Invest in Singapore properties: Housing loans Glossary

Invest in Singapore properties: Housing loans Glossary

Do you know that in Singapore, the home loans terminology differs from that of the US and elsewhere? Of course there will be common terms. In the US, there are Fico score, in Singapore there is none.

Approval-in-Principle

This process allows the bank to first assess your cash flow and your liabilities and determine how much they would be able to lend to you. Singapore Home loans mortgage consultants can help you to conduct Approval-in-Principle so that you can be assured of a home loan. Please do note that Approval-in-principle are simply that, “approval-in-principle”, while there is much more certainty that the banks can lend you, the bank’s credit department have the final say whether to lend or not after looking at your credit report. Some banks will assess the credit report for an Approval-In-Principle home loans while some banks do not assess the credit report for an Approval-in-Principle, therefore it is best to be honest about your financial situation so that you do not end up with an “approval-in-principle” only for the bank to reject it at the last minute after finding out past credit issues.

Approval-in-principle are only valid for about 1 month.

Amortization

The process of paying off a debt (often from a loan or mortgage) over time through regular payments. The monthly payment is broken down into interest payments and the remaining amount is for principal repayments. In the early years, payments consist largely of interest; as time goes on, principal repayments increases. At the end of the loan tenure, the entire debt will be repaid.

Amortization Schedule

This is basically your home loan repayment schedule showing you the repayment of your principle and your interest over the entire span of your loan amount.

Bridging Loan

The bridging loan is usually a temporary term loan used to pay for the down-payment or part of the down-payment of the new property purchase. The bridging loan is most often collaterised against a current property that the buyer owns, but is in the process of being sold. Or in some cases, the bridging loan is collaterised against a current property that is already sold, but whose sales proceeds have not arrived. Bridging loans are very tricky as timing of execution is of critical essence. Make sure to check with your bank to make doubly sure or else your will end up in a situation where you have no funds to execute a property transaction where you have already exercised the option and entered into a sale and purchase agreement.

Board Rate

Board rate or mortgage rates and many other terminologies were invented by banks to be used as a reference in which to peg their variable rates. For example, if the bank set their “board rate” to 4.25% and the variable rate you pay is 2%. That would mean it is (Board rate – 2.25%). In case the bank modifies the board rate, it would affect your interest rates.

Building Under Construction (BUC)

Building under construction are buildings which have the permit to launch for sale but are still being constructed. This applies mostly to new development such as Condominiums whose Temporary Occupation Permit (TOP) is still some time away. Banks treat BUC and completed properties differently.

Cancellation Fees

The penalty that banks charge, usually a percentage of the loan amount (or a percentage of an un-disbursed amount), if you were to cancel your housing loan after you have accepted the Letter of Offer but before the housing loan is disbursed or cancel the home loan after partial funds have been disbursed but the others are not.

If you re-finance your home loan when the funds have not been fully disbursed, it would be considered a cancellation and cancellation fees would apply.

Cashback or Cash incentive Housing Loan

The lender refunds a percentage of the housing loan the cashback and you are usually tied into the loan for a number of years in which a penalty is applicable if the loan is redeemed. This type of loans is also usually useful for home owners who are contemplating redeeming a loan which is still in penalty period.

Combo Housing Loan

A combo or hybrid housing loan can be sub-divided into different parts for a single property. Each part can be treated as a separate housing loan so you can choose a package for each division. In other words, if you borrow $1m for a Singapore property, you can opt to have $500,000 under a fixed rate regime and another $500,000 under a Sibor rate package. Both loans are collaterised against the same property.

Claw-back Period

If you are to fully redeem your mortgage within the claw-back period, the lender will reclaim most of the subsidies given to you. These would usually be the legal subsidy and may include valuation fees, fire insurance premiums, cash incentive, etc.

Certificate of Statutory Completion (CSC)

The Commissioner of Building Control will issue the Certificate of Statutory Completion to a building project when it is completed. The building can only be occupied when a Certificate of Statutory Completion (CSC) or Temporary Occupancy Permit (TOP) is granted.

Fixed Rate Housing Loan

Fixed rate housing loans provide you the stability and ease of planning your cash flow. However Fixed rate housing loans usually comes with a lock-in period which correspond to the duration where the loan is fixed.

Floating or Variable Rate Housing Loan

The interest rate can rise or fall throughout the tenure of the loan. Lenders usually give at least one months notice when adjustments are made to the interest rate. Most lenders allow partial prepayments for this type of loan, making this a good package if you intend to repay a significant portion of your housing loan in the initial few years.

Floating rate packages comes in 3 main forms: -

* Bank’s variable rate packages which are pegged to the bank’s internal reference.
* Sibor pegged housing loans.
* Sor pegged housing loans.

Full Redemption Penalty

The amount that banks charge, usually a percentage of the loan amount, if you were to fully repay your housing loan within a lock-in period.

Interest-offset housing loan features

This feature allows you to offset your housing loan interest with funds deposited into an account designated by the bank. For example, your housing loan may be $1m and you also have $300,000 cash which you do not intend to pay down the loan. You could put this $300,000 cash into the designated account to offset against housing loan interest payable, (i.e. your effective loan is ($1m - $300,000 = $700,000) and you will only interest on $700,000 rather than $1m in case this is a 1-for-1 interest offset. For example, if the interest cost is 3%, the bank will charge you interest of 3% on the $m and give you interest of 3% on $300,000. In case it is a 2/3 offset, for a 3% interest rates, the bank will charge you 3% for your $1m loan and give you 2% interest for your $300,000 cash.

Many business people like this package as it allows them the flexibility to incur less interest costs if they do not use their funds, while still giving them the choice to use the funds like a current account.

If the housing loan is paid down, then this option of using cash in case of an emergency would disappear.

Interest-only Housing Loan

Monthly payments consist entirely of the interest due on your loan so that the balance you owe is not reduced during the term.

Letter of Offer (LO)

A contract between the borrower(s) and the bank stating the terms of the housing loan package.

Loan Quantum

The loan quantum or principal is the amount of money that you borrow.

Loan Tenure

The period of time that you will take to fully repay your loan.

Loan to Value (LTV)

A percentage figure indicating the size of the housing loan on a property in relation to its value. Thus, a house worth S$500 000 with a mortgage of S$400 000 would have a loan to value of 80%. Most banks and financial institutions have better housing loan deals for LTV 80% and below. The maximum LTV that lenders can legally go to in Singapore is 90%. This is mandated by the Monetary Authority of Singapore (MAS).

Lock-in Period

The number of years that you are tied to your lender. If you fully redeem your loan within this period, there will be a full redemption penalty that is equal to a percentage of your loan quantum. Lenders may also charge a penalty for making partial payments within this period.

Option to Purchase - OTP

This is a contract which compels the property owner to sell you the property at an agreed price if you give a 1% deposit. The Option to Purchase (OTP) usually gives a 14 day period in which to exercise the option. The law society gives certain guides on how an Option to Purchase should be drafted. However we have also seen many Option to Purchase contracts which are drafted by the Seller’s Property agents or property agencies which are unfair to the Property Buyer.

It is therefore our advice that when a deal is imminent, ask the property agent to send you a draft of the Option to purchase for you to first go through with your lawyer. If you do not have a Lawyer and would like us to help you take a quick look, you can email us at loans@propertyBUYER.com.sg, either us or our panel of lawyers can take a quick look at it and give you some comments. But do not, although we are generally more conservative in our approach, we cannot guarantee to be able to spot all errors or omissions and you promise not to hold us accountable to it.

Partial Redemption Penalty

The amount that mortgage lenders charge, usually a percentage of the loan amount, if you were to prepay your housing loan within a lock-in period.

Payment Holiday Housing Loan

A relatively new type of mortgage in the Singapore market. You take a break towards paying of your interest or monthly installment at certain periods during your loan tenure. This takes many forms, there is also a beautiful Sunday package which gives the borrowing 1 day free interest rate, which amounts to 1/7 reduction in actual interest rates.

Prepayment

Payments that you make in addition to the monthly installments.

Refinancing

Switching from one housing loan package to another, usually to get better rates or terms and condition.

Re-pricing

Switching from one housing loan package to another deal with the same lender.

Singapore Inter-bank Offered Rate (SIBOR)

Singapore Inter-bank Offered Rate is published by the Association of Banks in Singapore. This market is almost equivalent to the Federal Reserve funds market. Banks lend excess funds to each other at the Association of Banks in Singapore. The rates will be determined by the demand of funds and the availability of funds. During times of extreme financial stress where banks view other banks with suspicion, funds become scarce and monetary authority of Singapore is known to intervene by pumping funds into this market.

Singapore Swap Offer Rate (SOR)

Swaps are a form of financial derivatives. Swaps in Singapore are contracts of US$ versus S$ contracts which banks use to avoid converting their currency so as to incur the losses from bid and spread. As banks trade these Swap contracts within the Association of Banks of Singapore (ABS), the rates move in tandem with supply and demand. Swap Offer Rate is the rate that the banks will lend to each other at a pre-determined rate.

Temporary Occupancy Permit (TOP)

The Commissioner of Building Control will issue the Temporary Occupation Permit to a building project when it is completed. The building can only be occupied when a Certificate of Statutory Completion (CSC) or TOP is granted. A TOP, unlike a CSC, is not compulsory, but is usually obtained before a CSC as requirements for a TOP is less stringent.

Term Loan (Cash out)

For properties which has equity a term loan is possible. A Term loan is usually more strict and is contingent on many things such as equity value, remainder lease on the land, CPF property withdrawal and accrued usage and cash flow.

Contact Property Buyer Mortgage Consultants at: -

(sms) +65 - 9782 - 8606

(email) loans@propertyBUYER.com.sg

Invest in Singapore Property carefully and avoid "Buyer" representation

Invest in Singapore property Carefully

by www.PropertyBUYER.com.sg Mortgage Consultants

Sometimes, it is often the sweetest of smiles that kills and the most beautiful faces that stabs you from behind.

We are glad that the Ministry of Home Affairs has finally appointed someone to regulate the Singapore property market. As it stands, Singapore property buyers do need some protection against unscrupulous Singapore property agents.

Many agents or agencies are openly claiming to be the Singapore buyer representatives. On the other hand, just click another link on their website, they will explain why they are also the best seller representatives.

Whether you are a first time property buyer or an experienced property buyer, it is good to know that your real estate agent has your best interests in mind as you select a home. You save all the hassle of going through the classifieds daily or surf the internet. This is a very common statement that property agents profess. Then the next moment, they are claiming to be seller representative and how they will get you the best selling prices.

But how do property agents perform?
• Do the Singapore property agents find you the best match?
• Do the Singapore property agents always seemed so positive about the ever rising property market and that the market will never fall? You feel so good about buying!
• Do the Singapore property agents say that there is en-bloc opportunity and that property is a good investment?
• How do they select the properties? From their stock of unsold properties?
• Do the property agents help you by showing you the option to purchase (OTP)? Do the agents tell you the unfair clauses in the Option to purchase (OTP) are standard clauses and that you needn’t worry?

Whose side are the property agents standing on? The seller side or your side?

Well, You can always draft your own Option to purchase (OTP) and tell the agent not to worry, just use yours.

Now, where are the facts? We would often ask them to show us the facts that property prices always appreciate and we can show you many that do not.

Do you want to know how property agents stage a nice show for you?


This is what we heard in the industry, not sure how many people other than Mr. Lim fell to this trick.

Mr. Lim found on the internet and called up a sweet looking property agent. She looked so sincere and innocent and very senior in position. After gaining his trust, she went to show him properties. After learning his needs and choice, she brought him to view properties.

Mr. Lim was surprised that so many properties that he saw, they were not ideal and did not meet his requirement. He saw 5 to 10 properties, but they were all not ideal. Then she brought out her trump card, the property she wanted to move.

Mr. Lim saw the property and Bingo. That was the closest match, maybe 80% match, it didn’t match everything, but the property agent convinced Mr. Lim that that unit is one of the best units available.

What Mr. Lim didn’t know was, what the property agent did, she kept a number of units and didn’t show it to Mr. Lim. Mr. Lim found out after accidentally calling up a few more agents out of curiosity. Surprisingly, Mr. Lim went for viewing and found much better units for cheaper price.

So what did the charming lady Property agent do to deceive Mr. Lim? Why did she do it?


The seller for the unit which was inferior was willing to pay 2% commission to the agent and it was not co-broke unit.

She only used the other other properties to show case and move her own 2% big fat commission property.

So now, the picture is fairly clear isn’t it?

We are eagerly looking forward to Institute of Estate Agents (IEA) to regulate the industry and set some ground rules.

Buying and selling agents must be separated and licensed on an individual basis, so that agents are careful not to be in cahoots with each other. Singapore Property Buyers can be more at ease if regulations are more comprehensive. Nonetheless Property buyers must always be vigilant, Buyers beware.

Propertybuyer.com.sg mortgage consultants and buyer advisors can be contacted at: -

6100 0608
sms 9782 8606

Contact PropertyBuyer.com.sg mortgage consultants

Invest in Singapore property using CPF

Singapore Property Investor and CPF funds for second property



CPF is abbreviation for Central Providend fund. It is similar to the American 301k plan. CPF funds are supposed to be saved for retirement.



Every Singaporean must contribute 20% of their income into CPF. Therefore Singapore’s CPF has billions of dollars of funds. Singapore property investor and Singapore property buyer also have lots of fund and liquidity, unlike other markets. The Singapore market is more about confidence than about liquidity.



About Property Buyer Contact Property Buyer

www.PropertyBUYER.com.sg

We are a Research-focused Singapore Mortgage Consultant which helps you compare Singapore Home loans either for new home loans or refinancing, we balance risks versus rewards for each home loan to match your risk profile and financing needs.

Buying property is a serious affair, we do NOT advocate a Greed based buying approach, we emphasize that you need to check your affordability and do your sums right. If you are unsure, we are happy to help you check.

Not Simply Cheap, but what Fits. We Research, You Save!

Tel: 6100 - 0608

SMS: 9782 - 8606

loans@propertyBUYER.com.sg

CPF causes you to overpay?

Singapore government likes to get maximum value for its land. If too many people can afford Housing, it is time to raise prices. In other circumstances, we can say it’s market forces or free market as supply and demand are determined by private enterprise. But not in this case.



HDB Government Housing market is Not a free market

But in Singapore’s case, government housing (HDB) is a controlled market, www.propertybuyer.com.sg is often critical of the way some policies are dished out, to the disadvantaged of the Singapore property buyers.



Many people along with us also see the setting of prices as arbitrary, because the government controls much the state land and there is no question of supply, but rather that of demand and affordability. The government can freely control supply to set prices.



CPF funds adds to affordability

Allowing the use of CPF funds for HDB and property in general raises the affordability.



With this new found liquidity, the government can then raise the selling prices of HDB, by putting in more frills and of course enhancing the construction industry producing more value add.



Of course, ultimately the home buyers and the Singapore property investors are the ones that pay for it through sapping up their retirement funds in CPF.



Raising prices of HDB flats is a means to sap liquidity out of the individual’s CPF account into the government coffers through land sales.



Since the Singapore property investor – buyer may have limited cash, the Singapore government allows the use of individual’s CPF funds to pay for their government “subsidized” housing. As a result properties become more and more expensive, effectively becoming an indirect tax.

Coupled with more funds (through the use of CPF) money, plus low interest rate environment, many Singapore banks cannot reduce rates much more rather they start to come out with newer terminology and features. Comparing Singapore Home loan has become much more tedious exercise, it is prudent to engage www.PropertyBUYER.com.sg mortgage consultants to help. They can be contacted at +65-6100-0608.



Refinancing home loan can also be tedious.



Singaporeans have lesser and lesser CPF money for retirement



Singaporeans have lesser and lesser CPF monies left for their retirement as they pay for ever more expensive properties. At some stage, we have to say, “Mr. Government, stop eying our CPF money!!!”



Since so many people are resigned to the fact that they will never really see their CPF money as cash as more and more rules are put in place to tap into their CPF.



Even after retirement age at 55 years, there is the minimum sum that you have to set aside. Currently (as at 2009) the minimum sum is $117,000 for retirement. This is the minimum sum that a person must have in the account. You can only withdraw any CPF funds in excess of the minimum sum upon retirement age.



Many Singaporeans have already given up on hoping to see their CPF money. As a result, many Singaporeans and PR used CPF to buy their second property before 1st July, 2006.



Can I use my CPF to purchase more than one property?

(Source: www.cpf.gov.sg)

Yes, you may use your CPF to purchase more than one property.

However, if you already own a property (HDB flat or private property) bought with your CPF savings and wishes to buy another property with CPF savings from 1 July 2006, you will be able to do so only after setting aside in your Ordinary and Special Accounts (including the amount used for investment from the Special Account) the prevailing Minimum Sum cash component if you are below 55 years, or the Minimum Sum cash component shortfall if you are aged 55 and above.

If you currently own more than one property bought with CPF savings before 1 July 2006, you need not set aside the prevailing Minimum Sum cash component unless you subsequently buy another property using your CPF savings on or after 1 July 2006.



Please note that this is not applicable if you are applying to use your CPF to purchase a second or subsequent property with non-related singles. Non-related singles can only jointly use their CPF to purchase their one and only property (private property or HDB flat).



Your first property can be used as a pledge for half the monies required under the Minimum sum. This means that if you with to use CPF for your second property (as at 2009), you must have at least $58,500 ($117,000 x 50%). Any CPF above $58,500 can be used for your second property.



Is Singapore Market over Leveraged?



Although Singapore is no where near as dangerous as other markets where there are plentiful “no cash down” home loans. With CPF being allowed to make up the 15% down-payment on the purchase price and only 5% is cash down-payment, we at www.PropertyBUYER.com.sg would consider the Singapore market rather leveraged compared to the early say 5 years ago or pre-2000.

The current property boom in 2009 lacks fundamentals (Refer to Property Buyer update July 2009 in the article section of www.PropertyBUYER.com.sg/articles/article.php) as its underpinnings, so it is still hard to say whether sentiments will change the economic fundamentals or economic fundamentals will eventually bring the sentiments back in line.



There are good and bad deals in every property cycle, please exercise your own good judgement.





About Property Buyer Contact Property Buyer

www.PropertyBUYER.com.sg

We are a Research-focused Singapore Mortgage Consultant which helps you compare Singapore Home loans either for new home loans or refinancing, we balance risks versus rewards for each home loan to match your risk profile and financing needs.

Buying property is a serious affair, we do NOT advocate a Greed based buying approach, we emphasize that you need to check your affordability and do your sums right. If you are unsure, we are happy to help you check.

Not Simply Cheap, but what Fits. We Research, You Save!

Tel: 6100 - 0608

SMS: 9782 - 8606

loans@propertyBUYER.com.sg

Singapore SIBOR Home loan mortgage

Courtesy of www.PropertyBUYER.com.sg

Singapore Interbank Borrowing Rate is commonly referred to as SIBOR.

Sibor is traded amongst banks at the Association of

Banks Singapore (ABS)


Contact us

Tel: 6100 - 0608 sms: 9782 - 8606

Email: loans@propertyBUYER.com.sg

http://www.propertybuyer.com.sg/contactus.php


The Singapore economy is still hurting, however the absolute worst may be over.

Given that the economy has stabilized, the Sibor and SOR tends to stay low

in a weak economy.

Reduced Risk of Major melt down.

So in short, the major risks of credit crisis or financial meltdown is much

reduced. Sibor and SOR should not hike due to panic.

Risk of Inflation

Each medicine comes at a price. The price is a hang-over or side-effects lasting

several years.

Obama's massive fiscal stimulus and that of many countries are going to hit

the fan soon.

Is the USA printing money

You cannot create something out of nothing. What the USA did by pumping

the economy is similar to creating 1+ Trillion dollars out of thin air.

The only reason why it is not a PURE "PRINTING money" exercise is

because the "Printing" is financed through debt.

The extra + 1 Trillion is created, but debt is created to finance it, so there is

minus - 1 Trillion. So +1 trillion - 1 trillion in debt = 0 (not printing).

But when you add 1 trillion to a 14 trillion dollars economy, that is something

like 7% of US GDP. Surely after some of the deflationary pressures are

sorted out, if the US do not pull this money out, a serious inflation may

appear.

So far, the US government have reiterated that they have plans in place to suck up the

excess liquidity. We think that would be tough. Take it away too soon, economy falls

back into recession.


SOR and SIBOR is quite directly affected by US Fed funds rates and policies.

If the US suffers from inflation, the world's economy may suffer as well. And

Sibor and SOR may shoot up too. We cannot rule out this possibility.


Get Home Loan or Refinance Home loan with www.PropertyBUYER.com.sg

We never emphasize cheap loans, we never emphasize we are the best

home loan company.


What we do is a research focused approach to help

busy home owners sort out the home loans and refinance home loans

balancing risk and rewards for each possible option they choose.


ABOUT US Contact us

Tel: 6100 - 0608 sms: 9782 - 8606

Email: loans@propertyBUYER.com.sg

Contact us

Download FREE Property Checklist / Guide (Kiasu Property Checklist)

Singapore Economy: Video on Analyst Updates for February 2009

SOME BANKS ARE TOO LARGE TO FAIL

But they are not immuned to nationalization. According to Philips securities,

once nationalized, common equity holders (i.e. Shareholders share price or

equity will be decimated). For those who consider buying bank shares, in

anticipation of a turn-around, they generally will be rewarded when the

market turns around. But provided that the banks are not nationalized.

Because when a bank is nationalized, it is usually at a bad state.


Example (Hypothetical): -

If a bank is currently worth $1,000 and there is 1 shareholder owning 1000

shares at $1 each.

And assume that Share price = Equity

Therefore Asset = Equity + Debt

If it has assets of $20,000 And debts or $19,000 --> Equity = $1,000.

Since the bank suddenly discovered that part of their $20,000 assets which

they thought was assets is GONE. Assume that $950 of that $20,000 is

deemed assets that is not recoverable and lost fo good.


That means that the bank's equity is now (Asset - Debt) = $19,050 - $19,000

= $50 dollars.


That means instead of a $1 stock price, the equilibrium price of the bank

stock should be only $0.05 (or 5 cents).


Consider that at this scenario, the bank is in a desparate position and goes

to the government to ask for a bail-out. The government values the bank at

$0.05 per share. Since the bank has 1000 shares outstanding, that values

the bank at $50 dollars.

Say the government then invest $950 into the bank, by issuing more shares

at $0.05 per share. That is a whopping 47,500 shares.

So instead of being a 100% ownership at 1,000 shares, the enlarged

number of shares is 48,500 shares. The common equity shareholders will

suddenly only hold 2.07% of the bank, effectively relinquishing control to the

government.


But let's say for instance, some of these asset prices such as properties, we

know that the prices won't be forever depressed. In other words, due to the

nature of the BAIL-OUT, even if in the future the $950 of losses gets

"write-back" into the books as assets or booked at Profit of $950 2 years

down the road.


The common share holder, holding only 2.06% of the bank, gets back only

$950 x 2.06% = $19.57, having already lost $950. The net loss is still a

whopping $930.43.


So even if the banks shares are CHEAP, the common equity shareholder

and/or Potential investors must BET that the bank will NOT be nationalized.

Because doing so will usually entail the government injecting capital while

valuing the bank at dirt cheap prices, effectively taking control of the banks.


Subsequent upside is mainly for the government and common share holder

will lose most of their investment.


So how to look out for which bank share to invest?

We think that investors should always look for bank shares that have little

risks of further losses and is in no danger of bankruptcy and/or being

handed a "bail-out" by the government.


Because a bail-out typically saves bank jobs, but not the share holders.


All banks are somewhat affected

As a result, many banks are in "risk aversion" mode and concentrating on

raising lending margin and only focusing on customers passing the most

stringent credit tests.

If you are in a current bank loan and your rates are rather high, call us

to evaluate Refinancing. If your house valuation is high and your debt is low,

you may want to consider refinancing plus get "CASH OUT" a term loan.

This gives you the added ammunition and ready cash to pounce on any

potential opportunities that come by given the fairly attractive stock-market

valuations now.

http://www.propertybuyer.com.sg/viewnews.php?article=72