Why every Singaporean homeowner needs to know the 3-3-5 rule

Singaporeans love using three syllables. There's the PIE, and the MRT. You've got MBS and GST. And of course, our emergency numbers, 995 and 999. If you're a homeowner , there's one more to add to that collection: 335. Yep, we're talking about the 3-3-5 Rule.The 3-3-5 rule is a guideline that helps you gauge your home affordability. It is a realistic measure that ensures that you do not over-leverage to purchase your home, especially if it's your first one.

And of course, you can still go ahead to take up a higher LTV with your bank loan or HDB housing loan.The second 3 in the 3-3-5 rule also stands for 30 per cent, but this time of your monthly household income. By ensuring that you keep your monthly mortgage repayment within 1/3 of your monthly household income, you create enough buffer even if interest rates were to go higher than they are now.The last point in the 3-3-5 rule is to not overstretch your finances. According to the 3-3-5 rule, valuation of the property that you are eyeing shouldn't exceed 5x of your annual household income.

One hack you can try is to consider renting out a room in your new home. This helps you to create passive income that raises your monthly household income without you working too hard for that pay raise.The monthly repayment that you make on your housing loan is a factor of two things: Loan tenure and interest rate .

Contrast this with the next scenario where you take out a 30 year loan at the same amount and interest rate. The overall cost of home ownership shoots up to $1.517 million.

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