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Showing posts with label home loan. Show all posts
Showing posts with label home loan. Show all posts
Wednesday, August 14, 2013
Thursday, June 20, 2013
Taking a Mortgage Loan for the Self-Employed
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Monday, April 29, 2013
The Drawbacks of HDB Loans
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Monday, March 18, 2013
All About Using Home Loan Consultancy Sites
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Friday, February 15, 2013
A Quick Look at the Drawbacks of HDB Loans
by SUSAN TEO
In the last article, I discussed about the pros of using a HDB loan. Here, we look at the opposite instead.
1. No saving left in your CPF (Central Provident Fund) Ordinary Account
Before you are allowed to take a HDB loan, it is mandatory that all the balance (after setting aside an amount for the miscellaneous fees of the flat purchase) in your CPF Ordinary Account up to the valuation limit (the lower of the purchase price or valuation at the time of purchase) if applicable, be utilised first. After that, HDB will decide on the loan quantum based on the outstanding amount to be paid for the flat.
As the savings in the CPF Ordinary Account generate an interest, which has remained at 2.5% p.a. since July 1999, you lose this interest earning when you use the savings to pay for the flat.
However, you save on the interest payable for the HDB loan which is 0.1% above the interest rate for the Ordinary Account. In other words, the loan rate is 2.5% + 0.1% = 2.6% p.a..
Had you not utilised the savings in the CPF Ordinary Account, you would have to use the loan. The below illustrates the loss:
Loss from using your CPF balances instead of the HDB loan:
Further, when the flat is sold, all CPF saving used and interest that would have been accrued if the sum had remained in the account, will be deducted from the sales proceeds, and refunded to the Ordinary Account. This will reduce the cash proceeds which you may need for other purposes. Anyhow, if you had financed the flat with a loan (bank or HDB), you would still need to repay the outstanding loan amount from the sales proceeds.
Another drawback of depleting your CPF Ordinary Account savings is that in the event of a job loss there might not be adequate balance to service the monthly home loan repayment; hence you may be required to service it with cash.
A way to circumvent having to use the CPF Ordinary Account balances to pay for the flat is to invest it before you make the flat purchase. You can do so for the savings in excess of S$20,000 under the CPF Investment Scheme - Ordinary Account. Or instead you can transfer the monies in your Ordinary Account to the Special Account which interest rate has remained at 4% p.a from 2000 till now. This transfer is irreversible and there is a limit to it - the balance in the account (inclusive of the amount withdrawn under the CPF Investment Scheme for the Special Account) after the transfer cannot exceed the prevailing Minimum Sum. Once the monies are in the Special Account, you cannot utilise it for your housing purchases anymore.
2. Possibly relatively higher interest and opportunity cost
During a high interest-rate environment, a financing institution will, in all likelihood, offers a loan with a lower interest rate as compared to a HDB loan.
So the opportunity cost (best foregone alternative) for not using a private loan becomes higher. In addition, you also lose the 1% of additional interest on the savings (capped at S$20,000) in your CPF Ordinary account.
Whether you decide on a HDB loan or a bank loan, do bear in mind that you are not allowed to refinance to a HDB loan once you have taken a bank loan.
Read more articles at
PropertyBuyer.com.sg/articles
SingaporeHomeLoan.net/blog/
iCompareLoan.com/resources/category/faq/
In the last article, I discussed about the pros of using a HDB loan. Here, we look at the opposite instead.
1. No saving left in your CPF (Central Provident Fund) Ordinary Account
Before you are allowed to take a HDB loan, it is mandatory that all the balance (after setting aside an amount for the miscellaneous fees of the flat purchase) in your CPF Ordinary Account up to the valuation limit (the lower of the purchase price or valuation at the time of purchase) if applicable, be utilised first. After that, HDB will decide on the loan quantum based on the outstanding amount to be paid for the flat.
As the savings in the CPF Ordinary Account generate an interest, which has remained at 2.5% p.a. since July 1999, you lose this interest earning when you use the savings to pay for the flat.
However, you save on the interest payable for the HDB loan which is 0.1% above the interest rate for the Ordinary Account. In other words, the loan rate is 2.5% + 0.1% = 2.6% p.a..
Had you not utilised the savings in the CPF Ordinary Account, you would have to use the loan. The below illustrates the loss:
- CPF Ordinary Account Saving = S$50,000
- Interest earned at 2.5% p.a.= S$1,250
- Interest payable on loan at 2.6% p.a.= S$1,300
- Loss = S$1,300 – S$1,250 = S$50
Loss from using your CPF balances instead of the HDB loan:
- Interest Rate Loss
- Annual Loss
Further, when the flat is sold, all CPF saving used and interest that would have been accrued if the sum had remained in the account, will be deducted from the sales proceeds, and refunded to the Ordinary Account. This will reduce the cash proceeds which you may need for other purposes. Anyhow, if you had financed the flat with a loan (bank or HDB), you would still need to repay the outstanding loan amount from the sales proceeds.
Another drawback of depleting your CPF Ordinary Account savings is that in the event of a job loss there might not be adequate balance to service the monthly home loan repayment; hence you may be required to service it with cash.
A way to circumvent having to use the CPF Ordinary Account balances to pay for the flat is to invest it before you make the flat purchase. You can do so for the savings in excess of S$20,000 under the CPF Investment Scheme - Ordinary Account. Or instead you can transfer the monies in your Ordinary Account to the Special Account which interest rate has remained at 4% p.a from 2000 till now. This transfer is irreversible and there is a limit to it - the balance in the account (inclusive of the amount withdrawn under the CPF Investment Scheme for the Special Account) after the transfer cannot exceed the prevailing Minimum Sum. Once the monies are in the Special Account, you cannot utilise it for your housing purchases anymore.
2. Possibly relatively higher interest and opportunity cost
During a high interest-rate environment, a financing institution will, in all likelihood, offers a loan with a lower interest rate as compared to a HDB loan.
So the opportunity cost (best foregone alternative) for not using a private loan becomes higher. In addition, you also lose the 1% of additional interest on the savings (capped at S$20,000) in your CPF Ordinary account.
Whether you decide on a HDB loan or a bank loan, do bear in mind that you are not allowed to refinance to a HDB loan once you have taken a bank loan.
Read more articles at
PropertyBuyer.com.sg/articles
SingaporeHomeLoan.net/blog/
iCompareLoan.com/resources/category/faq/
Thursday, February 7, 2013
What Are Home Loan Consultancy Sites All About?
by SUSAN TEO
This article introduces the benefits of using home loan consultancy sites. If you are planning to take a mortgage at some point in your life, you can benefit from reading this.
How online home loan consultancy work in Singapore?
1. Mortgage consultants or brokers
Basically, home loan consultancy or mortgage consultancy websites act as middlemen connecting borrowers to the financing institutions.
These sites have professional mortgage consultants who are aware of all the different home loans offered by every Singapore's bank. They will first assess the your financial risk profile and advise on the type of loan you should take. The consultant will then refer you to the financier providing the best loan.
This advisory service is completely free to you as the financing institutions will pay the mortgage consultants a commission upon successful disbursement of loan.
The financing institutions are willing to incur this cost as it saves them on front-end staffing.
2. Online home loan packages comparison
Apart from free mortgage advisory services, some home loan consultancy sites also have tools to allow you to compare loan packages across different banks. For example, the online home loan comparison system at www.iCompareLoan.com do that in 4 simple steps. You only have to input a few pieces of information, such as the loan quantum, duration, type (fixed or floating rate), and the system will display all the available loans that meet the search query. Figure 1 and 2 illustrate this system.
Source: www.iCompareLoan.com/new_loan
Source: www.iCompareLoan.com/new_loan
3. Home Loan Reports
A handful of these mortgage consultancy sites may even provide more sophisticated home loan reports, which are available for free or a small fee. www.iCompareLoan.com offers a loan analysis system, which coincidentally is Singapore's most advanced. They give out one-time complimentary reports from this system. Various types of reports that compare loan packages can be generated from the system including interest cost savings from refinancing or new loans, building-under-construction loans, amortisation tables, and more. Figure 3 shows the log-in page.
Source: www.iCompareLoan.com/consultant/
Usefulness of home loan consultancy sites
1. Save time and effort
There are about 16 banks in Singapore offering over 50 types of mortgages. If you were to do the research yourself, you would have to trawl through numerous banks' websites to learn about the loans they provide. But more often than not, the websites will not even state basic information about the loans, like whether there is a lock-in period and clawback period or the interest rates payable.
Instead the websites will encourage you to contact them for more details. You would have to speak to over 10 bank officers if you were to conduct a thorough search. As a home loan is a major financial commitment, it will be wise to have comprehensive information before selecting a loan package. And a home loan consultancy site will make this task a whole lot simpler.
At the most basic level, the free DIY loan comparison tools offered by the consultancy sites allow you to compare loans in only a few steps, with the results displayed in easy-to-read table forms.
If you are in need of more comprehensive advice, you can contact the mortgage consultants.
Loan features can also change every now and then. It may be difficult for a novice to keep abreast of all the latest loan information. Mortgage consultants, on the other hand, are in the know so they are well-positioned to advise you accordingly.
2. Unbiased loan advice
Because the mortgage consultants are not direct staff of the banks, they will give you unbiased loan recommendations and comparison across different banks. Conversely, if you were to turn a bank directly, the officer will naturally try to sell their loan packages. The officer is also unable to advise you about packages offered by other banks.
Mortgage consultants, however, have knowledge of packages across different banks and are not beholden to any.
3. Extra assistance
Besides dispensing loan recommendation, most mortgage consultants are also happy to help out in the application process. Paperwork can be time-consuming, so the consultants can assist you by ensuring all the required documents are in order. Otherwise, your loan application can be delayed.
In some cases, the mortgage consultants may even be able to negotiate for a better rate, or facilitate the approval process, if the loan amount is above S$2 million.
Read more articles at
PropertyBuyer.com.sg/articles
SingaporeHomeLoan.net/blog/
iCompareLoan.com/resources/category/faq/
This article introduces the benefits of using home loan consultancy sites. If you are planning to take a mortgage at some point in your life, you can benefit from reading this.
How online home loan consultancy work in Singapore?
1. Mortgage consultants or brokers
Basically, home loan consultancy or mortgage consultancy websites act as middlemen connecting borrowers to the financing institutions.
These sites have professional mortgage consultants who are aware of all the different home loans offered by every Singapore's bank. They will first assess the your financial risk profile and advise on the type of loan you should take. The consultant will then refer you to the financier providing the best loan.
This advisory service is completely free to you as the financing institutions will pay the mortgage consultants a commission upon successful disbursement of loan.
The financing institutions are willing to incur this cost as it saves them on front-end staffing.
2. Online home loan packages comparison
Apart from free mortgage advisory services, some home loan consultancy sites also have tools to allow you to compare loan packages across different banks. For example, the online home loan comparison system at www.iCompareLoan.com do that in 4 simple steps. You only have to input a few pieces of information, such as the loan quantum, duration, type (fixed or floating rate), and the system will display all the available loans that meet the search query. Figure 1 and 2 illustrate this system.
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. Home Loan Reports
A handful of these mortgage consultancy sites may even provide more sophisticated home loan reports, which are available for free or a small fee. www.iCompareLoan.com offers a loan analysis system, which coincidentally is Singapore's most advanced. They give out one-time complimentary reports from this system. Various types of reports that compare loan packages can be generated from the system including interest cost savings from refinancing or new loans, building-under-construction loans, amortisation tables, and more. Figure 3 shows the log-in page.
Figure 3: Loan Analysis System
Source: www.iCompareLoan.com/consultant/
Usefulness of home loan consultancy sites
1. Save time and effort
There are about 16 banks in Singapore offering over 50 types of mortgages. If you were to do the research yourself, you would have to trawl through numerous banks' websites to learn about the loans they provide. But more often than not, the websites will not even state basic information about the loans, like whether there is a lock-in period and clawback period or the interest rates payable.
Instead the websites will encourage you to contact them for more details. You would have to speak to over 10 bank officers if you were to conduct a thorough search. As a home loan is a major financial commitment, it will be wise to have comprehensive information before selecting a loan package. And a home loan consultancy site will make this task a whole lot simpler.
At the most basic level, the free DIY loan comparison tools offered by the consultancy sites allow you to compare loans in only a few steps, with the results displayed in easy-to-read table forms.
If you are in need of more comprehensive advice, you can contact the mortgage consultants.
Loan features can also change every now and then. It may be difficult for a novice to keep abreast of all the latest loan information. Mortgage consultants, on the other hand, are in the know so they are well-positioned to advise you accordingly.
2. Unbiased loan advice
Because the mortgage consultants are not direct staff of the banks, they will give you unbiased loan recommendations and comparison across different banks. Conversely, if you were to turn a bank directly, the officer will naturally try to sell their loan packages. The officer is also unable to advise you about packages offered by other banks.
Mortgage consultants, however, have knowledge of packages across different banks and are not beholden to any.
3. Extra assistance
Besides dispensing loan recommendation, most mortgage consultants are also happy to help out in the application process. Paperwork can be time-consuming, so the consultants can assist you by ensuring all the required documents are in order. Otherwise, your loan application can be delayed.
In some cases, the mortgage consultants may even be able to negotiate for a better rate, or facilitate the approval process, if the loan amount is above S$2 million.
Read more articles at
PropertyBuyer.com.sg/articles
SingaporeHomeLoan.net/blog/
iCompareLoan.com/resources/category/faq/
Tuesday, February 5, 2013
How Do I Compare Home Loans in Singapore?
by SUSAN TEO
Taking a mortgage to finance a residential property is a heavy financial liability for most; thus it is a decision that shan't be taken lightly. This article provides a starting point and some basic things to consider before shopping for a mortgage.
The most popular types are the fixed-rate package and variable (floating rate) package. For the former, the interest rate are only fixed for a period of 2-5 years, after which rates are allowed to float. The latter, however, has rates that fluctuate throughout the loan duration. The interest rates for fixed rate are usually higher than for variable, in order to compensate the bank for keeping rates stable. To understand more about the nuances between the two and which to select, do look at our previous article: “Fixed-Rate Versus Floating Rate Home Loan Packages in Singapore: Which is Right for You?”.
Further, for each of the 6 types listed above, you may find different variants. For example, for the Variable (floating rate) loan, the interest rate can be SIBOR-pegged, SOR-pegged or an average of SIBOR or SOR. Others may also offer a cap on the upper limit of the interest. For a detailed discussion about choosing between a SIBOR or SOR based loan, read “Understanding SIBOR and SOR Based Home Loans in Singapore”.
If you feel flushed by the myriad of loan types and muddled by which to choose, you should consult a mortgage consultant.
Any repayment during the lock-in period (normally the first 2 to 5 years of the loan) will result in a penalty of usually at most 1.5% of the redeemed amount. But some packages do not come with a lock-in period. You can consider these if you foresee early repayment.
The clawback period, on the other hand, is the period (typically the first 3 years) in which a full redemption of the loan will incur a refund of all the freebies given such as legal subsidies, valuations, etc. The cost of these perks usually total $2,000 to $3,000.
Do note that MAS passed a ruling stating that cash rebates (including legal subsidy and stamp duties) offered in a mortgage have to be deducted from the purchase price, which effectively lowers the loan quantum. This has caused many banks to stop offering subsidies of any sort since mid-2012. However for those that still do, there may remain a claw-back period.
Finally, some loan packages have a free one-time conversion (repricing) to another loan package with a different interest rate or structure. So before you refinance, you should ask your current financier if they offer free repricing. Repricing can less costly then switching to another financier.
Read more articles at
PropertyBuyer.com.sg/articles
SingaporeHomeLoan.net/blog/
iCompareLoan.com/resources/category/faq/
Taking a mortgage to finance a residential property is a heavy financial liability for most; thus it is a decision that shan't be taken lightly. This article provides a starting point and some basic things to consider before shopping for a mortgage.
Loan types
You can select from an array of loan packages available in the market. These can be broadly classified as- Fixed rate loan
- Variable (floating rate) loan
- Combo (hybrid) loan
- Cashback or cash-incentive loan
- Interest-offset loan
- Interest-only loan [Do note that interest-only mortgages for residential properties have been disallowed by MAS (Monetary Authority of Singapore – Singapore's central bank) since14 Sep 2009, MAS Notice 632]
The most popular types are the fixed-rate package and variable (floating rate) package. For the former, the interest rate are only fixed for a period of 2-5 years, after which rates are allowed to float. The latter, however, has rates that fluctuate throughout the loan duration. The interest rates for fixed rate are usually higher than for variable, in order to compensate the bank for keeping rates stable. To understand more about the nuances between the two and which to select, do look at our previous article: “Fixed-Rate Versus Floating Rate Home Loan Packages in Singapore: Which is Right for You?”.
Further, for each of the 6 types listed above, you may find different variants. For example, for the Variable (floating rate) loan, the interest rate can be SIBOR-pegged, SOR-pegged or an average of SIBOR or SOR. Others may also offer a cap on the upper limit of the interest. For a detailed discussion about choosing between a SIBOR or SOR based loan, read “Understanding SIBOR and SOR Based Home Loans in Singapore”.
If you feel flushed by the myriad of loan types and muddled by which to choose, you should consult a mortgage consultant.
Interest cost
Interest is the cost of borrowing. So naturally it is a key deciding factor when selecting a loan. You will not want to pay an excessive price for borrowing; therefore take note of the interest rate over the entire life of the loan, not just in the beginning. To compare the interest payable for different loans, you can make use of the loan analysis system at iCompareLoan.com, which can generate reports showing the interest incurred for all the mortgage packages in Singapore. Figure 1 and 2 show a snapshot of the interest comparison tables and charts to be found in our reports.
Figure 1
Figure 2
Conditions of the package
- Lock-in period (or commitment period)
- Clawback period (or reimbursement period)
- Conversion (or repricing if there is no cost involved)
Any repayment during the lock-in period (normally the first 2 to 5 years of the loan) will result in a penalty of usually at most 1.5% of the redeemed amount. But some packages do not come with a lock-in period. You can consider these if you foresee early repayment.
The clawback period, on the other hand, is the period (typically the first 3 years) in which a full redemption of the loan will incur a refund of all the freebies given such as legal subsidies, valuations, etc. The cost of these perks usually total $2,000 to $3,000.
Do note that MAS passed a ruling stating that cash rebates (including legal subsidy and stamp duties) offered in a mortgage have to be deducted from the purchase price, which effectively lowers the loan quantum. This has caused many banks to stop offering subsidies of any sort since mid-2012. However for those that still do, there may remain a claw-back period.
Finally, some loan packages have a free one-time conversion (repricing) to another loan package with a different interest rate or structure. So before you refinance, you should ask your current financier if they offer free repricing. Repricing can less costly then switching to another financier.
Read more articles at
PropertyBuyer.com.sg/articles
SingaporeHomeLoan.net/blog/
iCompareLoan.com/resources/category/faq/
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