Why is the ROI of a 70% loan higher than a 60% loan when buying a home

When considering a home loan in Singapore, the Return on Investment (ROI) can be influenced by several factors, including the loan amount and the down payment.

A 70% loan typically means you are borrowing a larger portion of the property's purchase price, while a 60% loan means you are borrowing less. Here’s why the ROI might be higher for a 70% loan:

1. Leverage: With a 70% loan, you are using more borrowed money to purchase the property. This can amplify your potential gains if the property value increases, because the increase in value is applied to the entire purchase price, not just your down payment.

2. Lower Initial Outlay: By borrowing more, you have less of your own capital tied up in the property initially. This can be beneficial if you have other investment opportunities or need to retain liquidity.

3. Potential for Higher Capital Appreciation: If the property market performs well, the capital appreciation on the entire property value can be significant, even though you've only paid a smaller portion upfront.

However, it's crucial to consider the risks:
- Higher Debt Servicing: A larger loan means higher monthly mortgage payments and more interest paid over the loan tenure.
- Financial Risk: If the property market declines, you could end up with negative equity, where the property is worth less than the loan amount.

To accurately assess your financial situation and the potential ROI, you can use tools like EdgeProp's Mortgage Calculator or Affordability Calculator to get a clearer picture of your loan repayments and overall financial commitment.