By: Zeng Han Jun, CPCG, Singapore

First of all, let me briefly explain what a cash handout is when we are talking about mortgages. A cash handout is as its name implies, it is the cash that the bank offers you for taking up housing loan with them. As you know, the competition in the mortgage market in Singapore is getting tight and it is not just about the local banks anymore. The foreign banks are also offering competitive housing loans to the local financial scene now. With so much competition, banks and financial institutions sometimes give out cash to you, in order to entice you to take up a home loan with them.

As a consumer, you will be concern if the cash handout will have a negative effect for you in the long run. A cash handout is really handy, especially if the handout is big enough. After taking up the housing loan, you can immediately use the cash handout to finance the renovation of your new house. You can do so many things with it and it comes as no surprise to me that many people will go for these types of packages whenever available. The point is, is it really beneficial for you in the long run?
Nothing in this world is free. Not even the air we are breathing, because we actually have to spend money to reconstruct the forestation in order to maintain the oxygen level in the world. Remember, even air is quantifiable and does not come free. The cash handout is not free either. Cash handouts come with a clawback period most of the time. Which means, when it is time for you to refinance, the bank will require you to pay them back the cash handout.

This scenario becomes a problem when you want to refinance. Your interest rate is getting higher and higher, and you finally decide to refinance to a lower interest rate housing loan. You call up the bank and they inform you that in the event that you really decide to refinance, you will have to pay back the cash handout that they have given you earlier. That sort of impedes you in your decision making, I need to come up with cash to pay them just to refinance! Should I even consider it? Out of the customers that I meet daily, there are always some who face this kind of situation. I will always try to work out the situation with them, and help to guide them to making an informed decision through numerical analysis. Of course there are some cases where the cash handout is so great that it totally wipes out all savings that they can enjoy if they refinance. In that case, I will advise this group of people to just stay with their existing home loan.

Finance consumers who are currently holding onto these types of home loan products may face certain level of problem when refinancing. Do not worry too much about this and try to seek out a mortgage advisor to help you solve your problem. Your mortgage advisor can be in the form of a mortgage banking officer, mortgage broker or perhaps your friends or relatives who may have this type of experience. It is always a good idea to talk it out with somebody. The right mortgage advisor will be able to quickly outline the most logical and sensible method of exit from the existing home loan and strategically streamline you to the best possible solution.

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