The post The CPF Strategy in Your Housing Loan appeared first on Wise Loans.
]]>One of the most common uses of the CPF Funds in Singapore is the servicing of mortgage loans for both HDB and private properties.
The interest rate in the CPF Ordinary Account has remained at 2.50% p.a. for an extended period of time, while interest rates on mortgage loans had hovered around the 1-1.5% levels. This allowed home loan owners to arbitrage on the 2 rates; effectively making a “profit” by enjoying higher CPF interest rates while servicing their lower-cost mortgage loans.
With SOR and SIBOR rates increasing from their low rates to current levels in excess of 1%, it is perhaps time to revisit this : Does it still make sense to hold a higher mortgage amount, or should one pay down their loans with their existing CPF balances?
Circumstances will vary among individuals so the first step is to look at the mortgage carrying rate. Action should be taken if mortgage rates clearly exceed CPF interest rates. Otherwise, one can hold back any action.
If the mortgage rates exceed CPF interest rates, the next question to address is the amount to be used to pay down the loan amount. Should one use the whole CPF Ordinary Account balance, or is there a magic figure that can be derived?
There is no ONE best way.. but the strategy should be flexible enough so that it is able to ride out any life changes.
One suggested method is to leave a buffer of 6-12 months of mortgage instalments in your CPF balances. MAS645 mandates that banks use a 3.5% mortgage interest rate when assessing residential property loans so this rate makes a good starting point.
Why not use the current interest rate? This is because this rate is not likely to have taken into account any further volatility in interest rates. It pays to be conservative!
Using the simple mortgage calculator low, one can work out what this figure is using your outstanding loan amount, remain loan period and the 3.50% mortgage interest rate (or any rate that you are comfortable with. Only thing to remember is that it should not be unrealistically low)
I once had a client whom I had worked with. She had wanted to have the lowest loan amount over the shortest loan tenure. Through the planning process, I showed her the various strategies she can use to lower the costs of her mortgage but retain flexibility in her loan. With these strategies, we could then have the leeway to have a higher loan amount as well as keep her higher CPF balances, retaining a buffer equivalent to 6 months of mortgage loan instalments.
A couple of months after her transaction was complete, I found her one day in my office waiting for me. It was then I found out that she had just been retrenched and had come to thank me for convincing her to keep the CPF buffer!
Remember that your individual situation should determine the approach to how you manage your CPF balances. Other than the latter, there are other ways you can take to lower your mortgage costs.
Feel free to come to us to explore these strategies. After all, a penny saved is a penny earned!
Like to have a copy of the article in a pdf file? => The CPF Strategy in Your Housing Loan – Wiseloans |
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]]>The post Lower Mortgage Interests – In ONE Simple Step! appeared first on Wise Loans.
]]>If the mortgage package is already enjoying very low rates, it seems there is nothing anyone can do to lower mortgage interests.
Right? Actually, this is NOT the case.
In terms of mortgage interest rates, the interest rates in Singapore are among the lowest in the world. The indicative 3-month SIBOR rate is currently at about 0.404%. Together with mark-ups of 1% to 1.25%, the mortgage rates still end up below 2%.
Even with such low rates, there are strategies to bring your mortgage interests down further, with a little ingenuity and planning.
Name of Owner | Richard |
Loan Size | S$1,000,000 |
Annual Interest Rate | 1.50% |
Total Mortgage Interest Payable | S$242,432.55 |
So, what can one do to lower the Mortgage Interests Costs?
I am sharing this simply because almost all the people I speak with do not do this.
Mortgage loans in Singapore have a minimum repayment amount of S$10,000. Let us see what happens when Richard makes a repayment of S$10,000 once every 2 years for the first 10 years; that is, he makes total repayments totalling S$50,000 over a period of 10 years (S$10,000 x 5 times). The Mortgage Interest would then look like this:
Total Mortgage Interest = S$232,855.41, representing a S$9,577.14 or 3.95% saving. |
Over the life of the loan, the savings do not look very substantial. At this point, I would like to explain what typically happens when a partial repayment is made on a mortgage loan. Within the terms and conditions of the mortgage loan, there is usually a clause which explains that the remaining of the principle would be recalculated over the remaining tenure of the loan. However, most banks allow their customers to hold the monthly instalments constant.
In our example, when Richard makes his first partial prepayment, the instalment will reduce from S$3,451.20 to S$3,414.74, a S$36.46 or 1.05% reduction. But let’s see what happens if Richard were keep his instalment constant at S$3,451.20 after each of his partial repayment,
Total Mortgage Interest would reduce to S$221,589.65, a S$20,842.90 or 8.60% reduction in total mortgage interest costs from his original loan! |
Do note that I have only assume a monthly savings of S$417 over 24 months in order to make biannual repayments of S$10,000. Imagine how much more savings on mortgage interests can be attained when:
This is just one of many of the analyses that we customise for our clients at wiseloans.sg.
Remember, saving on your Singapore Mortgage Loans is not just about refinancing your loan to another bank. While this may be one strategy, only a full assessment and understanding of your individual circumstances will allow a mortgage strategy to be tailored to your needs.
Please do bear in mind that different loans would have differing Terms and Conditions and your mortgage strategies may differ depending on your individual circumstances.
Go on, contact us. The results might just surprise you!
Like to have a copy of the article in a pdf file? => Lower your Mortgage Interest Costs Mortgage Hack |
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]]>The post Fixed Interest Mortgage – Worthwhile considering? appeared first on Wise Loans.
]]>The 3-month SIBOR (Singapore Interbank Bid-Offer Rate) is at the 0.40568% level, up from the 12-month low of 0.37083%. This works to an increase of 9.3%. This does look significant, doesn’t it?
For our example, let us use a long term spread of 1.25% over the base rate of the 3-month SIBOR. In other words, total interest rate is now 1.25% + 0.40568% = 1.65568%.
Applying this interest rate against a S$1 million loan over a period of 30 years, the monthly instalment works to S$3,526.40.
What happens when we applying the 12-month interest rate low of 0.37083% to the same computation? The total interest rate works to 1.62083%. The monthly instalment? S$3,509.48.
So the difference of this 9.3% increase in 3-month SIBOR works to a 2.1% increase in total interest rate, and a S$16.92 (or a less significant 0.28%) increase in monthly instalment (See table below for a quick summary)
Current | 12-month-low (a) | Difference (b) | % increase[(c) = (b)/(a)] | |
3-month SIBOR | 0.40568% | 0.37083% | 0.03485% | 9.3% |
Spread | 1.25% | 1.25% | – | – |
Total Interest Rate | 1.65568% | 1.62083% | 0.03485% | 2.1% |
Monthly Instalment | S$3,526.40 | S$3,509.48 | S$16.92 | 0.48% |
(Loan S$1mn for 30 years) |
The ST article also mentioned a Fixed Interest Mortgage package where the interest is pegged to a Fixed Interest Mortgage of 1.88% for a period of 3 or 5 years.
Let’s see if this makes sense.
Let’s continue to use the long term interest spread of 1.25% for the 3-month SIBOR package to look at the numbers.
For both the SIBOR and Fixed Interest Mortgage Rate package to “equalize”, the highest level that the 3-month SIBOR can reach is 0.62% (1.88% – 1.25%). This means that the 3-month SIBOR has to increase by 52% in order to make it “worthwhile” to move to a Fixed Interest Mortgage package.
The instalment on a 1.88% fixed interest mortgage would also work out to an immediate increase in monthly instalment to S$3,636.48 in our example, representing a 3% increase.
Far from it. Just like the fact that not everyone uses the same brands (or types) of cars, computers or toothpaste, whether or not the Fixed Interest Mortgage is suitable for you is dependent on you; your attitudes, expectations of the future and personal financial objectives.
For example:
So what’s next?
The questions above are a good starting point when looking at one’s mortgage options. There are other steps one could (and should) take in the evaluation process:
Feel free to contact us if you have further questions, or if you need help to evaluate which mortgage option makes sense for you!
Like to have a copy of the article in a pdf file? => Fixed Interest Mortgage – Worthwhile considering_ |
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]]>The post Do this and you could end up richer appeared first on Wise Loans.
]]>This is one of the most common comments I have heard from clients and friends over the years.. usually asked in very exasperated tones.
Unfortunately, most banks don’t do this.
Why?
The answer is simple; because this means a potential loss of existing customers, and loss of profits.
Mortgage loans are typically structured with teaser (lower) rates over the first 2 to 3 years, with rates moving up significantly in subsequent years With the requirement for monthly repayments to be made via GIRO, it is easy for anyone to miss the changes with our very busy lives.
The reality is that this is more common than one realizes… cable, telephone, credit cards… the ease of internet and automated payments give us the convenience that we need, yet tend to blind us to any changes in our payment and consumption habits.
What can one do to see if there is anything you can do to see if you can save money?
Simple. Review your current situation and see how that fits with your current needs. In the period that has elapsed since your loan has been taken, new loans, base rates and your personal circumstances would have changed.
There is simply nothing to lose from this approach. Find a better solution, and you will have a loan which better suits your needs. If your current mortgage remains the best , you will rest easy from the knowledge that you’re already in the best possible position.
At wiseloans.sg, we work closely with our clients to customise their solutions. We are paid by the banks, so there is no cost to you for this review. Go ahead, just contact us through our website contact or call/message/WhatsApp us at 9223 4490 now and let’s have a quick chat to see if we can help you save some money.
Go ahead. Just call us. And you could end up richer for it…
Like to have a copy of the article in a pdf file? => Do this and you could end up richer – Wise Loans |
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]]>The post Credit Bureau Report appeared first on Wise Loans.
]]>When I discuss their conduct on their credit facilities, many will tell me (sheepishly I might add) that they may be a little late on some of their payments.. but hey…. “the banks should be happy right?.. I mean they earn interest from me right?”
I hate to break it to you… but such behaviour does not bode well for you in the longer term.
One of the wisest men I know, and an astute analyst, once told me, many years ago, that in order to see where Singapore will be in the next 10-20 years in terms of the financial industry, all we had to do was look at the US.
He is right about that.
In the last 3 years, we have seen the CBS report play an increasingly important role. From a mere reflection of repayment conduct, the report now assigns a score to each person (AA, BB, CC, etc). These scores reflect the risk of default of loans taken out by these persons.
While the current rules on Total Debt Serving Ratio (TDSR) ignores the repayment conduct on these credit facilities, the credit scores are affected by the timeliness of repayments, as well as the number of credit facilities. Looking at the US, they now have FICO scores and loads of advice and services provided for people to learn how they can manage their FICO scores.
I think it is a matter of time when the CBS scores will translate to numerical scores (like our US counterparts) and WILL become even more important… so let’s start building some financial discipline before this creeps up on us!
Like to have a copy of the article in a pdf file? => Credit Bureau Report – Wise Loans |
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]]>The post “What is the best loan?” appeared first on Wise Loans.
]]>Invariably, the question came: “What is the best loan?” This is a question I always get… but does not have a simple answer.
What does “the best” mean anyway?
Typically, when people talk about “the best”, what they mean to say is the “cheapest”.
When the market talks about the lowest rates, there are certain assumptions that are not typically mentioned:
So.. what is the “best”? The best is what is suits you and takes into account who you are, and how you manage your finances. Speak with us, and we will be glad to work out something that makes sense!
Like to have a copy of the article in a pdf file? => What is the best loan – Wise Loans |
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