federal Reserve will be looking to increase interest rates which will likely cause Singapore Interbank Offered Rate (SIBOR), a daily reference rate based on interest rates which banks offer to lend unsecured funds to other banks in the Singapore wholesale money market, to rise.
Q5. How much of your CPF funds should you use in purchasing your house?
I believe there is no right or wrong answer. I like to be debt free, so i tend to make partial repayments (CPF or cash) whenever possible. Bear in mind that most mortgage loans do not allow early partial or full repayment during the lockup period.
Q6. How much funds should one set aside when purchasing a first home and why?
There is no hard and fast rule to this. I only made a 20% downpayment when I bought my first home, as I was mindful to set aside some funds for renovations. My preference would be to have $50,000 to $100,000 liquid cash after paying for your first downpayment and renovations.