By: Zeng Han Jun, CPCG, Singapore

Most of us probably need a loan at some point of our life and there are many different kinds of methods to obtain that financing: credit cards, personal loans, factoring and many others. If you have a private property that you have been paying for a couple of years and have built up a certain amount of equity, why not consider tapping that sum of money?

A term loan obtained from your private property is going to be priced at a much cheaper rate than a credit card or personal loan. With money borrowed at such a low interest rate, you can use it to finance your next renovation or to carry out your latest investment strategy. Using a term loan is not a new idea and has been used very often by many people such as business owners. You even have the flexibility to structure the loan in such a way that you will be comfortable with.

A term loan do has its drawback though. Although it is competitively priced against other types of credit facilities, do take note that a term loan, just like a housing loan, is a secured loan. What that means is that in order to secure these types of credit facilities, you will have to remortgage your house to the bank as collateral before they can approve of your loan. If you default on paying your installments, you will risk a foreclosure on your house. There are several types of mortgages: a pure non revolving term loan, a housing loan mixed with term loan or a revolving term loan. Different kind of credit facilities will suit different type of situation and the borrower will have to decide on the best structure for him or herself.

If you need any help in deciding the structure, you can always talk to your mortgage advisor, banker or a friend who is well verse in such matters. Do include a term loan as one of your option when deciding to take up financing from a bank or a financial institution. A term loan may have slightly higher closing cost when compared to more conventional financing but over the long run, it pays to fork out the difference because of the savings in the interest. It will be very obvious when you have your advisor to work these out for you.

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