Even though their rates are high, American mortgages offer more certainty because they're fixed for 30 years
Home-loan interest rates in Singapore are less than 2%, while in Japan they're around 1% or even lower. That's in stark contrast to mortgage rates in America and Australia, which are over 6% on average.
Over the past few months, I was neck-deep in research about where to buy my first house. After years of renting, it seemed like a natural transition to become a homeowner. But time and time again, it seemed financially irresponsible to spend $10,000 a month on a mortgage when I could get a rental for less than half that cost.
Nonetheless, I still wanted some real-estate exposure in my portfolio.
So I began to explore this question: If I couldn't buy in the high-cost New York and New Jersey metro areas, why not elsewhere? And why not back home in Singapore, where I grew up?
That idea sent me down a rabbit hole involving real-estate agents, tiny shoebox apartments and frustrating chats with mortgage brokers.
Here's what I learned from that experience - and why I decided to take my time with what could possibly be one of the most expensive moves I will make in my life.
Living in the New York City area, buying is too expensive for me under current conditions. Paying 6.5% interest rate on a mortgage seems exorbitant compared to the sub-2% rate I can get as a Singaporean back home. The monthly payment on a $1.4 million home would be about 40% less just based on the interest rate alone.
Here's a rough comparison:
Cost Jersey City, N.J. Singapore Purchase price $1.4 million $1.4 million Down payment (25%) $350,000 $350,000 Mortgage $1.05 million $1.05 million Mortgage rate (average) 6.5% 1.75% Monthly mortgage payment $6,600 $3,800 Monthly property taxes $2,065 $200 to $500 (though could be higher for investment property) Monthly homeowners insurance $150 to $250 $25 to $60 Estimated monthly housing cost Close to to $9,000 per month Less than $4,300 per month
At the same time, homeownership isn't just about the rate. As a home buyer in New Jersey, I would have to pay the highest property taxes in the country. Throw in the cost of homeowners insurance, and buying a single-family home becomes an even more costly proposition. Why spend so much money on a house to live in, when I could keep renting and invest the excess money at a time when the stock market is doing so well?
So I looked across the world, to see how far our savings would go and whether diversifying our investment portfolio by purchasing a rental property might make more financial sense.
To better understand local market conditions, I reached out to a couple of real-estate agents in Singapore. I asked them: As an investor, what can I afford? What would the monthly obligation be? Would I make a profit each month? And would it be manageable while I also pay rent in the U.S.?
In one of the most expensive real-estate markets in the world, renting out the property wouldn't be a problem at all, they assured me. The median price of a condo was about 1.875 million Singapore dollars (USDSGD), which is about $1.47 million in the U.S. Apartments constitute the vast majority of Singapore's housing stock, as opposed to single-family homes.
They walked me through two options: buying a brand-new property, and buying a resale unit.
Buying brand new meant that I would be buying into a home that had yet to be built. One of the perks of investing in a "new launch," as they called it: I'd only pay a couple of hundred dollars a month in the first few years, before the payments escalated as the builders got closer to finishing the project. Once complete, I had the option to move in, rent the unit or even sell. Many homes in the core downtown area had appreciated significantly in the five years between being announced and finally being move-in ready, the agents said.
Buying a new home seemed like a good idea until I realized that I would be tying up my capital for five years. As a parent of two kids juggling childcare costs, enrichment activities and our grocery budget, putting money into an investment across the world seemed like a bad move. What if I needed that money urgently? What if I wanted to buy in the U.S. if mortgage rates fell significantly? Would it be better to invest in a resale home in Singapore, then rent it out to have positive cash flow from month one?
Another challenge was getting a loan from a local bank, because Singaporean banks are quite strict. One wanted to see consistent income. In America, I was paid every two weeks, and the amount in each paycheck would vary. In Singapore, the banks I spoke with preferred consistent monthly income and saw my U.S. pay structure as less straightforward. Plus, I had too many credit cards open, they said, with way too many transactions. To take advantage of first-time-buyer benefits, I was buying alone in Singapore, but my credit cards were issued in both my name and my husband's name - too complicated, they said. One bank ended up offering me a $700,000 loan, which would not be enough to buy a private condo.
It's also hard to use foreign income to qualify for a mortgage. Some mortgage lenders do a haircut on foreign income - meaning that, to reduce exchange-rate volatility, they reduce the borrower's usable gross income by a certain percentage. That reduces one's income, and how much they can borrow.
To help make housing affordable, the Singaporean government subsidizes housing by building apartments around the city. These are fabulous apartments, and some of my friends have spent considerable time and money making them look amazing with renovations and fancy furniture. Technically, $700,000 would have been enough to buy public housing, but to keep the unit, I'd have to live there for a minimum of five years before I could rent it out. Not an option.
People with deeper pockets buying homes overseas find financing less of a problem because they can afford to pay for homes with cash, but they sometimes run into issues with the mechanics of buying and maintaining property, Gavin Swartzman, president of Christie's International Real Estate, told MarketWatch.
For instance, certain countries may have rules about nonresidents buying property, or have limits on how much time foreign owners can spend outside of the country.
"There are local rules and customs that an educated buyer needs to be able to know about before they make the decision," Swartzman said, so finding a local agent who has worked with foreign buyers is key in those markets.
Toward the end of my house-hunting trip to Singapore, a friend's husband told me that even if I were to decide to pull the trigger and buy an apartment, it took them over six weeks to get the paperwork done. I would have to go through the mortgage company, the real-estate company and the legal process to actually gain ownership of the property. One good thing for buyers in a hurry is that physical inspections of properties are less common than in the U.S., and the focus is more on the financing and legal side. But the process would take time, which I didn't have - I had to come back to America.
So I asked my parents to investigate possible real-estate investments in Singapore while I also kept our options open in the U.S., where me and my family are still renting.
It was a frustrating ending. In America, I'm stuck with 6% mortgage rates, which now seem too high - especially when many parts of the world have such low interest rates.The monthly cost of owning a home just didn't make sense when my rent was less than half of it.
Interest rates vary wildly around the world
The entire experience had me thinking: What are mortgage rates like around the world? Where do ultralow rates persist? Assuming that I'm a resident in the country, what's the mortgage rate range if I were to buy in Tokyo or in Paris?
Comparing mortgage rates across the world is not an apples-to-apples comparison, because some countries rely on floating rates and others on short-term fixed rates, while most people in America use 30-year fixed-rate loans to buy homes.
Here's a breakdown of what it's like around the globe:
Country Mortgage rate Good to know Japan Variable rates are less than 1%, and the vast majority of outstanding loans are variable-rate loans. If you are living in Tokyo, Japanese citizens or permanent residents get ultralow rates: The typical interest rate on a variable-rate home loan is well below 1% or less. About 80% of housing loans in Japan have floating rates, according to China About 3%, or even lower in some places for some buyers Chinese residents buying homes also get low rates compared with their American counterparts. The average rate on new variable loans is around 3%. The Chinese government also offers subsidized loans for first-time home buyers, Hepp said. United Kingdom About 4.5% Home buyers in the U.K., who mostly have mortgages that are fixed for two to five years, are seeing rates over 4%.
MW I looked into buying a house in Singapore as an investment. Here's why I didn't - despite the 2% mortgage rate.
By Aarthi Swaminathan
Even though their rates are high, American mortgages offer more certainty because they're fixed for 30 years
Home-loan interest rates in Singapore are less than 2%, while in Japan they're around 1% or even lower. That's in stark contrast to mortgage rates in America and Australia, which are over 6% on average.
Over the past few months, I was neck-deep in research about where to buy my first house. After years of renting, it seemed like a natural transition to become a homeowner. But time and time again, it seemed financially irresponsible to spend $10,000 a month on a mortgage when I could get a rental for less than half that cost.
Nonetheless, I still wanted some real-estate exposure in my portfolio.
So I began to explore this question: If I couldn't buy in the high-cost New York and New Jersey metro areas, why not elsewhere? And why not back home in Singapore, where I grew up?
That idea sent me down a rabbit hole involving real-estate agents, tiny shoebox apartments and frustrating chats with mortgage brokers.
Here's what I learned from that experience - and why I decided to take my time with what could possibly be one of the most expensive moves I will make in my life.
Living in the New York City area, buying is too expensive for me under current conditions. Paying 6.5% interest rate on a mortgage seems exorbitant compared to the sub-2% rate I can get as a Singaporean back home. The monthly payment on a $1.4 million home would be about 40% less just based on the interest rate alone.
Here's a rough comparison:
Cost Jersey City, N.J. Singapore Purchase price $1.4 million $1.4 million Down payment (25%) $350,000 $350,000 Mortgage $1.05 million $1.05 million Mortgage rate (average) 6.5% 1.75% Monthly mortgage payment $6,600 $3,800 Monthly property taxes $2,065 $200 to $500 (though could be higher for investment property) Monthly homeowners insurance $150 to $250 $25 to $60 Estimated monthly housing cost Close to to $9,000 per month Less than $4,300 per month
At the same time, homeownership isn't just about the rate. As a home buyer in New Jersey, I would have to pay the highest property taxes in the country. Throw in the cost of homeowners insurance, and buying a single-family home becomes an even more costly proposition. Why spend so much money on a house to live in, when I could keep renting and invest the excess money at a time when the stock market is doing so well?
So I looked across the world, to see how far our savings would go and whether diversifying our investment portfolio by purchasing a rental property might make more financial sense.
To better understand local market conditions, I reached out to a couple of real-estate agents in Singapore. I asked them: As an investor, what can I afford? What would the monthly obligation be? Would I make a profit each month? And would it be manageable while I also pay rent in the U.S.?
In one of the most expensive real-estate markets in the world, renting out the property wouldn't be a problem at all, they assured me. The median price of a condo was about 1.875 million Singapore dollars (USDSGD), which is about $1.47 million in the U.S. Apartments constitute the vast majority of Singapore's housing stock, as opposed to single-family homes.
They walked me through two options: buying a brand-new property, and buying a resale unit.
Buying brand new meant that I would be buying into a home that had yet to be built. One of the perks of investing in a "new launch," as they called it: I'd only pay a couple of hundred dollars a month in the first few years, before the payments escalated as the builders got closer to finishing the project. Once complete, I had the option to move in, rent the unit or even sell. Many homes in the core downtown area had appreciated significantly in the five years between being announced and finally being move-in ready, the agents said.
Buying a new home seemed like a good idea until I realized that I would be tying up my capital for five years. As a parent of two kids juggling childcare costs, enrichment activities and our grocery budget, putting money into an investment across the world seemed like a bad move. What if I needed that money urgently? What if I wanted to buy in the U.S. if mortgage rates fell significantly? Would it be better to invest in a resale home in Singapore, then rent it out to have positive cash flow from month one?
Another challenge was getting a loan from a local bank, because Singaporean banks are quite strict. One wanted to see consistent income. In America, I was paid every two weeks, and the amount in each paycheck would vary. In Singapore, the banks I spoke with preferred consistent monthly income and saw my U.S. pay structure as less straightforward. Plus, I had too many credit cards open, they said, with way too many transactions. To take advantage of first-time-buyer benefits, I was buying alone in Singapore, but my credit cards were issued in both my name and my husband's name - too complicated, they said. One bank ended up offering me a $700,000 loan, which would not be enough to buy a private condo.
It's also hard to use foreign income to qualify for a mortgage. Some mortgage lenders do a haircut on foreign income - meaning that, to reduce exchange-rate volatility, they reduce the borrower's usable gross income by a certain percentage. That reduces one's income, and how much they can borrow.
To help make housing affordable, the Singaporean government subsidizes housing by building apartments around the city. These are fabulous apartments, and some of my friends have spent considerable time and money making them look amazing with renovations and fancy furniture. Technically, $700,000 would have been enough to buy public housing, but to keep the unit, I'd have to live there for a minimum of five years before I could rent it out. Not an option.
People with deeper pockets buying homes overseas find financing less of a problem because they can afford to pay for homes with cash, but they sometimes run into issues with the mechanics of buying and maintaining property, Gavin Swartzman, president of Christie's International Real Estate, told MarketWatch.
For instance, certain countries may have rules about nonresidents buying property, or have limits on how much time foreign owners can spend outside of the country.
"There are local rules and customs that an educated buyer needs to be able to know about before they make the decision," Swartzman said, so finding a local agent who has worked with foreign buyers is key in those markets.
Toward the end of my house-hunting trip to Singapore, a friend's husband told me that even if I were to decide to pull the trigger and buy an apartment, it took them over six weeks to get the paperwork done. I would have to go through the mortgage company, the real-estate company and the legal process to actually gain ownership of the property. One good thing for buyers in a hurry is that physical inspections of properties are less common than in the U.S., and the focus is more on the financing and legal side. But the process would take time, which I didn't have - I had to come back to America.
So I asked my parents to investigate possible real-estate investments in Singapore while I also kept our options open in the U.S., where me and my family are still renting.
It was a frustrating ending. In America, I'm stuck with 6% mortgage rates, which now seem too high - especially when many parts of the world have such low interest rates.The monthly cost of owning a home just didn't make sense when my rent was less than half of it.
Interest rates vary wildly around the world
The entire experience had me thinking: What are mortgage rates like around the world? Where do ultralow rates persist? Assuming that I'm a resident in the country, what's the mortgage rate range if I were to buy in Tokyo or in Paris?
Comparing mortgage rates across the world is not an apples-to-apples comparison, because some countries rely on floating rates and others on short-term fixed rates, while most people in America use 30-year fixed-rate loans to buy homes.
Here's a breakdown of what it's like around the globe:
Country Mortgage rate Good to know Japan Variable rates are less than 1%, and the vast majority of outstanding loans are variable-rate loans. If you are living in Tokyo, Japanese citizens or permanent residents get ultralow rates: The typical interest rate on a variable-rate home loan is well below 1% or less. About 80% of housing loans in Japan have floating rates, according to China About 3%, or even lower in some places for some buyers Chinese residents buying homes also get low rates compared with their American counterparts. The average rate on new variable loans is around 3%. The Chinese government also offers subsidized loans for first-time home buyers, Hepp said. United Kingdom About 4.5% Home buyers in the U.K., who mostly have mortgages that are fixed for two to five years, are seeing rates over 4%.
Australia About 6% Local home buyers in Australia are also facing relatively higher interest rates, averaging close to 6%. Housing markets in both the U.K. and Australia are very sensitive to interest-rate changes by the central bank because changing rates quickly affect variable-rate loans, which are common in those countries. In the U.S., homeowners with 30-year mortgages are less likely to be affected by fluctuating interest rates because they usually have fixed-rate loans. France Less than 4% Similar to the U.S., France also offers long-term fixed-rate mortgages of around 25 years. USA About 6.5% and over In the U.S., the 30-year mortgage rate currently averages around 6.5%. India Over 7% Indian banks offer interest rates upwards of 7%, even for well-qualified buyers who have a good credit score. Floating-rate home loans are more common than fixed-rate loans, and Mexico From 9% to 12% Local banks are charging rates upwards of 9% and even as high as 14% due to exchange-rate volatility that affects interest rates.