home equity loan Archives - Holland Property

4 Ways Property Owners Can Weather The Storm of Covid-19

hollandproperty — Wed, 01 Apr 2020 01:25:05 +0000

4 Ways Property Owners Can Weather The Storm of Covid-19

The current Covid-19 pandemic that began in Dec 2019 is growing in scale every day, with the number of infections and deaths growing exponentially worldwide.

Singapore is no exception.

Fear strikes at the chord of our heart.

Things we take for granted we can no longer do. Travel bans. Quarantines. Stay-home notices. Schools shut down. No big gathering. The list adds on as the days go by.

The disruptions to our social fabrics and the impact on our economy are unprecedented. We see the stock markets crashed. Entertainment venues such as bars, cinemas, karaoke and discos shut down. Organised tours and religious meetings suspended. All mass gatherings and events cancelled.

Social distancing has become part of our social responsibility. No handshakes. No bodily contacts (except those closest to you). 1 meter apart. ‘Zoomed’ meeting. Online training. Live-streaming. So weird. It’s not our usual way of life.

Businesses are under threat of bankruptcy. The livelihood of many people is at stake.

There are people I know who have lost their jobs, have significant pay cuts and no more bonuses.

Covid-19 is so devastating that our government has announced not one but two relief packages to the tune of almost $55 billion, or 11 per cent of our GDP.

Kudos to our government.

The relief packages will do much to help businesses and individuals through these tough times.

Tough times call for drastic measures.

When the going gets tough, the tough get going.

Solidarity Budget

On 6 April 2020, our Finance Minister, Mr Heng Swee Keat, announced the third relief package, dubbed the Solidarity Budget.

Another $1.1 billion will be set aside to help families, workers and businesses. This is much needed with the one-month circuit breaker measures which will see a shutdown of most workplaces and schools in Singapore from 7 April 2020 to 4 May 2020. This brings the total budget to $5.1 billion, which is unheard of in our history.

STAY SAFE AND CALM

Yes, we need to stay safe and calm.

Fear not only can paralyse us but also cause us to make hasty regrettable decisions; and irrational reaction such as fighting for toilet rolls and instant noodles at the supermarkets.

If you are a property owner, don’t panic sell.

The market will be bad for now. So it’s good to consolidate all your resources and reassess your financial position.

I am reminded of famous words of Dr Robert H. Shuller “Tough times never last, tough people do!”

The bad times will last for a while but not forever.

History shows us that we will recover stronger.

The crises of the past had taught us to be more prepared.

Thanks to our government for the rounds of cooling measures between 10 Feb 2010 and 6 July 2018. Today, we have more holding power which should help us weather through the Covid 19 crisis.

The government has also just announced more measures to help property owners to tide through this difficult time.

So what can you do to consolidate your financial resources without selling your property?

Refinance Your Loans

If you have an outstanding home loan and are eligible for loan refinancing, now is the time to do it.

Home loan interest rate is now at an all-time low.

In response to the fallout of the Covid 19 pandemic, on 15 March 2020, the US Federal Reserve slashed its benchmark interest rate by a full percentage point to near zero. The key rate is now zero to 0.25 per cent, matching the record low level it hit during the 2008 financial crisis which was held until December 2015.

With the protracted pandemic, interest rates will be kept low for at least the next two years. Low interest rates will help build and rebuild the battered economy.

You should take this opportunity to talk to your banker to see if you can do a refinancing.

At a time like this, banks will be more than willing to extend their helping hands, especially for those who are not able to keep up with their mortgage payments.

Let’s see how much saving we are talking about with the reduction in interest rates.

Here is the comparison chart based on $1m loan for 25 years:

If you are currently paying 2.5% for your $1m loan and refinance at 1.5%, your monthly payment would have dropped from $4,486.17 to $3,999.36. That’s a saving of $486.81 a month.

If you can secure a loan package at 1.25%, it would work out to $603.20 a month.

The myriad of loan packages may be very confusing to some.

Most people are looking now at the floating, SIBOR-pegged home loans at the moment. Rates can be as low as 1.36%, depending on which bank.

If you want more security, you can also opt for fix rate packages for about 1.68%, depending on the loan amount. The lock-in period can be 2, 3 or even 5 years.

If you need help, do let me know.

Stretch Your Loan Tenure

Apart from refinancing your loan to enjoy the low interest rates, you can also stretch your tenure by another 15 years.

Your original loan is likely up to 65 years old to get the maximum 75% Loan-To-Tenure (LTV). But for refinancing, you can stretch up to 75 years old while still enjoying 75% LTV.

By extending another 15 years, it will ease your monthly mortgage payment, thus giving you better cash flow.

Once the situation improves, you can make a partial repayment to reduce the interest costs.

Example:

Loan: $500,000

Interest: 1.4%

Current: 20 years tenure

Monthly payment: $2,389.80

If extended to 35 years, monthly payment: 1,506.55

Reducing by $883 a month can certainly help when in dire straits.

Defer Payments on Home Loans

The Monetary Authority of Singapore (MAS) has just announced homeowners who are facing financial pressure amid the Covid-19 outbreak will soon be able to apply to defer payments for their housing loan.

The payment will be deferred to 15 January 2021 for HDB loan and 4 Jan 2021 for all other loans.

There are several options.

You can choose between extending or not extending you loan tenure when your repayment resume.

If you choose to extend, for example, if you start the payment deferment in May 2020 (8 months to December 2020), you loan tenure will be extended by 8 months.

The options are deferred payments on principal payment only, or both principal and interest payments. Accrued interest only applies to the deferred principal amount and not the deferred interest payments. This is provided that mortgagor is not in arrears for more than 90 days as of 6 April 2020.

So if you choose to defer payment on both principal and interest, the principal amount will remain unchanged (for fully disbursed loan) and interest is computed on the principal amount. There is no interest charged on interest.

There will be no late fees or charges during the payment deferment period.

Some landlords may have a problem finding new tenants at this time. With no rental income, this deferment may be a life-line to home owners.

Take a Home Equity Loan

If you are affected financially and in need of funds to tide through this challenging period, you can consider taking a home equity loan if you own a private property.

A home equity loan is a secured loan using your property as collateral. Interest rate is about the lowest compared to any other kind of loans you might be eligible for. The bank will give you the money in one lump sum.

With this money, you can settle your debts that incur higher interest rates, sort out your business cash flow problem, provide for your family, pay for a major medical expense, keep up with your insurance premiums, to start a business, etc.

A savvy investor may even capitalise on the market opportunity and use the money to invest in the equity market.

Do take note TDSR is still applicable when taking a home equity loan.

One exception is retirees. Since March 2017, the government has relaxed the rules to allow retirees to borrow against their private property. They can borrow up to 50% of their property value without subjecting to TDSR.

In a time of a severe crisis like what we are going through right now, having cash at hand can be very helpful. It could be a life-saver.

We do not know how long this Covid-19 crisis will last. It is crucial that we must have the financial resources to help us weather through this tsunami.

If you want to know more about how all these work, drop me a message or schedule a zoom meeting with me by using the calendar below.

Danny Han has always been in the people’s business, having spent 23 years as a church pastor, five years as an insurance agent, and the last 16 years as a property consultant.

Danny has a genuine interest in people and firmly believes in personal integrity. While helping homeowners with their property needs, their interest always takes precedence over his personal gains. Hence, Danny has consistently earned his clients’ complete trust and loyalty. Many of them have become his personal friends.

Danny received his Diploma in Mechanical Engineering from Singapore Polytechnics and Bachelor of Science from Oklahoma Christian University of Science and Arts in Bible & Psychology.

Besides keeping abreast of the property market trend and constantly equipping himself to better serve his clients, Danny is a passionate foodie, a weekend cyclist, and an avid hiker.

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The post 4 Ways Property Owners Can Weather The Storm of Covid-19 appeared first on Holland Property.

Wealth Accumulation Through Home Equity Loan

hollandproperty — Thu, 26 Mar 2020 13:49:53 +0000

Boost Your Wealth Accumulation Through Home Equity Loan

How do you make money with a property asset?

If you’re like most Singaporeans, you will probably say “rent it out”, or “sell it for capital gain”. Indeed, these are the most commonly understood ways in which to monetise your property.

However, there is a third option that is open to owners of private property – and that’s to use it for a home equity loan.

What Is A Home Equity Loan?

Annoyingly, there are multiple terms used for this kind of financing. You may also hear it called a ‘second mortgage’, ‘reverse mortgage’, and ‘cash-out refinancing’.

Other common terms meaning almost the same thing are ‘equity term loan’ and ‘term loan’. There may be a slight difference between these two terms: an equity loan helps you tap into the value of a fully paid for property; whereas a term loan helps you do the same for a property that has not been fully paid for. But the general principle is the same.

Fundamentally, a home equity loan is a secured loan against the value of your home at a very low interest rate. It lets you ‘cash out’ with funds delivered as a lump sum.

a home equity loan is a secured loan against the value of your home at a very low interest rate. It lets you ‘cash out’ with funds delivered as a lump sum.

Difference Between A Home Equity Loan and Home Loan

An equity loan is a loan you take after you have ownership (equity) in a property.

On the other hand, you take a home loan to purchase a property and start building equity in it.

The eligibility of an equity loan is based on the value of your property; a home loan is dependent on your ability to pay, which is usually your income.

Unlock the Value of Your Property

Let’s say you bought a condo for $800,000 in the year 2000. Today, the condo is valued at $1.2 million. As such, you have about $400,000 of untapped value in the property.

In normal circumstances, the only way to unlock this $400,000 is to sell the condo. But this is not always ideal.

Maybe you are getting exceptional rental yield on your investment property.

Or your property can still appreciate much further.

Or you simply don’t want the hassle of having to move house.

A home equity loan provides a solution to this. It allows you to borrow up to 75 per cent of the new value of your home (up to $900,000 in this example), as a loan.

Since an equity loan is a secured loan using your property as collateral, the interest rate is extremely low – it can be fixed at just around 1.6 per cent per annum* (although the exact terms vary based on which bank you approach).

*At this point of writing, the interest rate for home equity loan can be as low as 1.15% (SIBOR + 0.05%). Do check with your banker or broker for the most current rates.

Why Is A Home Equity Loan A Good Financing Option Compared To Normal Loans?

The interest rate of a personal loan is usually in the range of six to nine per cent per annum.

These are some typical rates for different purposes:

Type of Loan	Interest Rates
Renovation loan	2.98% – 5.8%
Business term loan	3.5% – 6%
Debt consolidation plan	4% – 6%
Education loan	4.5% – 5.88%

At just 1.6 per cent per annum*, a home equity loan is probably the cheapest available option.

Usages of Home Equity Loan

A home equity loan can provide a big enough loan quantum to cover costs such as studying overseas, children’s education, seed capital for a business, etc.

There have also been cases where individuals use home equity loans to consolidate their debts.

For example, say you owe $150,000 in loans, at rates of six to nine per cent interest. You may be able to borrow this amount via a home equity loan, and then pay off all that high interest debt.

You would then have to service only your home equity loan, at a much lower rate of 1.6 per cent. You don’t even need to sell your house to do it.

If you are thinking of investing in another property, and wish to take a maximum Loan-To-Value (LTV), you can take the Equity Loan to pay fully off your existing loan. In this case, the next home loan you are taking will be considered as your first loan, hence eligible for 75%.

If you are thinking of investing in another property, and wish to take a maximum Loan-To-Value (LTV), you can take the Equity Loan to pay fully off your existing loan. In this case, the next home loan you are taking will be considered as your first loan, hence eligible for 75%.

Can a Home Equity Loan Be Used For Investment?

Home equity loans are often used for investment, as the interest rate is exceptionally low.

For example, you may have noticed that an interest rate of 1.6 per cent per annum is even lower than the risk-free, guaranteed CPF rate (2.5 per cent, or four per cent for your CPF Special Account).

Note that you can even put the money back into your CPF if you wish. In this way, you are enjoying a positive carry trade of more about 0.9 to 2.4 per cent (depending on the prevailing equity loan interest rate).

But this action must be taken with great care because once you deposit the cash into the CPF OA or SA accounts, you cannot take it out in cash. You can, however, use the funds in OA to pay for your housing loan payments on an investment property.

Savvy investors may even use the equity loan to invest in stocks, especially in a crisis like Covid 19 pandemic where stock values have dropped to a very attractive value.

As such, it’s not uncommon for property investors to use home equity loans, to seize other profitable opportunities.

you can even put the money back into your CPF if you wish. In this way, you are enjoying a positive carry trade of more about 0.9 to 2.4 per cent.

How Much Can You Borrow?

The amount you can borrow is:

(Up to 75 per cent of your property value) – (outstanding home loan) – (Total amount of CPF used)

For example, say your property value is $1.5 million. You have $300,000 outstanding loan, and you have used $500,000 of your CPF. The total you can borrow is:

$1.125 million (75 per cent of property value) – $300,000 (outstanding loan) – $500,000 (CPF) = $325,000

Terms and Conditions

The only properties for which you can use this loan are private residential properties, industrial properties, and overseas properties*.
For those who own Executive Condominiums (EC), you will need to meet the 5 year Minimum Occupation Period (MOP) before you can qualify.
If you have an outstanding home loan, you can only get a home equity loan from the same bank that holds your mortgage. You cannot owe the same property to two different banks at once. If you’ve fully paid off the mortgage, you’re free to shop around and find a bank you like.
Most home equity loans come with fees of between $2,500 to $3,000; you may also need to pay for a valuation of your property (around $500), if it’s been several years since one has been conducted.
You must pass the usual requirements needed to take on property loan, such as the Total Debt Servicing Ratio (TDSR).

*In practice, Singapore banks tend to only offer the loan on properties in Australia, the UK, and some states in the US.

If you’re not sure what the usual requirements are for property loans, drop me a Whatsapp message, and I can explain them to you.

When Should You Use A Home Equity Loan?

A home equity loan can be used for needs such as settling higher interest debts, tapping into other investment opportunities, or other financial plans undertaken with advice from a qualified financial professional.

Home equity loans should never be used for non-essential expenses, such as buying a sports car or expensive watch.

In addition, it’s important to make sure you can service the home equity loan, as your property is the collateral. Treat it with the same respect as you would another home loan.

For more discussions on how to build a road to wealth with property, visit me at Danny Han Property Wealth Planning. Feel free to drop in and ask me anything or schedule a zoom meeting with me using the calendar below!

Danny Han has always been in the people’s business, having spent 23 years as a church pastor, five years as an insurance agent, and the last 16 years as a property consultant.

Danny received his Diploma in Mechanical Engineering from Singapore Polytechnics and Bachelor of Science from Oklahoma Christian University of Science and Arts in Bible & Psychology.

Besides keeping abreast of the property market trend and constantly equipping himself to better serve his clients, Danny is a passionate foodie, a weekend cyclist, and an avid hiker.

Subscribe to receive updated practical property investment insights, property reports and good investment deals

The post Wealth Accumulation Through Home Equity Loan appeared first on Holland Property.

home equity loan Archives - Holland Property

4 Ways Property Owners Can Weather The Storm of Covid-19

4 Ways Property Owners Can Weather The Storm of Covid-19

Solidarity Budget

STAY SAFE AND CALM

Refinance Your Loans

Stretch Your Loan Tenure

Defer Payments on Home Loans

Take a Home Equity Loan

SUBSCRIPTION FORM

Wealth Accumulation Through Home Equity Loan

Boost Your Wealth Accumulation Through Home Equity Loan

What Is A Home Equity Loan?

Difference Between A Home Equity Loan and Home Loan

Unlock the Value of Your Property

Why Is A Home Equity Loan A Good Financing Option Compared To Normal Loans?

Usages of Home Equity Loan

Can a Home Equity Loan Be Used For Investment?

How Much Can You Borrow?

Terms and Conditions

When Should You Use A Home Equity Loan?

SUBSCRIPTION FORM