The Hidden Cost Of Homeownership: How A $1M Home Could Lead To $300K In Interest Alone Over 10 Years
One of the least interesting property topics is financing. Home loans are dry, complicated, and don’t make for easy reading; which is why home loan interest rates are often overlooked. In fact, you’ve probably heard by now that rates are rising; but what you may not have realised is how serious it’s shaping up to be. Here are some of the reasons we need to watch mortgage rates much more closely:
1. You could be paying much more than you think
A percentage point increase in the home loan rate may not seem like much. This is partly because the payments are monthly, so it may feel as if you’re just adding on a few hundred per month (or you may be paying with CPF, in which case you may notice it at all).
But we’ve worked out the impact of the rates at different property price amounts ($500,000 to $3 million) below assuming a loan that’s 75% of the price and a 25-year loan tenure (for the $500K property) and 30-year loan tenure for amounts of $1 million onwards. This is what it looks like:
Total interest paid on a $500,000 property
| Period (Year) | 1.30% | % Of Property Price | 2.60% | % Of Property Price | 3.50% | % Of Property Price | 4.50% | % Of Property Price | 5.50% | % Of Property Price | 6.50% | % Of Property Price |
| 1 | $4,799 | 1% | $9,622 | 2% | $12,973 | 3% | $16,705 | 3% | $20,446 | 4% | $24,193 | 5% |
| 2 | $9,431 | 2% | $18,960 | 4% | $25,606 | 5% | $33,028 | 7% | $40,486 | 8% | $47,971 | 10% |
| 3 | $13,894 | 3% | $28,007 | 6% | $37,886 | 8% | $48,953 | 10% | $60,097 | 12% | $71,306 | 14% |
| 4 | $18,185 | 4% | $36,754 | 7% | $49,803 | 10% | $64,459 | 13% | $79,257 | 16% | $94,170 | 19% |
| 5 | $22,302 | 4% | $45,194 | 9% | $61,342 | 12% | $79,529 | 16% | $97,938 | 20% | $116,530 | 23% |
| 6 | $26,243 | 5% | $53,320 | 11% | $72,490 | 14% | $94,143 | 19% | $116,114 | 23% | $138,352 | 28% |
| 7 | $30,006 | 6% | $61,122 | 12% | $83,233 | 17% | $108,278 | 22% | $133,757 | 27% | $159,601 | 32% |
| 8 | $33,589 | 7% | $68,592 | 14% | $93,558 | 19% | $121,914 | 24% | $150,836 | 30% | $180,238 | 36% |
| 9 | $36,988 | 7% | $75,721 | 15% | $103,448 | 21% | $135,027 | 27% | $167,320 | 33% | $200,223 | 40% |
| 10 | $40,202 | 8% | $82,501 | 17% | $112,889 | 23% | $147,594 | 30% | $183,174 | 37% | $219,511 | 44% |
| 11 | $43,228 | 9% | $88,922 | 18% | $121,864 | 24% | $159,589 | 32% | $198,365 | 40% | $238,056 | 48% |
| 12 | $46,064 | 9% | $94,975 | 19% | $130,357 | 26% | $170,985 | 34% | $212,853 | 43% | $255,808 | 51% |
| 13 | $48,707 | 10% | $100,650 | 20% | $138,351 | 28% | $181,757 | 36% | $226,600 | 45% | $272,713 | 55% |
| 14 | $51,155 | 10% | $105,937 | 21% | $145,828 | 29% | $191,874 | 38% | $239,564 | 48% | $288,717 | 58% |
| 15 | $53,404 | 11% | $110,826 | 22% | $152,770 | 31% | $201,307 | 40% | $251,700 | 50% | $303,757 | 61% |
| 16 | $55,454 | 11% | $115,307 | 23% | $159,157 | 32% | $210,024 | 42% | $262,962 | 53% | $317,769 | 64% |
| 17 | $57,300 | 11% | $119,368 | 24% | $164,971 | 33% | $217,992 | 44% | $273,300 | 55% | $330,685 | 66% |
| 18 | $58,941 | 12% | $122,999 | 25% | $170,190 | 34% | $225,177 | 45% | $282,663 | 57% | $342,431 | 68% |
| 19 | $60,373 | 12% | $126,189 | 25% | $174,793 | 35% | $231,544 | 46% | $290,995 | 58% | $352,929 | 71% |
| 20 | $61,594 | 12% | $128,925 | 26% | $178,758 | 36% | $237,054 | 47% | $298,238 | 60% | $362,095 | 72% |
| 21 | $62,601 | 13% | $131,196 | 26% | $182,064 | 36% | $241,668 | 48% | $304,331 | 61% | $369,840 | 74% |
| 22 | $63,391 | 13% | $132,989 | 27% | $184,686 | 37% | $245,344 | 49% | $309,210 | 62% | $376,069 | 75% |
| 23 | $63,962 | 13% | $134,293 | 27% | $186,600 | 37% | $248,041 | 50% | $312,804 | 63% | $380,680 | 76% |
| 24 | $64,311 | 13% | $135,094 | 27% | $187,780 | 38% | $249,712 | 50% | $315,042 | 63% | $383,565 | 77% |
| 25 | $64,434 | 13% | $135,378 | 27% | $188,202 | 38% | $250,312 | 50% | $315,848 | 63% | $384,608 | 77% |
Total interest paid on a $1,000,000 property
| Period (Year) | 1.30% | % Of Property Price | 2.60% | % Of Property Price | 3.50% | % Of Property Price | 4.50% | % Of Property Price | 5.50% | % Of Property Price | 6.50% | % Of Property Price |
| 1 | $9,628 | 1% | $19,302 | 2% | $26,021 | 3% | $33,502 | 3% | $40,998 | 4% | $48,503 | 5% |
| 2 | $18,986 | 2% | $38,163 | 4% | $51,529 | 5% | $66,449 | 7% | $81,426 | 8% | $96,445 | 10% |
| 3 | $28,072 | 3% | $56,573 | 6% | $76,508 | 8% | $98,814 | 10% | $121,252 | 12% | $143,788 | 14% |
| 4 | $36,882 | 4% | $74,519 | 7% | $100,937 | 10% | $130,572 | 13% | $160,442 | 16% | $190,491 | 19% |
| 5 | $45,412 | 5% | $91,989 | 9% | $124,798 | 12% | $161,693 | 16% | $198,960 | 20% | $236,513 | 24% |
| 6 | $53,659 | 5% | $108,971 | 11% | $148,070 | 15% | $192,149 | 19% | $236,768 | 24% | $281,807 | 28% |
| 7 | $61,618 | 6% | $125,451 | 13% | $170,733 | 17% | $221,909 | 22% | $273,826 | 27% | $326,325 | 33% |
| 8 | $69,286 | 7% | $141,417 | 14% | $192,764 | 19% | $250,941 | 25% | $310,093 | 31% | $370,014 | 37% |
| 9 | $76,660 | 8% | $156,856 | 16% | $214,141 | 21% | $279,212 | 28% | $345,522 | 35% | $412,820 | 41% |
| 10 | $83,735 | 8% | $171,752 | 17% | $234,842 | 23% | $306,688 | 31% | $380,068 | 38% | $454,682 | 45% |
| 11 | $90,508 | 9% | $186,092 | 19% | $254,841 | 25% | $333,330 | 33% | $413,679 | 41% | $495,539 | 50% |
| 12 | $96,974 | 10% | $199,862 | 20% | $274,114 | 27% | $359,101 | 36% | $446,304 | 45% | $535,321 | 54% |
| 13 | $103,130 | 10% | $213,046 | 21% | $292,635 | 29% | $383,962 | 38% | $477,887 | 48% | $573,959 | 57% |
| 14 | $108,971 | 11% | $225,629 | 23% | $310,378 | 31% | $407,869 | 41% | $508,369 | 51% | $611,374 | 61% |
| 15 | $114,494 | 11% | $237,594 | 24% | $327,314 | 33% | $430,780 | 43% | $537,688 | 54% | $647,485 | 65% |
| 16 | $119,694 | 12% | $248,927 | 25% | $343,415 | 34% | $452,648 | 45% | $565,778 | 57% | $682,205 | 68% |
| 17 | $124,567 | 12% | $259,610 | 26% | $358,651 | 36% | $473,426 | 47% | $592,570 | 59% | $715,441 | 72% |
| 18 | $129,109 | 13% | $269,626 | 27% | $372,992 | 37% | $493,064 | 49% | $617,991 | 62% | $747,092 | 75% |
| 19 | $133,315 | 13% | $278,957 | 28% | $386,405 | 39% | $511,509 | 51% | $641,964 | 64% | $777,054 | 78% |
| 20 | $137,181 | 14% | $287,586 | 29% | $398,858 | 40% | $528,706 | 53% | $664,406 | 66% | $805,212 | 81% |
| 21 | $140,702 | 14% | $295,493 | 30% | $410,317 | 41% | $544,599 | 54% | $685,232 | 69% | $831,446 | 83% |
| 22 | $143,875 | 14% | $302,661 | 30% | $420,746 | 42% | $559,127 | 56% | $704,349 | 70% | $855,628 | 86% |
| 23 | $146,694 | 15% | $309,070 | 31% | $430,108 | 43% | $572,227 | 57% | $721,663 | 72% | $877,619 | 88% |
| 24 | $149,155 | 15% | $314,698 | 31% | $438,366 | 44% | $583,834 | 58% | $737,071 | 74% | $897,273 | 90% |
| 25 | $151,253 | 15% | $319,528 | 32% | $445,480 | 45% | $593,879 | 59% | $750,465 | 75% | $914,434 | 91% |
| 26 | $152,984 | 15% | $323,536 | 32% | $451,410 | 45% | $602,291 | 60% | $761,733 | 76% | $928,935 | 93% |
| 27 | $154,342 | 15% | $326,701 | 33% | $456,114 | 46% | $608,994 | 61% | $770,754 | 77% | $940,596 | 94% |
| 28 | $155,323 | 16% | $329,002 | 33% | $459,547 | 46% | $613,911 | 61% | $777,401 | 78% | $949,229 | 95% |
| 29 | $155,922 | 16% | $330,415 | 33% | $461,665 | 46% | $616,958 | 62% | $781,540 | 78% | $954,630 | 95% |
| 30 | $156,133 | 16% | $330,917 | 33% | $462,421 | 46% | $618,050 | 62% | $783,030 | 78% | $956,584 | 96% |
Total interest paid on a $2,000,000 property
| Period (Year) | 1.30% | % Of Property Price | 2.60% | % Of Property Price | 3.50% | % Of Property Price | 4.50% | % Of Property Price | 5.50% | % Of Property Price | 6.50% | % Of Property Price |
| 1 | $19,255 | 1% | $38,603 | 2% | $52,041 | 3% | $67,005 | 3% | $81,996 | 4% | $97,006 | 5% |
| 2 | $37,973 | 2% | $76,326 | 4% | $103,058 | 5% | $132,898 | 7% | $162,852 | 8% | $192,890 | 10% |
| 3 | $56,144 | 3% | $113,145 | 6% | $153,015 | 8% | $197,629 | 10% | $242,503 | 12% | $287,575 | 14% |
| 4 | $73,764 | 4% | $149,037 | 7% | $201,874 | 10% | $261,143 | 13% | $320,883 | 16% | $380,983 | 19% |
| 5 | $90,824 | 5% | $183,978 | 9% | $249,596 | 12% | $323,386 | 16% | $397,919 | 20% | $473,026 | 24% |
| 6 | $107,317 | 5% | $217,941 | 11% | $296,141 | 15% | $384,297 | 19% | $473,536 | 24% | $563,614 | 28% |
| 7 | $123,236 | 6% | $250,902 | 13% | $341,466 | 17% | $443,818 | 22% | $547,652 | 27% | $652,649 | 33% |
| 8 | $138,573 | 7% | $282,835 | 14% | $385,528 | 19% | $501,883 | 25% | $620,185 | 31% | $740,028 | 37% |
| 9 | $153,320 | 8% | $313,711 | 16% | $428,283 | 21% | $558,425 | 28% | $691,044 | 35% | $825,639 | 41% |
| 10 | $167,471 | 8% | $343,504 | 17% | $469,684 | 23% | $613,375 | 31% | $760,135 | 38% | $909,364 | 45% |
| 11 | $181,016 | 9% | $372,185 | 19% | $509,682 | 25% | $666,660 | 33% | $827,358 | 41% | $991,077 | 50% |
| 12 | $193,949 | 10% | $399,724 | 20% | $548,228 | 27% | $718,202 | 36% | $892,609 | 45% | $1,070,643 | 54% |
| 13 | $206,260 | 10% | $426,092 | 21% | $585,270 | 29% | $767,923 | 38% | $955,774 | 48% | $1,147,918 | 57% |
| 14 | $217,943 | 11% | $451,257 | 23% | $620,755 | 31% | $815,738 | 41% | $1,016,738 | 51% | $1,222,748 | 61% |
| 15 | $228,988 | 11% | $475,189 | 24% | $654,627 | 33% | $861,560 | 43% | $1,075,376 | 54% | $1,294,971 | 65% |
| 16 | $239,388 | 12% | $497,854 | 25% | $686,829 | 34% | $905,297 | 45% | $1,131,556 | 57% | $1,364,411 | 68% |
| 17 | $249,134 | 12% | $519,220 | 26% | $717,302 | 36% | $946,853 | 47% | $1,185,141 | 59% | $1,430,882 | 72% |
| 18 | $258,217 | 13% | $539,251 | 27% | $745,984 | 37% | $986,128 | 49% | $1,235,983 | 62% | $1,494,185 | 75% |
| 19 | $266,629 | 13% | $557,914 | 28% | $772,811 | 39% | $1,023,018 | 51% | $1,283,928 | 64% | $1,554,108 | 78% |
| 20 | $274,361 | 14% | $575,171 | 29% | $797,717 | 40% | $1,057,413 | 53% | $1,328,812 | 66% | $1,610,424 | 81% |
| 21 | $281,404 | 14% | $590,987 | 30% | $820,634 | 41% | $1,089,198 | 54% | $1,370,463 | 69% | $1,662,893 | 83% |
| 22 | $287,750 | 14% | $605,322 | 30% | $841,492 | 42% | $1,118,253 | 56% | $1,408,699 | 70% | $1,711,256 | 86% |
| 23 | $293,388 | 15% | $618,139 | 31% | $860,217 | 43% | $1,144,454 | 57% | $1,443,326 | 72% | $1,755,238 | 88% |
| 24 | $298,310 | 15% | $629,397 | 31% | $876,732 | 44% | $1,167,668 | 58% | $1,474,142 | 74% | $1,794,547 | 90% |
| 25 | $302,506 | 15% | $639,055 | 32% | $890,961 | 45% | $1,187,758 | 59% | $1,500,931 | 75% | $1,828,869 | 91% |
| 26 | $305,967 | 15% | $647,071 | 32% | $902,821 | 45% | $1,204,582 | 60% | $1,523,466 | 76% | $1,857,869 | 93% |
| 27 | $308,684 | 15% | $653,402 | 33% | $912,227 | 46% | $1,217,989 | 61% | $1,541,507 | 77% | $1,881,192 | 94% |
| 28 | $310,646 | 16% | $658,003 | 33% | $919,094 | 46% | $1,227,821 | 61% | $1,554,801 | 78% | $1,898,458 | 95% |
| 29 | $311,843 | 16% | $660,830 | 33% | $923,330 | 46% | $1,233,916 | 62% | $1,563,080 | 78% | $1,909,261 | 95% |
| 30 | $312,267 | 16% | $661,834 | 33% | $924,841 | 46% | $1,236,101 | 62% | $1,566,061 | 78% | $1,913,167 | 96% |
Total interest paid on a $3,000,000 property
| Period (Year) | 1.30% | % Of Property Price | 2.60% | % Of Property Price | 3.50% | % Of Property Price | 4.50% | % Of Property Price | 5.50% | % Of Property Price | 6.50% | % Of Property Price |
| 1 | $28,883 | 1% | $57,905 | 2% | $78,062 | 3% | $100,507 | 3% | $122,994 | 4% | $145,510 | 5% |
| 2 | $56,959 | 2% | $114,489 | 4% | $154,588 | 5% | $199,347 | 7% | $244,277 | 8% | $289,335 | 10% |
| 3 | $84,217 | 3% | $169,718 | 6% | $229,523 | 8% | $296,443 | 10% | $363,755 | 12% | $431,363 | 14% |
| 4 | $110,646 | 4% | $223,556 | 7% | $302,812 | 10% | $391,715 | 13% | $481,325 | 16% | $571,474 | 19% |
| 5 | $136,236 | 5% | $275,966 | 9% | $374,394 | 12% | $485,078 | 16% | $596,879 | 20% | $709,539 | 24% |
| 6 | $160,976 | 5% | $326,912 | 11% | $444,211 | 15% | $576,446 | 19% | $710,303 | 24% | $845,421 | 28% |
| 7 | $184,854 | 6% | $376,354 | 13% | $512,199 | 17% | $665,727 | 22% | $821,479 | 27% | $978,974 | 33% |
| 8 | $207,859 | 7% | $424,252 | 14% | $578,292 | 19% | $752,824 | 25% | $930,278 | 31% | $1,110,042 | 37% |
| 9 | $229,980 | 8% | $470,567 | 16% | $642,424 | 21% | $837,637 | 28% | $1,036,566 | 35% | $1,238,459 | 41% |
| 10 | $251,206 | 8% | $515,256 | 17% | $704,525 | 23% | $920,063 | 31% | $1,140,203 | 38% | $1,364,047 | 45% |
| 11 | $271,524 | 9% | $558,277 | 19% | $764,523 | 25% | $999,990 | 33% | $1,241,038 | 41% | $1,486,616 | 50% |
| 12 | $290,923 | 10% | $599,586 | 20% | $822,342 | 27% | $1,077,304 | 36% | $1,338,913 | 45% | $1,605,964 | 54% |
| 13 | $309,390 | 10% | $639,138 | 21% | $877,905 | 29% | $1,151,885 | 38% | $1,433,662 | 48% | $1,721,877 | 57% |
| 14 | $326,914 | 11% | $676,886 | 23% | $931,133 | 31% | $1,223,607 | 41% | $1,525,108 | 51% | $1,834,122 | 61% |
| 15 | $343,482 | 11% | $712,783 | 24% | $981,941 | 33% | $1,292,339 | 43% | $1,613,064 | 54% | $1,942,456 | 65% |
| 16 | $359,082 | 12% | $746,781 | 25% | $1,030,244 | 34% | $1,357,945 | 45% | $1,697,335 | 57% | $2,046,616 | 68% |
| 17 | $373,701 | 12% | $778,829 | 26% | $1,075,953 | 36% | $1,420,279 | 47% | $1,777,711 | 59% | $2,146,322 | 72% |
| 18 | $387,326 | 13% | $808,877 | 27% | $1,118,975 | 37% | $1,479,192 | 49% | $1,853,974 | 62% | $2,241,277 | 75% |
| 19 | $399,944 | 13% | $836,871 | 28% | $1,159,216 | 39% | $1,534,527 | 51% | $1,925,892 | 64% | $2,331,161 | 78% |
| 20 | $411,542 | 14% | $862,757 | 29% | $1,196,575 | 40% | $1,586,119 | 53% | $1,993,218 | 66% | $2,415,636 | 81% |
| 21 | $422,107 | 14% | $886,480 | 30% | $1,230,951 | 41% | $1,633,797 | 54% | $2,055,695 | 69% | $2,494,339 | 83% |
| 22 | $431,625 | 14% | $907,984 | 30% | $1,262,238 | 42% | $1,677,380 | 56% | $2,113,048 | 70% | $2,566,884 | 86% |
| 23 | $440,082 | 15% | $927,209 | 31% | $1,290,325 | 43% | $1,716,680 | 57% | $2,164,990 | 72% | $2,632,858 | 88% |
| 24 | $447,465 | 15% | $944,095 | 31% | $1,315,099 | 44% | $1,751,501 | 58% | $2,211,213 | 74% | $2,691,820 | 90% |
| 25 | $453,759 | 15% | $958,583 | 32% | $1,336,441 | 45% | $1,781,637 | 59% | $2,251,396 | 75% | $2,743,303 | 91% |
| 26 | $458,951 | 15% | $970,607 | 32% | $1,354,231 | 45% | $1,806,873 | 60% | $2,285,199 | 76% | $2,786,804 | 93% |
| 27 | $463,026 | 15% | $980,103 | 33% | $1,368,341 | 46% | $1,826,983 | 61% | $2,312,261 | 77% | $2,821,789 | 94% |
| 28 | $465,969 | 16% | $987,005 | 33% | $1,378,641 | 46% | $1,841,732 | 61% | $2,332,202 | 78% | $2,847,687 | 95% |
| 29 | $467,765 | 16% | $991,245 | 33% | $1,384,994 | 46% | $1,850,874 | 62% | $2,344,620 | 78% | $2,863,891 | 95% |
| 30 | $468,400 | 16% | $992,752 | 33% | $1,387,262 | 46% | $1,854,151 | 62% | $2,349,091 | 78% | $2,869,751 | 96% |
Notice that, at around 3.5 per cent per annum (a typical home loan rate as of 2023), you would have paid around 23 per cent of your property price, in interest repayments alone.
For homeowners, this raises concerns about how little is left in your CPF for retirement. For owner-investors, this means your property must appreciate fast enough to cover the added cost of interest.
Renting out the property is a common way to cope with this (as rental income can pay the interest, and landlords can claim the interest rate portion as a tax deduction). But if you don’t rent out the unit, you’re left with hoping that property prices continue to rise, at a faster pace than the interest on your loan.
2. There is a CPF withdrawal limit
You can use your CPF to pay up to 120 per cent of your property valuation (based on the valuation at the time of purchase). So if your property is valued at $1 million, you can use up to $1.2 million from your CPF to pay for it. After this, further repayments need to be in cash.
Now if you just use CPF to pay the home loans – and nothing else – you’re unlikely to hit the valuation limit due to interest rates alone. But most Singaporeans also use their CPF for the initial down payment (up to 20 per cent of the property price or value, whichever is lower), the Buyers Stamp Duty (BSD) or Additional Buyers Stamp Duty (ABSD) applicable, and even the conveyancing fees.
We can’t simulate this for you as every buyer has used different amounts from their CPF – some are more at risk than others.
(If you log into your CPF account, it will tell you how much more you can spend before hitting the withdrawal limit).
But just know that if you’ve spent too much from your CPF, then a single percentage point increase can mean reaching the withdrawal limit much sooner. This could cause cashflow issues, if you suddenly find out at 55 or 65 years old that you’ve hit the withdrawal limit, but no longer have a job that can handle the monthly cost.
3. The floor rate for the TDSR will rise along with interest rates
The Total Debt Servicing Ratio (TDSR) caps your monthly home loan to 55 per cent of your monthly income, inclusive of other debts. For the purposes of the TDSR calculation, a floor rate of four per annum is used.
The floor rate is higher than the average home loan rate, to ensure you can cope if interest rates should rise. As such, the floor rate used must increase as the average home loan rate rises.
At the pace home loan rates are rising, it will be increasingly difficult for borrowers to meet the TDSR.
If you bust the 55 per cent TDSR limit, you’ll have to increase your down payment, until the monthly loan repayment shrinks under the TDSR limit. In this way, rising interest rates can indirectly mean higher cash outlays when buying property.
There’s also greater refinancing risk for existing borrowers
When you refinance your home loan with another bank, you need to go through the necessary checks again. That is, the new bank needs to check your credit score, determine if you meet the TDSR, and so forth.
This can be a problem if you got your home loan a while ago. For those who bought in 2013, for example, the floor rate for the TDSR was just 3.5 per cent, and the limit was 60 per cent. Some borrowers would have qualified under those terms; but they might fail to qualify given the higher floor rate plus lower TDSR limit (55 per cent) today.
Borrowers who can’t qualify for a new loan can’t refinance. That could mean they’re stuck with whatever bad loan package they have, for years to come.
4. You have to care about this even if you’re just a tenant
Interest rates eat into returns, and raise monthly repayments. It’s almost inevitable that, probably by the end of your existing lease, your landlord will try to push for higher rent.
The rental hike won’t correlate to the increase in loan rates either: it will be more than the loan rate, as landlords prepare for further rate hikes this year. On the ground, we’ve noticed a greater number of landlords who turn away long lease periods, preferring to keep it to no more than 12 months.
Usually, when a landlord does this, it’s because they expect their costs (read: their home loan interest rate) to rise – and they want to make sure they’re not still stuck with giving the same rate to tenants.
We’ll keep an eye on this and other situations in the Singapore private property market, and update you as it unfolds. Follow us on Stacked for more details, as well as reviews of new and resale projects.
If you’d like to get in touch for a more in-depth consultation, you can do so here.
