Showing posts with label Housing Loan. Show all posts
Showing posts with label Housing Loan. Show all posts

Absolute Cost of My House

I did a quick calculation of the actual cost of my HDB flat today. While I bought the flat from HDB at a low $300K, when I add up interests at 2.6% for a 30 year repayment period of the mortgage loan, it actually adds up to cost in absolute dollars of over $400K.

That is simply quite amazing!

That is an additional $100K more than the mental figure I had in my head.

It happens all the time when people ask me how much I bought my flat for, I simply give them the price at which I bought it from HDB.

But today, after doing a real calculation of how much in absolute dollars and cents I am paying, I realise that the figure I ought to be quoting them is actually $100K more. That is of course if I do not make any early repayment of the mortgage loan and if I do not sell my house within the 30 year timeframe.

This sorts of shifts my thinking abit about whether I ought to repay a part of my loan earlier with cash sitting in the bank that is earning an interest rate lower than 2.6%. Food for thought...

Mortgage Financing Made Easy: The ABCs of Taking a Housing Loan


By Property Buyer


We understand that comprehending the terms and contents of a loan contract, and finding the right mortgage that fits our lifestyle and financial capacity can be a challenge for borrowers, especially for first-timers. Thus this article attempts to shed some light about the process - from mortgage  selection, determining which interest rate serves you best, to meeting the requirements for the loan. The goal is to help you become aware of some of the advantages and disadvantages in selecting a particular loan package as well as to safeguard your pockets.

Establishing a good credit history

First of all, a loan can never be granted if you have a bad credit standing. The Credit Bureau in Singapore collects certain credit-related data, like all the credit  facilities a borrower has with the various financiers (but not the outstanding amount owed), and then makes the information accessible to credit providers on its membership list. The best way to obtain a good credit score is to pay your loan or credit cards on time. Late payments and defaulting on loan payments to any financial institution is bad because this will adversely impact your credit score. Having a low credit score will lock you out of loans with the best interest rates because the banks or lending institutions will decline your loan application. If you are planning to take a loan, then you should start creating a good credit history. The Bureau collects records of residents with a rolling 12-month credit facility. For closed accounts, the Bureau still shows the last 12 months history of the account before it was closed. On time payments normally gain a credit score of 12 'A'.


Owning multiple credit cards reflects weaker financial status

Most people think having many credit cards is an advantage. However, owning multiple credit cards can weaken your financial health as these plastics provide a false sense of financial strength, which is spending on borrowed money. Owning multiple credit cards in the absence of discipline usually ends up being highly indebted to banks. This means you should own fewer cards.

In addition, having excessive cards creates another disadvantage. This reduces the overall loan borrowing quantum of the borrower. Remember, that banks always compute your loan value based on your availed credit facilities against your monthly earnings. This means that even if you are not using the credit card, it has already reduced the amount of the loan you are allowed to avail for buying a new home.

Checking your credit score

You may personally request for a credit report from the Credit Bureau of Singapore. Find out if your credit facility and credit standing were correctly stated.

Finding the best house and location

We need to understand that finding the best house and location should be a house that meets our budget. Please do not avail a loan and buy a house that would make things difficult in the future. Live the kind of lifestyle your pockets can afford. Purchase a house with the amount of mortgage you find comfortable financing. The ideal way to select a loan and a house is to evaluate whether you still have the capacity to pay the monthly amortization when your financial situation becomes worse. To help you gauge if you can afford the rate and the monthly dues, you may want to use the debt-to-service ratio (DSR) formula based on a 30% affordability estimate as follows

DSR = Monthly Debt Service for Mortgage / Monthly Gross Household Income

In some aspects, some users of the DSR criticised it as a short-term measure of the borrower’s housing affordability. The discussion of other short- and long-term indicators of housing affordability, however, is beyond the scope of this article.

But you can still use the DSR formula for a variety of economic scenarios because in the course of the mortgage life, factors such as the rise or fall of the household income and the debt service normally take place. A good situation that could make use of the DSR is when you or one of your family members become unemployed, which means loss in earnings. You may also use the DSR when you see a pattern of increasing financial liability or debt service, which usually occur when there is a change or an increase in the financial market interest rates.

Overall financial liabilities

This is most important. You need to understand the impact of having too many loans or credit cards. You need to take into consideration the sum value of your total liabilities besides the DSR. One item to consider is the educational and medical expenses of the children or the entire family. Are you sending your children to school? Do you have any member of the family needing special medical attention? Yes or No, the answer directly affects your ability to pay the additional loan and the existing debts. In case of any future contingencies, you need to make sure you still have the capacity to finance the additional loan and pay the existing debts. The goal here is to avoid future contingencies forcing you to sell the house even at a very low price.

Searching for the right lending institution to finance your mortgage

It is the borrower’s duty and responsibility to perform some research about the market interest rates, and loan packages being offered by different banks or lending institutions. Market rates are constantly changing resulting in financing institutions constantly innovating their loan packages and products to meet the needs of borrowers. Find the best loan features that would fit your lifestyle and pocket.

The features of any mortgage package or product usually varies in terms of the rate. It could be offering a fixed rate, floating, or a combination. The combination of the fixed and floating rate is known as the hybrid loan. Some banks also offer interest-offset loans. To find out more about the various loan types, go here.

Selecting loan interest rates

The answer for this is really very simple. Find the rate you can afford to pay even in the presence of financial contingencies. Select a rate that would more or less provide affordable monthly payment throughout the life of the loan. It is best to think about this before committing to any loan because we should not be too confident or assume we always get the chance to refinance or reprice the loan during the course of the loan.

1. New regulations from MAS directly affects borrowers

We need to admit that the Monetary Authority of Singapore (MAS) regulation factor is uncontrollable. We are not in control here. MAS has the right to change and implement new regulations that may or may not directly affect our loan. New rules may make the borrowing terms and conditions tighter or more relaxed. A good way to explain this was the October 6 2012 mandate of loan refinancing. MAS implemented a 35-year cap on loan tenures for new and refinanced loan packages.

2. Change in interest rates
As we all know, banks change the interest rates of their loans. Sometimes, we may find ourselves facing higher interest rates when we wish to refinance/reprice.

To help you understand the impact of the interest rate and the timing, please read the clearer explanation/ example below

Loan Package X has an interest rate of 1.5% for the first three years, and 1.7% thereafter.
Loan Package Y has an interest rate of 1.3% for the first three years, and 2.0% thereafter.

For example, if you decide to commit or take Loan Package Y now because it has a 1.3% rate, which is lower than the Loan Package X of 1.5%,  because you expect to reprice or refinance the loan after 3 years (if you can see the 1.3% is only good for the first 3 years), then you might be disappointed if you discover that after 3 years, the cheapest rate available is only 1.9%.

It is better to start with the Loan Package X with a 1.5% interest rate for the first 3 years, and then 1.7% thereafter. Even if you have the option to wait for a lower interest rate after the first 3 years, you still would be paying a higher interest rate during the wait.

What message are we trying to drive home here? We need to understand that choosing the best loan package require good understanding of the system, loan regulations, market, and the movements of  interest rates. Thus if you are confused aboutchoosing the ideal loan, then you should speak to a professional mortgage consultant, who will offer free advice. Contact one here.  The consultants at iCompareLoan also use free reports from Singapore's most advanced cloud-based home loan analysis system (exclusive to them) to help you select the most suitable loan.

Reputable lending institution

Make sure you choose a reliable lending or financial institution. There are times when some lenders implement the right for a margin call when valuations fall.

Legal help in understanding the loan packages

The bank sends a Letter of Offer to successful applicants. Therefore, we need to understand the content of the letter especially the attached terms and conditions of the loan package before signing on the dotted line. In case you do not understand some terms, please ask the bank to send you a document that explains the Letter of Offer in simple language. If it is still vague and you still have questions, please consult a lawyer.

Are you planning to make a loan in the midst of changing jobs?

It is highly recommended that you wait for the loan procedure to be completed before you change jobs because lending institutions have a minimum employment period requirement in your current job before granting loan approval.

Additional credit card or new loan

You need to understand that additional credit cards or taking new loans add to your total liability, which affects your borrowing eligibility and amount. It is recommended that you do not make any other loan or credit commitments before loan disbursement.

For example, you are applying for a housing loan but want to have a new car too. A week after you have received your approved in principle home loan notification, you finance a new car using a separate car loan. After you had taken home your new car, the lender or bank discovered you financed your car with a car loan. The only option left for the bank is to reduce the loan quantum because of the additional loan you just took for the car. The reduction of the housing loan amount makes it impossible for you to afford the house you want. The deal goes off and the 1% deposit you made would be forfeited. You lose more than you gain by taking both loans. It is important to patiently wait and understand how certain decisions about loans and other related services could affect your housing loan. If in doubt, turn to a Singapore home loan consultancy.

About Property Buyer
http://www.PropertyBuyer.com.sg/mortgage

We are a research-focused Singapore mortgage consultancy which helps you compare Singapore home loans either for new loans or refinancing. We use loan reports from Singapore's best loan analysis system (exclusive to us) athttp://www.icompareloan.com/consultant/ to serve our customers.

Our services are completely FREE to you as the banks pay us a referral fee upon loan disbursement.

SMS: (65) 9782 8606
Email: loans@PropertyBuyer.com.sg

Join us at Facebook:

Cash Out Home Equity Loans or HDB Flat as Collateral? Nope.

I learnt something new today.  That it is actually possible to take a cash out or credit facility on your home by refinancing it.  People can use this additional leverage when they have largely paid up property and wish to make use of the lower home mortgage rates to pay off either existing loans or even invest in other instruments (e.g. REITs) which might give a higher returns. '

These are quite common overseas, here is a typical example
https://www.hsbc.com.au/1/2/home-loans/products/equity

But also realised that one is also not allowed to take a credit loan out of your HDB flat.  Basically:

"HDB flats can only be mortgaged to banks or financial institutions to finance the purchase. HDB owners are not allowed to use their HDB flat, which has been fully paid for, as collateral to raise credit facilities."

So unless you own a private property, you most probably cannot take a cash out home loan to tap on the low mortgage rates now.

Ways to Save Money for A Downpayment

[Guest Post By Erin Vaughan]


Saving for the downpayment on your first home can really seem intimidating. After all, to get a good interest rate on a loan, you probably need to sock away somewhere between forty to fifty thousand dollars. That’s a lot of dough!


Over at Modernize, we know that saving money is all about the little things. A few dollars here, a few dollars there—it can really start to add up. Plus, there are some psychological tricks you can use to make the process less painful. Here’s some tips to bulk up that savings account!


A house in the suburbs
Via Modernize


Make a Budget
The majority of your savings is going to come from your salary, so it makes sense to start analyzing what items your purchase regularly and what you can cut out. In a spreadsheet, list out your monthly salary, minus taxes and deductions for health care and retirement. Then list all your bills. Use your bank statement from the last month as you make this list—you don’t want to forget about smaller bills like that Netflix charge, or your gym membership. Then, analyze what you spent on everything else. You may think that you’re not spending any extra money—until you see it listed out, and you realize that you are buying that extra nail polish all too often or spending too much on coffee. If you think about it, there are probably at least one or two regular expenses that you can cut that won’t drastically lower your quality of life.


Pay Yourself for Not Spending
One trick that my friend has for saving money works like this: every day she goes without spending any money outside her budget, she “pays” herself five dollars. It may seem like just a little bit, but it really adds up! Or try using this 52-week savings plan, where you pay yourself a different amount each week of the year. A little bit at a time can really add up!


Jars for saving coins and spare change


Resist the Urge to Spend
Spending is largely psychological. So if you feel like you’re depriving yourself for too long you’ll likely eventually break, go on a spending tear, and undo all your efforts. But you can resist! Science tells us that the pleasure of planning something is often rated more enjoyable than actually getting that thing. So next time you feel that itch for a shopping spree looming large, use that energy to plan for your dream home. Create a Pinterest board of ideas for what you want in your house, and don’t limit yourself to what is realistic. Go window shopping online for your perfect sofa, window treatments, or washer, and add them to your wish list instead of buying. You’ll get the same thrill of shopping without the expense! But if you just can’t stop yourself, buy yourself something small and move on. Spending energy beating yourself up for one slip-up is self-defeating.


Negotiate for a Lower Credit Card Interest Rate
If you want to buy a home, you’re probably already paying your full credit card payments on time regularly. (If not, stop what you’re doing, and go make a payment!) Having a great credit score makes it easier for you to play hard to get and argue for a lower interest rate with your financial institution when sealing the deal for a loan. But if you’ve been good with your credit card payments, you may be able to convince them to give you a better rate as well. Try it! Call them up and tell them you want a lower interest rate. They may just give it to you.


Pennies in rows


Consider Borrowing from Your IRA
This should be considered somewhat of a last ditch attempt if you just can’t find the funds any other way, but the government does allow you a one-time, penalty-free deduction from your IRA for up to $10,000 towards the purchase of a home. You’re going to want to think about this carefully—it is, after all, money you’re taking from your retirement fund, so it could make things hard later on. So consult with a financial advisor before making your choice. Also, keep in mind, what kind of IRA you have should also play a part when weighing this decision: deductions from Roth IRAs are tax-free, whereas you’ll have to pay income tax on the money you borrow from a traditional IRA.


No matter how you decide to save the money, make sure to save about roughly 20 percent of the total amount of the home you want to buy. This will give you lots more leverage when you go to get your loan.

Now congratulate yourself! By reading this article, you just made the very first step in your journey to owning your own home.

Do You Know What Are Home Loan Consultancy Sites?


By Property Buyer

If you are seeking some information about home loan consultancy sites,  then you are looking at the  right article. Home loan consultancy sites can be really helpful if you are thinking about taking a mortgage in some critical stage of your life.

Working procedures of online home loan consultancy in Singapore:


1. What do mortgage consultants do? 


Home loan consultants work by providing the requirements and information about the home loan packages offered by different banks in the country. They act like a medium between you and the financial institution which will provide your home loan.

In the beginning, they will take your overall details and assess  your financial profile to suggest the most suitable home loan as they are knowledgeable  about all the different Singapore home loans available. 

Home loan consultants provide this free service as they are paid a percentage of the loan amount from the bank itself.

The banks in Singapore maintain this relationship with home loan consultants because they get to save on sales staff.

2. Different online home loan packages

Some of the home loan consultancy sites offer you different comparison tools to compare the home loan packages from different banks , or the same bank. I have a great exemplary site which can provide you this service apart from the usual mortgage advisory services.

The home loan comparison system at iCompareLoan.com perform that in 4 easy steps only. Before that, you need to provide some important information such as:
  • Quantum
  • Duration
  • Type (fixed or floating rate)

Based on this information, the system will display you the available home loans.


The whole process is illustrated in figure 1 and figure 2 as follows:
Figure 1: Step 1 of Loan Comparison System
Source: www.iCompareLoan.com/new_loan












Figure 2: Step 4 of Loan Comparison System

Source: www.iCompareLoan.com/new_loan

3. Desired reports for your home loan

A home loan report shows  the comparative information about the different Singapore home loans formalities and requirements for different banks of Singapore. These reports are provided by a few home loan consultancy sites like iCompareLoan.com , which offers a loan analysis system. This service is almost free or given for a small fee and it is the most advanced in Singapore. This analytical system can generate very helpful reports by comparing many  home loan packages. In these reports there are included various information such as interest cost savings from refinancing or new loans, building-under-construction loans, amortization tables, and so on.

You can see the log-in page in Figure 3:

Figure 3:  Loan Analysis System

Source: www.iCompareLoan.com/consultant/




Benefits of home loan consultancy sites:

1. Save time and effort

How can home loan consultancy sites make life different for you?  The answer is that they can save you valuable time and effort. In Singapore  there are over 16 banks that can provide a mortgage. Together they have almost 50 types of loan packages to offer. Now, if you are thinking about inquiring each and every home loan package then you have to visit each bank website. But, more often than, you will not be able to find the most basic information about the loan on these sites. Not even the interest rates or the lock-in period.

Rather these sites will direct you to their bank officers for further details ; thus you have to speak with over 10 officers to find the most suitable mortgage. In this case, home loan consultancy sites can help you sift through all the packages and compare their features in easy-to-read tables.

Through the free DIY loan comparison tools, provided by consultancy sites as well as by iCompareloan.com , you can generate tables comparing the main features of various loan packages. This can be achieved with only a few simple steps saving you plenty of  time and effort.

For more comprehensive advice you can contact the mortgage consultants as the loan packages and their features can change ever so often.

For a borrower it can be difficult to be constantly aware of all the changes. A mortgage consultant, on the hand, is well aware of all the changes as it is his job.   

2. Unbiased loan advice

Before you decide to take a mortgage from any bank you need unbiased advice about the offers of different banks. This information can only be provided by mortgage consultants as they are not beholden to any single bank. On the other hand, if you seek  advice from a  bank officer he will try to convince you about the merits of the loans offered by his bank.  He  also cannot provide you with information about other banks' loans.
So, the best advisors are the mortgage consultants who know enough to provide information.

3. Extra assistance

Home loan consultants not only can provide you with information about the various different loans, but they can even assist to make an application for your desired mortgage. They are happy to assist you in putting in order the required documents for the loan application. As the paperwork can take up a lot of time so your loan application can be delayed too.

When the loan amount is over $2 million, mortgage consultants can even negotiate a good interest rate during the approval process.

About Property Buyer
http://www.PropertyBuyer.com.sg/mortgage
We are a research-focused Singapore mortgage consultancy which helps you compare Singapore home loans either for new loans or refinancing. We use loan reports from Singapore's best loan analysis system (exclusive to us) at http://www.icompareloan.com/consultant/ to serve our customers.
Our services are completely FREE to you as the banks pay us a referral fee upon loan disbursement.
SMS: (65) 9782 8606
Email: loans@PropertyBuyer.com.sg

Join us at Facebook:
www.facebook.com/iCompareLoans
www.facebook.com/SGpropertyBuyer
www.facebook.com/sghomeloan

Buy a 2nd Property or Buy REITs?

Should one buy a 2nd property or invest in Real Estate Investment Trusts? I have been thinking about this for sometime. The minimum occupation period for my HDB flat is almost up. That means that I can actually sell my flat in the open market pretty soon. At the same time, I really love the place where I am staying at now. So it is going to be a tough decision.

The remaining mortgage on the HDB flat is now $238,000. Market value based on a similar size flat sold at the opposite block is estimated at $600,000. Bought the flat for slightly over $300,000. Currently monthly mortgage loan is $1096. Right now, I have been thinking about the following few options. Family's gross monthly income is around $5600 (really average!).

Option 1 - Sell the HDB and Buy a Private Property

This will mean selling the HDB flat, giving it up and buying a new private property. It is going to be difficult as I will have to buy a private property that is less than $1mil I guess. If I can only take 35% loan based on family's gross monthly salary, that means the maximum monthly mortgage loan that we afford is around $1900+. As we are still paying for the car we bought, it probably means that we can only afford a mortgage loan of around $1,400. I don't think the banks will be willing to land us to much. I figure that means we can only borrow around $350k (pls correct me if I am wrong). Selling the HDB and buying a private property also means that this does not count as my 2nd property and I am not obligated to set aside the 50% minimum sum in both my wife's and my CPF account. We can probably use the gains from selling the HDB to pay for the private property.

End of the day: I am probably saddled with more debt but have effectively upgraded to a more expensive property. There will be less money to spend as I have to pay more each month for mortgage.

Option 2 - Keep HDB flat, Buy a Private Property to rent out.

This is option 2 which I have been thinking about and which I am leaning towards. But it seems almost impossible to do this. This is because of the following reasons:

1. No money in CPF-OA to pay for it. Will have to use all cash to pay for the downpayment. Even if all assets (stocks + bank accounts) are liquidated, I figure that we only have slightly over $220k. Not too sure how much the bank will actually lend us for the 2nd property but I guess it is around 60-70%.

2. Will also have to rely on cash to pay for the monthly mortgage. That is impossible considering that existing HDB loan is already $1096. It means I can only get around $800 per month more in mortgage loan. Will also have to repay off the car loan so that I can borrow the $800 per month more in mortgage loan for the 2nd property. That leaves very little options for me as I won't be able to find such a cheap property that only costs $800 per month!

Option 3 - Keep HDB and Buy REITs.

REITs are easily liquidated. I also collect dividends. This seems to be a very feasible option with little downside.

Option 4 - Sell HDB and Buy 2 Pte Property

Lately, I came across this strategy which advised to sell 1 property and buy 2 properties. In this manner, you can rent out 1 and stay in the other. Not too sure whether this strategy will work at all cos it will probably mean that I have to buy 2 really small pte property.

Wise folks out there. Any advice on all the options???



Paying Housing Installments With CPF

I visited one of the branches of HDB's office today to start paying a greater percentage of my housing installments using my CPF monies instead of using cash.

I have been paying close to $500 cash with the rest of the housing installments paid by my CPF. However, I decided to use more of my CPF monies to pay for my housing installment so that the amount of cash that I will pay is really nominal now (less than $100). This should free up some cash and provide a little more flexibility for me.

I was surprised at how efficient and how fast the service was. I spent less than 15 minutes there to settle everything even though it was a Saturday morning where one would expect things to be working a little slower.

So now I am paying $1000 per month from my CPF monies for my HDB flat. I don't think I will have much CPF money for the next few years.

For those of you who are unacquainted with Singapore and acronyms like HDB and CPF here is a brief explanation:

1. HDB - Housing Development Board. One of the first few statutory boards established by the Government under the Ministry of National Development to take care of the housing needs of Singaporeans. The high rise apartments or flats that are built by HDB are called HDB flats. Most Singaporeans (around 80%) live in these HDB flats which vary in shapes and sizes, and are distributed across various town centres in Singapore.

2. CPF - Central Provident Fund. Another stat board formed. CPF is a social security savings plan for Singaporean's retirement. Over the years, it has been expanded to allow Singaporeans to purchase their HDB flats and pay for medical bills too. When people refer to CPF in Singapore, they commonly refer to their CPF monies which are kept in this account.


An Average Singaporean's Largest Expense = HDB

In Singapore, people spend the most amount of money on their houses and their cars. With the increasing prices of HDB flats and COEs for cars recently, I think quite a few Singaporeans are concerned that these big ticket items will only go higher and higher.

Our Largest Expense $$$$ = Housing ($200K to $500K)

I remember that there was an article published on Today newspaper over the weekend stated that HDB's policy was to provide housing for the majority of Singaporean, make it affordable and at the same time allow Singaporeans to monetise on their houses. (I can't really remember the exact details so someone will have to correct me if I am wrong).

This being said, it shows that the government is truly concerned about making housing affordable for all. The supply of HDB flats have been increased recently but at the same time, the government needs to make sure that the value of people's houses increase over time. So this supply and demand has to be managed carefully. I have written about this previously when I said that the government should not be pressured into increasing the supply of HDB flats just because people are complaning. Complaints have to be heard but if the supply of HDB flats are increased without any proper planning, the value of all HDB flats in Singapore will be diluted.

Yet in today's newspaper, we hear of one flat being applied for by 6 applicants. It perhaps shows that there is still a great demand for HDB flats. Or maybe the supply is not enough. The cup is either half empty or half full depending on how you look at it =)

But are there any alternatives for people who cannot get a HDB flat?

1. They could opt for private housing which is even more expensive or they will have to put off their buying to a later date.

2. HDB BTO flats are another option. This is quite a funny scenario as I know of people who are still waiting to occupy their BTO HDB flats. Some have waited for 2 to 3 years. The wait is long and at the mean time, they put up at their parent's place.

3. HDB resale flats. More expensive and sometimes require Cash Over Valuation.

4. Another alternative would be to rent a place. But rental isn't exactly cheap either for an entire unit.

5. Stay with parents or in-laws. I know of people who chose to stay with their parents. They do not have to worry about queuing up for a HDB flat. Of course, they will have to forfeit their privacy.

So the point at the end of the day is that we need to manage people's expectations. If your expectations are high, be prepared to pay a high price for it. At the end of the day, most of us will still have a roof over our heads even if we can't get a HDB flat.

With housing being one of the largest expenses that an average Singaporean will incur, the house that you buy has a GREAT impact on your finances and should not be taken lightly. The loan period is usually 30 years and one can expect to pay a grand total of $200 to $500K depending on where they chose to stay. Of course, there are groups of people who purchase houses that cost way above $500K.

When people are desperate to get a HDB flat, they might sometimes make a hasty decision of buying a flat that is way above what they can afford. A rule of thumb used is that your monthly loans (all loans) should not exceed 35% of your monthly income. Please take note that some women also tend to stop working when a baby arrives. It might be wise to consider buying a house where the monthly installments can be managed based on a single person's income.

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