View Full Version : Equity Loan
Jonathan0503
10-07-11, 11:34
As my current property has appreciated in value, was offered by bank whom I mortgaged my property to take up an equity loan (cash out).
Can take loan of up to 75% of current value, less outstanding loan from bank and CPF utilised.
Interest rate approx 1.1%+sibor.
Any advise whether I should take up this offer?
And if I do, where do you think I should invest in?
My preference:
1) Low risk (value at least can be maintained over short to medium term)
2) Return of approx 4+%
3) Highly liquid (can offload easily)
devilplate
10-07-11, 12:20
As my current property has appreciated in value, was offered by bank whom I mortgaged my property to take up an equity loan (cash out).
Can take loan of up to 75% of current value, less outstanding loan from bank and CPF utilised.
Interest rate approx 1.1%+sibor.
Any advise whether I should take up this offer?
And if I do, where do you think I should invest in?
My preference:
1) Low risk (value at least can be maintained over short to medium term)
2) Return of approx 4+%
3) Highly liquid (can offload easily)
U shd engage a pte investment banker instead rite?
Here only for ppty enthu
As my current property has appreciated in value, was offered by bank whom I mortgaged my property to take up an equity loan (cash out).
Can take loan of up to 75% of current value, less outstanding loan from bank and CPF utilised.
)
Which bank offered u?
dont forget lawyer fees and u got to sign new contract so there might be lock in period...depend on how disiplined you are with investments and how well you handle $$ most people would probably splurge the extra $$ on a nice new car...evo/golf gti:D ...note there is a clause that states you cant use equity loan to buy another property...:banghead: ...plus later on if interest rates go up ur equity loan also affected....:scared-3:
Which type of investment you choose would depend on many factors. My preferred investments are gold savings account and government-linked companies blue chip stock on SGX that pay high dividend. But still, I have to do my research, monitor, buy/ sell at the right price and have a strong stomach. If you don't know what to invest in, it's better not to invest at all - at least until you have done your research.
NEVER trust anyone to advise you what to do with your money - not an investment banker, not an insurance agent, not your friends, not us :tsk-tsk:
People will tell you all the good things about investments but you seldom hear from those who lose money because they usually hide their faces in shame. If you have herd mentality, it's better that you stay away from shares (including unit trust, savings plan and whatever nonsense products). Sometimes insurance companies offer you guaranteed interest with full capital protection if you hand them your money for a fixed number of years. That's the safest bet but the interest rates are low and it's relatively illiquid investment.
Inflation was 2.8% last year and your mortage interest rate is 1.6% so that's 4.4%. But 4% is your targetted return. Even if your investment can earn you 4% returns, you are still worse off than not cashing out. And if you add on the risk of losing your money, it's even less worthwhile.
Furthermore, note that the 1.6% interest you pay is on the total loan amount while the 4% target returns is on the cashed out portion.
Given the info you provided, my recommendation is to Not to cash out.
Note: Bankers and investment firms will not give you such advice because they all stand to earn money if you cash out and invest.
Thanks evergreen for this very very useful sharing!
TS should reflect very hard and follow it.
You should take this up only for shortterm cash flow, with a view to returning it asap.
devilplate
10-07-11, 15:49
dont forget lawyer fees and u got to sign new contract so there might be lock in period...depend on how disiplined you are with investments and how well you handle $$ most people would probably splurge the extra $$ on a nice new car...evo/golf gti:D ...note there is a clause that states you cant use equity loan to buy another property...:banghead: ...plus later on if interest rates go up ur equity loan also affected....:scared-3:
No such clause la....which bank u take? Definitely can use the cash out money to buy another ppty!
devilplate
10-07-11, 15:51
Thanks evergreen for this very very useful sharing!
TS should reflect very hard and follow it.
You should take this up only for shortterm cash flow, with a view to returning it asap.
If u really dun hf much cash flow...gd to cash out some la...borrowing cost quite low la....if ppty or stock crash, den u got money to hoot wat...if not, how to benefit from every crisis:D :D :D
If u really dun hf much cash flow...gd to cash out some la...borrowing cost quite low la....if ppty or stock crash, den u got money to hoot wat...if not, how to benefit from every crisis:D :D :D
You are right as well, only for guru like yourself who knows exactly what he wants. Important also to consolidate purchases too in between, before re-leveraging upwards. Otherwise may get caught in the buying frenzy and get hit "unaware".
No such clause la....which bank u take? Definitely can use the cash out money to buy another ppty!
U are correct.
See article regarding equity financing on MAS guidelines:
http://jacksheo.wordpress.com/2011/01/31/new-regulations-unlikely-to-affect-property-market/
http://www.asiaone.com/Business/News/My+Money/Story/A1Story20110117-258690.html
devilplate
10-07-11, 16:14
You are right as well, only for guru like yourself who knows exactly what he wants. Important also to consolidate purchases too in between, before re-leveraging upwards. Otherwise may get caught in the buying frenzy and get hit "unaware".
So ultimately, only u noe urself better den anyone else.....
I tell smone to cash out to pay for his car instead of taking a car loan:D
So ultimately, only u noe urself better den anyone else.....
I tell smone to cash out to pay for his car instead of taking a car loan:D
Agree we know ourselves better; though reminder intermittently is good.
Btw thought that better to hold for further capital appreciation, better returns this way, unless limited further upside for that development. As a guru, your call should be correct. Was it correct looking back?
devilplate
10-07-11, 16:59
Agree we know ourselves better; though reminder intermittently is good.
Btw thought that better to hold for further capital appreciation, better returns this way, unless limited further upside for that development. As a guru, your call should be correct. Was it correct looking back?
Me not guru....
Btw, i dun understand ur question...:confused:
Oh i noe liao, wat i mean was i told tat sm1 to take equity loan out of his ppty to pay for his car instead of taking car loan
Me not guru....
Btw, i dun understand ur question...:confused:
Oh i noe liao, wat i mean was i told tat sm1 to take equity loan out of his ppty to pay for his car instead of taking car loan
oic... from equity loan. Good guru advice! :)
EQ loan is not my cup of tea.:scared-3:
No such clause la....which bank u take? Definitely can use the cash out money to buy another ppty!
ocbc:scared-1:
No such clause la....which bank u take? Definitely can use the cash out money to buy another ppty!
HMM that means kena smoke last year i went ocbc bank to ask bout equity loan the officer said i cannot use the loan to buy another property...dammshould have joined this forum earlier...:doh:
HMM that means kena smoke last year i went ocbc bank to ask bout equity loan the officer said i cannot use the loan to buy another property...dammshould have joined this forum earlier...:doh:
You take the money out to use for whatever purpose you want right? How does the bank know that you buy another property. Go to abother bank for the 2 loan lah.
Though the 2nd property will kenna the 40% LTV :(. Not very enticing leh....
How come the interest rate is so high? The spread over sibor.
You take the money out to use for whatever purpose you want right? How does the bank know that you buy another property. Go to abother bank for the 2 loan lah.
Though the 2nd property will kenna the 40% LTV :(. Not very enticing leh....
yup thats what i was thinking too just transfer fund to my brothers name then ask my brother open check for me to pay for downpayment...how to catch...must have been some newbie officer that attended to me anyway like i said forum is the place all kind of experts here....:D ...even got geylang experts at sammyboy forum....:scared-1: :scared-1: :scared-1:
Jonathan0503
10-07-11, 22:14
Which bank offered u?
SCB
There's no restriction on what you can use for the fund. Hence, property also can.
That's why I'm thinking of investing in something less risky, can get a decent return for the short/mid term and at least maintain it's value. And if property market make a turn downwards, can use this money to buy another property
devilplate
10-07-11, 23:19
SCB
There's no restriction on what you can use for the fund. Hence, property also can.
That's why I'm thinking of investing in something less risky, can get a decent return for the short/mid term and at least maintain it's value. And if property market make a turn downwards, can use this money to buy another property
Pls share wif us if u found any gd lobang....many of us here holding some banana notes too:ashamed1:
SCB
There's no restriction on what you can use for the fund. Hence, property also can.
That's why I'm thinking of investing in something less risky, can get a decent return for the short/mid term and at least maintain it's value. And if property market make a turn downwards, can use this money to buy another property
Ok, perhaps u can look at prefential shares of UOB and OCBC, which are traded on SGX, there's one that offering 5.05% and 5.1% respectively. Also, u can also look at Hyflux preferential shares traded on SGX, giving 6%. Nothing is guaranteed but these seem less risky..., best u do your own homework....
Jonathan0503
11-07-11, 14:48
Ok, perhaps u can look at prefential shares of UOB and OCBC, which are traded on SGX, there's one that offering 5.05% and 5.1% respectively. Also, u can also look at Hyflux preferential shares traded on SGX, giving 6%. Nothing is guaranteed but these seem less risky..., best u do your own homework....
Thanks for the advice.
I have someone who suggested OCBC preferential shares as well
How come the interest rate is so high? The spread over sibor.
Exactly!
Citibank is offering 1mth sibor + 0.7% .
Thanks for the advice.
I have someone who suggested OCBC preferential shares as well Think SCB rate u get not competitive. Most foreign banks should be able to give u Sibor+ less than 1%, w/o lock-in for loan quantum of $500k & above, unless your loan quantum is really small.
OP mentioning this pty still mortgaged. Perhaps the cash out amt is not big enough
Jonathan0503
12-07-11, 09:52
Think SCB rate u get not competitive. Most foreign banks should be able to give u Sibor+ less than 1%, w/o lock-in for loan quantum of $500k & above, unless your loan quantum is really small.
But is it equity loan or normal mortgage loan?
But is it equity loan or normal mortgage loan? It doesn't really matter. Just the terminology. Some Bank do not have a specific term for property equity loan but will be willing to help you unlock the value of your property. U may try HSBC, their spread is lower than 1%.
take note that banks may loan u up to 60 or 70 LTV. after minus existing loan, cpf used, not much may be left. worst, u burst DSR. so many factors come into play. having the best rates is the easiest way to select.. but i think best way is to find out which bank can offer u highest LTV to get max equity loan.. and i cfm equity loan can be used for anything. MAS was mentioned in papers abt discouraging but thats all.. MAS is not a regulatory body in this sense.
take note that banks may loan u up to 60 or 70 LTV. after minus existing loan, cpf used, not much may be left. worst, u burst DSR. so many factors come into play. having the best rates is the easiest way to select.. but i think best way is to find out which bank can offer u highest LTV to get max equity loan.. and i cfm equity loan can be used for anything. MAS was mentioned in papers abt discouraging but thats all.. MAS is not a regulatory body in this sense.
yup, that's how a lot of americans got into trouble.... spending what they don't have....:(
If u do take up property mortgage equity loan, funds extended should be best deployed in investments which are liquid and easy to cash out in a short time, so that in the event of a downturn, can easily plough back these funds if Bank ask u to top up. In my opinion, it is not wise to use funds to invest in property, because property are not easy to cash out in downturn and even in a firesale, majority of the funds only come back after about 3mths after the completion of the sale. My :2cents:
So if u are not investment savvy and can't find such investments, better stay out....
But u may beg to differ....
Jonathan0503
14-07-11, 09:34
If u do take up property mortgage equity loan, funds extended should be best deployed in investments which are liquid and easy to cash out in a short time, so that in the event of a downturn, can easily plough back these funds if Bank ask u to top up. In my opinion, it is not wise to use funds to invest in property, because property are not easy to cash out in downturn and even in a firesale, majority of the funds only come back after about 3mths after the completion of the sale. My :2cents:
So if u are not investment savvy and can't find such investments, better stay out....
But u may beg to differ....
Exactly, so that's why i have set my objective if i do cash out this equity loan.
Don't want to lose my home....
Exactly, so that's why i have set my objective if i do cash out this equity loan.
Don't want to lose my home.... Have to be di$ciplined, can't be like those Americans who take $ spend and when crisis come, $ spent liao..., no $ to top up... Certainly cannot this $ to buy flashy cars..., party , enjoy...:2cents:
Jonathan0503
14-07-11, 14:05
Have to be di$ciplined, can't be like those Americans who take $ spend and when crisis come, $ spent liao..., no $ to top up... Certainly cannot this $ to buy flashy cars..., party , enjoy...:2cents:
Yah, some even suggested going for holidays:doh:
Heard mAS ruling that equity loan allowed at 60% ltv only. Am confirming now
Heard mAS ruling that equity loan allowed at 60% ltv only. Am confirming now It's 70% according to 2 Banks that I check with ( this is the limit they can lend subject to their approval ):
70% on value of property
less CPF + accrued interest used in payment of property
less outstanding loan on mortgage
Bank may look at your income, your other mortgages, car loan and then decide if they want to loan your the limit/max or reduce.
Jonathan0503
15-07-11, 13:02
It's 70% according to 2 Banks that I check with ( this is the limit they can lend subject to their approval ):
70% on value of property
less CPF + accrued interest used in payment of property
less outstanding loan on mortgage
Bank may look at your income, your other mortgages, car loan and then decide if they want to loan your the limit/max or reduce.
I got offer of 75% of value
I got offer of 75% of valueWow, so good, which bank?
It's 70% according to 2 Banks that I check with ( this is the limit they can lend subject to their approval ):
70% on value of property
less CPF + accrued interest used in payment of property
less outstanding loan on mortgage
Bank may look at your income, your other mortgages, car loan and then decide if they want to loan your the limit/max or reduce.
couple of banks offer 80% for 1st prop. What I was referring to is LTV for term loan for 2nd prop with a separate outstanding mortgage loan. Up to now, owners can borrow term loan at 80% LTV for every prop. MAS ruling came out yesterday where 2nd prop is at 60% LTV. And I know bcos I am a mortgage broker.
couple of banks offer 80% for 1st prop. What I was referring to is LTV for term loan for 2nd prop with a separate outstanding mortgage loan. Up to now, owners can borrow term loan at 80% LTV for every prop. MAS ruling came out yesterday where 2nd prop is at 60% LTV. And I know bcos I am a mortgage broker.
It's only logical.... since 60% LTV applies for new purchases for 2nd prop, it should apply to equity loan as well.....:(
Jonathan0503
15-07-11, 17:59
Wow, so good, which bank?
SCB.
I have indicated in my earlier post
I applied for a home equity line in conjunction with the refinancing of 2 properties a few months ago, and what I was offered was a bit better than most people here have posted.
I applied to all the major banks, local and foreign, and got quotes from all but one (they replied very late and when they replied the interest rates were higher than the rest).
* First property, for which I asked for a home equity line, was offered 80% by two local banks. Both offered competitive interest rates, and the one I followed up with also offered a very competitive valuation - above what I would have put a seller's price at.
* On a second property (before new rules with 60% LTV limit), the local banks offered 80% LTV, and two foreign banks offered 70%. When pushed, one agreed to 74%, and the other said they would ask their credit committee for 75% if I opened a priority account.
As one poster said, be very careful with a home equity line. If interest rates go up substantially (SIBOR was over 10% during the 1997 AFC) both the value of your home and shares will tank, a sure recipe for a call to top-up.
couple of banks offer 80% for 1st prop. What I was referring to is LTV for term loan for 2nd prop with a separate outstanding mortgage loan. Up to now, owners can borrow term loan at 80% LTV for every prop. MAS ruling came out yesterday where 2nd prop is at 60% LTV. And I know bcos I am a mortgage broker.
Just heard what u said today from banks, but was told effective date is like end of this month..., u shld know better.
But is it equity loan or normal mortgage loan?
I recently did a refi with an equity loan included as the value of my property has increased quite a bit.
From a foreign bank without any lock in, spread of 0.7% over sibor for both facilities.
I suggest you search around or even use a good mortgage broker to narrow down the options based on your needs. The rate from scb you have got is on the high side.
Is Equity Loan similar to mortgage loan where your monthly loan instalment payments comprise of both interest and principal-reducing component?
Or is it a Line of Credit where the instalment payments are only for interest and principal repaid at a lump sum upon redemption?
Is Equity Loan similar to mortgage loan where your monthly loan instalment payments comprise of both interest and principal-reducing component?
Or is it a Line of Credit where the instalment payments are only for interest and principal repaid at a lump sum upon redemption?
Para 1 is correct. Borrowing against the increased equity of
Pty hence equity loan.
Just heard what u said today from banks, but was told effective date is like end of this month..., u shld know better.
As of 27 July but as far as I know, almost all implement wef today
Jonathan0503
17-07-11, 11:51
Is Equity Loan similar to mortgage loan where your monthly loan instalment payments comprise of both interest and principal-reducing component?
Or is it a Line of Credit where the instalment payments are only for interest and principal repaid at a lump sum upon redemption?
I have checked with the bank and it's confirmed that the repayment is similar to term loan, ie, periodic monthly repayment consisting of principal + interest.
That makes this equity loan very unattractive. Limits the type of investment you can take up to (needs to choose one that pays you periodically, such as property rental)
Think I will not proceed
My advice inorder not get into financial trouble is :
Your monthly income can comfortably service the monthly repayment on both facs.
The equity loan you are taking is the paper capital gain on your property you can afford to give up on.
Invest in safer investments such as reits, stale pref shares or high div yield stocks. A property investment for rental yield can be an oprion but choose wisely on location etc.
And finally set aside a buffer for any potential top up in event the valuation of your property goes down. Hence the LTV you are accorded on the equity loan is important. Personally i will go for max 70% only.
I have checked with the bank and it's confirmed that the repayment is similar to term loan, ie, periodic monthly repayment consisting of principal + interest.
That makes this equity loan very unattractive. Limits the type of investment you can take up to (needs to choose one that pays you periodically, such as property rental)
Think I will not proceed
Limits is to those who follow the rule set by others. I got my cash out and brought another property under construction. If the market drop, sell the first one and hold the second, if the market up, cash out return confirm more than SOR+0.75. Risk is for those who don't understand, for those who know, it about how much ROI.
devilplate
25-07-11, 09:52
Limits is to those who follow the rule set by others. I got my cash out and brought another property under construction. If the market drop, sell the first one and hold the second, if the market up, cash out return confirm more than SOR+0.75. Risk is for those who don't understand, for those who know, it about how much ROI.
Yes.....southbank can cash out alot;)
just fyi... was looking at term loan these 2 days and asked my loan officer.
variable rates with lock in 0.68%; no lock in 1.18% (can reduce some more).
for short term loans, these are better than those rates quoted earlier - even the sibor + 0.5 or 0.55%.
change of plans for me and not requiring term loan now.
buttercarp
25-07-11, 19:04
just fyi... was looking at term loan these 2 days and asked my loan officer.
variable rates with lock in 0.68%; no lock in 1.18% (can reduce some more).
for short term loans, these are better than those rates quoted earlier - even the sibor + 0.5 or 0.55%.
change of plans for me and not requiring term loan now.
This one is from OCBC?
This one is from OCBC?
correct.
in fact with another friend, we went in for 2 separate loans - variable loans, despite the better sibor + 0.55 1st / 0.6 2nd / 0.65 3rd lockin. cos at disbursement, will be hit by, we guess, higher sibor & sor. despite the non-transparent board rate, we lock in a fixed discount on the variable rate.
hopefully we are correct, or you will see me commenting otherwise then. :beats-me-man:
buttercarp
25-07-11, 22:22
correct.
in fact with another friend, we went in for 2 separate loans - variable loans, despite the better sibor + 0.55 1st / 0.6 2nd / 0.65 3rd lockin. cos at disbursement, will be hit by, we guess, higher sibor & sor. despite the non-transparent board rate, we lock in a fixed discount on the variable rate.
hopefully we are correct, or you will see me commenting otherwise then. :beats-me-man:
Actually I finally settled for the OCBC variable rates with lock in 0.68% (1st year), and not SOR or SIBOR, cos hubby afraid the US economy will pick up and the interest rate will pick up. We did not shop around very much as most banks offer SIBOR which we were not keen.
Did you shop around, is OCBC loan reasonable?
Actually I should not be asking as I have signed the loan with them already.
Is this for BUC? What is 2nd and subsequent years?
Actually I finally settled for the OCBC variable rates with lock in 0.68% (1st year), and not SOR or SIBOR, cos hubby afraid the US economy will pick up and the interest rate will pick up. We did not shop around very much as most banks offer SIBOR which we were not keen.
Did you shop around, is OCBC loan reasonable?
Actually I should not be asking as I have signed the loan with them already.
Actually I finally settled for the OCBC variable rates with lock in 0.68% (1st year), and not SOR or SIBOR, cos hubby afraid the US economy will pick up and the interest rate will pick up. We did not shop around very much as most banks offer SIBOR which we were not keen.
Did you shop around, is OCBC loan reasonable?
Actually I should not be asking as I have signed the loan with them already.
only compared 2, and continued with regular banker who promised a good rate esp with double deal. searched and saw several complaints of board rates, etc. but we decided that this was as good as it gets. even if board rate increases from 4.5 to 5 or 6, the extra 0.5 to 1.5 on the 3rd year will still be lower than sor or sibor then, we guess. anyway, one free conversion allowed at top prob be 2nd year then of loan disbursement.
buttercarp
25-07-11, 23:20
Is this for BUC? What is 2nd and subsequent years?
Yup, BUC. 0.98 (2nd year), 1.38 (3rd year).
Yup, BUC. 0.98 (2nd year), 1.38 (3rd year).
Any penalty for breaking within 3years and after 3 years?
For BUC mortgage, if you take 3 years fixed and the condo TOP in 1 year, is the mortgage rates revised or stays the same?
Any penalty for breaking within 3years and after 3 years?
For BUC mortgage, if you take 3 years fixed and the condo TOP in 1 year, is the mortgage rates revised or stays the same?
cancellation should be 1.5% of undisbursed amount. so banker usu advise to pay at top, and retain small amount till full 3 years if lockin (else got to clawback for lawyer of 2.5k and valuation of ~500)
mortgage rate starts from your 1st disbursement. fixed will be fixed, unless take the variable (depending on board rate) or sor / sibor (depending on rates then).
buttercarp
26-07-11, 12:20
cancellation should be 1.5% of undisbursed amount. so banker usu advise to pay at top, and retain small amount till full 3 years if lockin (else got to clawback for lawyer of 2.5k and valuation of ~500)
mortgage rate starts from your 1st disbursement. fixed will be fixed, unless take the variable (depending on board rate) or sor / sibor (depending on rates then).
Exactly, this is what i got from OCBC.
But they said if within the first 3 years, if repay less than half of loan, then no penalty.
After 3 years, can repay full loan without penalty.
The loan amount will not be fully disbursed until a year after TOP or when CSC is received, which ever earlier.
cancellation should be 1.5% of undisbursed amount. so banker usu advise to pay at top, and retain small amount till full 3 years if lockin (else got to clawback for lawyer of 2.5k and valuation of ~500)
mortgage rate starts from your 1st disbursement. fixed will be fixed, unless take the variable (depending on board rate) or sor / sibor (depending on rates then).
Exactly, this is what i got from OCBC.
But they said if within the first 3 years, if repay less than half of loan, then no penalty.
After 3 years, can repay full loan without penalty.
yes. same terms & conditions, except my rates are slightly better, cos 2 loans and past dealings. after 3 years, is already out of lockin period, so can refinance, unless you change plan during 1 time free conversion at top.
Can i check if it's possible to take an equity loan on HDB flats? or is it only for private properties?
thanks in advance
devilplate
22-08-11, 22:47
Can i check if it's possible to take an equity loan on HDB flats? or is it only for private properties?
thanks in advance
Hdb cannot...only for pte ppty
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