Home Buyers still prefer 30 years loan to 50 year loans...

[candy_chia]

Even our Minister is also concerned about Singaporeans overstretching their financial means way beyond retirement age.

Thank you Dennis, for warning the public against the adverse consequence of housing debt overload in CNA:

"If you have problems paying the installment right now when you are much younger and your income is much higher, I think you will have a bigger problem as you age," said Mr Ng.(quoted our sifu, Dennis Ng's comment on CNA on

http://www.channelnewsasia.com/stories/ ... 58/1/.html
http://dl.dropbox.com/u/34170769/CNA_230712.avi



50-year home-loan a 'gimmick': Khaw
my paper, Monday, Aug 06, 2012

SINGAPORE - For those thinking of taking up long-term loans in order to buy their dream home, National Development Minister Khaw Boon Wan has this message for you: Don't do it.

Instead, Singaporeans should exercise prudence, especially amid the uncertain global financial climate, he said.

He advised against taking up 50-year housing loans, which at least one bank here began offering recently. Mr Khaw said: "There is now some gimmick, a bank offering 50-year loans. Please don't fall for that. It doesn't make sense."

He was speaking to reporters in Woodlands Drive yesterday, during the launch of the National Community Emergency Response Team (Cert)-on-Patrol Week for Sembawang GRC.

Last month, The Straits Times reported that United Overseas Bank had introduced a 50-year home loan. The report said that borrowers above a certain age are not eligible.

Other banks, such as OCBC, offer a maximum loan period for private and HDB homes of 40 years, or up to the age of 75, whichever is earlier.

Mr Khaw said it is important that people live within their means and buy only what they can afford.

He said that he first rented a room in a flat when he moved from Malaysia to Singapore. He then bought a small 30-year-old house in a private estate and upgraded subsequently. Mr Khaw said: "If you want to immediately come out of school and think you want a five-room flat, and...a 50-year loan will help you achieve that, I don't think that is very wise."

Take-up rates for the loan have been low, a "good sign that Singaporeans know we should always be prudent", he said.

S'pore homebuyers likely to opt for shorter term mortgage
By Millet Enriquez | Posted: 23 July 2012 2343 hrs

Dennis Ng, who is the founder of mortgage consulting firm HousingLoansSG.com, said: "A longer loan repayment period may make sense for investors because the investor is always looking for return on investment. So the less capital they put into the property, the higher their return."


HousingLoansSG.com, which sees 20 to 30 enquiries a day, said around 70 per cent of its clients opt for 25 to 30-year loans, while 15 per cent go for the 30 to 35 year loans. The rest prefer terms of less than 25 years.

"If you have problems paying the installment right now when you are much younger and your income is much higher, I think you will have a BIGGER Problem as you Age," said Mr Ng.

[wemakebread]

Just to digress a little bit ...

Most Singaporeans would presumably be using the CPF contributions from our monthly salary to pay housing loans.
However, CPF contribution rates will reduce once we cross age 50.
http://mycpf.cpf.gov.sg/Employers/Gen-I ... ntriRa.htm
(those who had not attended Dennis' course may not necessarily realise this, so pls do share with your family, colleagues & friends)

Under normal circumstances, most people would expect salary to increase every year.
However, there is always the risk of salary cuts or retrenchment, when there is economic downturn.

Therefore, when we set aside emergency fund (eg. 6 months salary), it is best to set aside 6 months of gross salary (not take-home pay). In event of retrenchment, we can use 20% of monthly gross salary (typical employee's CPF contribution) to pay housing loan.


In summary, anyone who is considering 50-year loan should note of these 2 points.
1) CPF contribute rates drop after age 50
2) in event of salary cut / retrenchment, is there enough reserve cash to continue servicing the housing loan for at least 6 months?

The point is, someone who takes 50-year loan is probably over-stretched and may not have kept some cash reserves.

[candy_chia]

And consider purchasing disability income insurance as added protection.

Comparison of Disability Income Insurance plans:
http://www.masteryourfinance.com/forum/ ... 6&start=30

Just to digress a little bit ...

Most Singaporeans would presumably be using the CPF contributions from our monthly salary to pay housing loans.
However, CPF contribution rates will reduce once we cross age 50.
http://mycpf.cpf.gov.sg/Employers/Gen-I ... ntriRa.htm
(those who had not attended Dennis' course may not necessarily realise this, so pls do share with your family, colleagues & friends)

Under normal circumstances, most people would expect salary to increase every year.
However, there is always the risk of salary cuts or retrenchment, when there is economic downturn.

Therefore, when we set aside emergency fund (eg. 6 months salary), it is best to set aside 6 months of gross salary (not take-home pay). In event of retrenchment, we can use 20% of monthly gross salary (typical employee's CPF contribution) to pay housing loan.


In summary, anyone who is considering 50-year loan should note of these 2 points.
1) CPF contribute rates drop after age 50
2) in event of salary cut / retrenchment, is there enough reserve cash to continue servicing the housing loan for at least 6 months?

The point is, someone who takes 50-year loan is probably over-stretched and may not have kept some cash reserves.

[randwick]

I think some newbies shopping for new homes, especially private properties, may not be aware of the withdrawal limits imposed by CPF for servicing of loan; see excerpt from CPF website:


Withdrawal Limit
The Withdrawal Limit (WL) is the maximum amount of CPF beyond the VL that you and your co-owner(s) can use for the property. Once the WL is reached, no further withdrawal of CPF by any owner will be allowed. If the housing loan is still outstanding, you and your co-owner(s) will have to service it fully with cash. The WL is not applicable to new or resale HDB flats financed with HDB concessionary loan. The WL is determined by the date of purchase or refinancing of loan as follows:

Date of Purchase (i.e. Sales & Purchase agreement) / Refinancing of Housing Loan Withdrawal Limit
1 Jan 2006 – 31 Dec 2006 132% of VL
1 Jan 2007 – 31 Dec 2007 126% of VL
1 Jan 2008 onwards 120% of VL


The limit is not applicable to HDB flats financed with HDB concessionary loan. Those buying private properties or refinancing may want to take this into consideration into your financing calculations.

Link to website here:
http://mycpf.cpf.gov.sg/CPF/my-cpf/buy- ... eaflet.htm

[candy_chia]

Received my letter of offer for refinancing via courier today.

Noticed that there is an extra document behind the letter of offer, titled, Residential Property Loans Fact Sheet, mandatory under MAS Notice 632A (stated on the document).

It outlines the detailed figures for monthly loan repayment in the event where there is is spike in SRFR (Singapore Residential Financing Rate) and stipulates areas whereby charges are imposed by financial institution (such as rejecting loan after accepting the letter of offer, making a late payment, etc)

Based on current outstanding loan of $464,790, interest rate for 1st year is 1.15%p.a. (slide from initial quote of 1.25%), therefore monthly loan repayment will be $1,847.57


Current SRFR for Maybank is 3.25%... monthly repayment is $2,259.21
If SRFR changes by (+1%)........ie. 4.25%...... monthly repayment will be $2,457.14
If SRFR changes by (+2%)........ie. 5.25%...... monthly repayment will be $2,705.47
If SRFR changes by (+3%)........ie. 6.25%...... monthly repayment will be $2,944.94
If SRFR changes by (+4%)........ie. 7.25%...... monthly repayment will be $3,194.63
If SRFR changes by (+5%)........ie. 8.25%...... monthly repayment will be $3,453.96

There is an additional $7,314.84 annual loan repayment to be incurred if interest rate spike to 4.25%.

One of the important notes behind the document, states that "Your financial institution may have the right to ask for additonal payments if your property falls in value", this is a timely reminder to be financial prudent (by limiting monthly loan payment below 35% of gross income)

Called up Maybank to enquire whether it is cost effective to refinance my remaining $466k housing loan. Surprisingly, after deducting the 1% penalty ($4,647.90) and conversion fee ($500), there is a substantial saving of $8,600 by converting to their 3 years fixed rate loans. (1st year - 1.25%, 2nd year - 1.35% and 3rd year - 1.45%)

Not keen in their floating rate package as there is still 2 years lock-in period involved (1st year - 0.98%, 2nd year - 1.48%).

Cheers!

There are a few popular rule of thumb when it comes to managing money. I would say they do ensure you will be financially sound if you follow them.

Do not chalk up debt more than 35% of your income

Banks use 35% as your borrowing limit when approving your loan applications. This means that your monthly repayment towards any form of debt should be below 35% of your gross salary. The debts can be car installment, housing loans, outstanding credit card bills, etc. This rule is to protect you from taking too much debts. Breaking this rule will likely undermine your ability to save and you may find yourself paying debts for the rest of your life.

Reposted from: http://www.bigfatpurse.com/2009/10/rule ... l-finance/

[candy_chia]

Do not overload on housing mortgage loan so that retirement years will become a breeze.


33% of Aussie baby-boomers to retire facing mortgages
Aug 17, 2012 - PropertyGuru.com.sg

By Romesh Navaratnarajah:

Around 33 percent of Australia’s baby-boomers will still be paying off their mortgages when they retire, shattering any plans of spending their retirement savings on themselves, according to a survey by RaboDirect.

To deal with the “mortgage hangover”, many borrowers aged 55 and upwards will have to sell their homes or use their superannuation lump sum to pay off the loan.

Moreover, about 40 percent of those who still have mortgages when they retire plan to sell their homes, pay off the loans and hopefully acquire a more affordable property, said RaboDirect’s Renee Amor.

“Baby-boomers are feeling the pinch and are the most pessimistic of all generations about the nation’s economic outlook,” Amor added.

David Chalke, Social Analyst at Strategy Planning Group, said that many baby-boomers are financially unprepared and it took the 2008 global financial crisis to make them realise it.

“They’ve been known as the lucky generation, they missed the Depression, missed the war, basically they’ve had 60 years or so, apart from the odd hiccup, of relative good economic times.”

“Now they are probably looking back over the past few years with the collapse of the share market and low investment returns and they have only just realised that things are pretty thin,” noted Chalke.