In a recent impromptu video, a property expert addressed a question from a viewer about whether renting or buying property is better in 2023. While he didn't necessarily agree with the viewer's assumption that renting was the better option, he did provide some valuable insights and information that many people may be curious about. Here, we'll dive into the topic of renting versus buying property and explore the various factors that influence which option is the most advantageous.
Firstly, the expert acknowledged that if you're buying an HDB flat and getting a loan at a 2.6% interest rate, then buying is the better option. This is because the interest rate is relatively low, and the maximum loan tenure is 25 years, which means you'll pay less interest in the long run compared to a 30-year loan for a private property. Therefore, if you're comparing renting and buying an HDB flat, buying is the clear winner.
However, if you're comparing renting a room in an HDB flat versus buying an entire flat, then renting may be the better choice. This is because the cost of buying a flat is much higher, and renting a room in an HDB flat will likely be less expensive than buying an entire flat.
The expert also discussed the concept of amortization, which is the calculation used to determine how much you'll pay each month for your mortgage loan. He explained that if you take out a mortgage loan at 4% interest over 30 years, your first-year interest will be $29,759, but this amount will gradually decrease over time. While you'll pay more interest in the short term, you'll pay less interest in the long term as you pay off your loan.
It's important to note that amortization means that your interest rate stops the day you sell your house. So, if you sell your house after five years, you'll only have paid five years of interest, not six or seven.
Other factors to consider when deciding whether to rent or buy include your financial situation, how long you plan to stay in the property, and the current state of the property market. If you have a stable income and plan to stay in the property for many years, then buying may be the better option, as you'll eventually build equity and may be able to sell the property for a profit. However, if you're unsure about your financial situation or don't plan to stay in the property for very long, then renting may be a more practical option.
Ultimately, the decision to rent or buy property is a complex one that requires careful consideration of multiple factors. While there is no one-size-fits-all answer, understanding the various pros and cons of each option can help you make an informed decision that is right for your unique circumstances.