4 reasons why we should not over-stretch (debts wise)

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“Could her loan be approved if she’s taking 90 percent?” “If not, what about 85 percent then?” “Oh, you mean without her increment, her loan application may be rejected but now with her increment, the bank will usually approve?” These three sentences were a conversation between a good friend with his banker friend. He was enquiring for his sister’s loan which was submitted just last weekend. It was for a double-storey terraced home priced at close to RM550,000. However, there’s now a discount and even the MOT is free. So, he advised his sister to take up the loan and buy as high as her salary could afford. Else, in the future, this opportunity may not come again. “May not come again…” may not be true. Here are 4 reasons why we do NOT need to over-stretch in buying a home.

#1 – Choices aplenty, still. If we need a place which is 15km from KL city centre (KLCC for example), the never ending choices range from Jinjang to Mont Kiara to Sentul to Batu Caves to Wangsa Maju to Cheras to Damansara Uptown to Ampang Jaya to Taman Desa to Kuchai and more… Let’s not talk about areas which are more than 15km away. If we are now looking at places nearby SRJK (C)s, then the choices are even higher. If we are looking at townships (whether newer or older), the choices are now aplenty. From Rawang all the way to Semenyih and Nilai or even Banting. Let’s face it, we only need to look a little more. We are no longer in the 90s where choices are much more LIMITED.

#2 – RM550,000 is not a small amount. With a 90% loan, the loan repayment per month is as per image beside. It’s over RM2,500. Assuming we spend 30% of our pay for this, the person / household should be earning RM7,500 per month. If we stretched to 40%, the person / household should be earning RM6,250 per month. Let’s not calculate what happens when we stretch it to 50% or 70% (mortgage slaves in some countries). What if… the person / household lost their jobs for just 3 months? Will they be able to stretch their savings sufficiently as well to cover for this loan and other loans?

#3 – The BEST is only currently. We believe we are buying the best home possible. RM550k. However, it is ONLY right now. Imagine our salary continue to go up and soon we are earning RM10,000 or higher. By then, is this home still the ‘BEST’ for us? Or do we start to want a bigger and better new home? As the family grows, could the current place continue to be the best for us? As we change our jobs (again and again or every few years), is the current home still the best? What happens if we happen to view a home in a new township which we fell in love with a few years down the road?

#4 – Cash is king. Frankly, the best opportunities come during a slowdown. The best opportunities however will only be open to those with SPARE cash. If we have thrown (I meant, invested) all we have into one home (highest price we could afford) and we are paying up the maximum (nothing left every month) we could afford every month for the last few years for one home, there’s no way we have extra cash for that sudden opportunity. In the business world, the best companies keep reserves because they know they may need it some time in the future. Not many bluechip companies I know INVEST everything they have into a business just because they could afford it at that particular moment.

Many more reasons but hopefully this explains why there is really no need to over-stretch ourselves just because we think we have found that perfect home or that opportunities will not come again. Even as a country, we are defined as a developing nation. Nothing is considered at the peak or fully mature today. Urbanisation continues to happen and Greater Kuala Lumpur is getting ever bigger instead of staying stagnant. Keep reading, keep saving and keep investing. That’s the only best advice we should keep in our minds. Happy following.

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<Featured Image is courtesy of Stock Photos from Vagengeim>

written on 1 April 2019

Next suggested article: Median age still below 30. Property…?

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