CASE STUDY 1 – Refinance for Lower Interest Rates!
Refinancing depends on a variety of factors such as loan amount, lock in and subsidy claw back period, the main consideration to refinance would be whether the interest savings over time, especially for the first 2 to 3 years, exceed the refinancing expenses such as the legal and valuation fees?
You are welcome to ask our SGLoanAdvisor consultants to discuss the options most suitable for you.
Refinancing on a lower interest rates would meant significant savings, with the exception of some scenarios that refinancing may deem unworthy.
Example – Private home loan, outstanding balance $700,000 for remaining 25 years tenure. Henry’s home loan with Bank A is at 2.3%, and is not aware of the current market’s mortgage rate. His monthly instalment was at $3,070.
After assessing his needs, SGLoanAdvisor consultant assisted him to refinance his loan with Bank B and his new mortgage loan’s rate reduced to 1.5% fixed 3 years. His new monthly instalment is at $2800, instalment payment was reduced by $270 monthly. Indicative savings for the next 3 years at approximately $16,204!
Alternatively, if Henry is comfortable to maintain his monthly payment at around $3,000, he can consider reducing his loan tenure. With shorter loan tenure, the cumulative interest expenses will be lesser:
|Interest Expenses Comparison for $700,000|
|(A) Interest rate: 2.3% Tenure: 25 years Monthly Instalment: $3,070||B1) Interest rate: 1.5% Tenure: 25 years Monthly Instalment: $2,800||(B2) Interest rate: 1.5% Tenure: 23 years Monthly Instalment: $3,000|
|3 Year Estimated Interest Expenses (Accumulative)||$46,167||$29,963||$29,802|
|Full Tenure Estimated Interest Expenses (Accumulative)||$221,083||$139,866||$128,112|
- Total interest paid to Bank A at 2.3% throughout for 25 years loan tenure approximately = $221,083
- Total interest paid to Bank B at 1.5% throughout for 25 years loan tenure approximately = $139,866
(Savings approximately $81,217)
- Total interest paid to Bank B at 1.5% throughout for 23 years loan tenure approximately = $128,112
(Savings approximately $92,971)
Summary – Trust the number
Take action to maximise your interest savings. Let our consultants work with you through the refinancing process.
CASE STUDY 2 – Save on Interest Expenses!
3 points to take note:
- You lost the 2.5% interest you can earn leaving it in your ordinary CPF account when you take up a loan.
- Do you know that HDB concessionary loan rate is 2.6%.
- You can lose more than 3.5% interest for taking up the wrong loan.
The result of the wrong action can cost you to lose more than ten of thousands dollars of sales proceed, when you sell your house. The solution is prevention through knowledge. If you are going to purchase a property, it is perhaps best to plan with an end in mind, that is, with an ‘Exit Strategy’.
Our Case Study – Mr and Mrs Khoo was planning to get a loan for their new flat, but they didn’t think for long term.
Both executives in their early 30s, have purchased their first HDB flat at $380,000, they were already planning to sell this flat and upgrade upon reaching the minimum occupation period. They took up a HDB loan and used up their $200,000 CPF, the remaining $180,000 is at 2.6% HDB loan.
HDB loan is a good option for many buyers, as it does not requires any cash component for the purchase and offer great certainty on interest rates, however this is not always beneficial to some customers such as Mr and Mrs Khoo.
Since Mr and Mrs Khoo have the intent to sell their unit in 5 years and have the ability to lend from a bank with an interest rates at 1.5% fixed for 5 years, they could have consider this option of taking up a bank loan.
Besides the lower interest rates from bank loan, the amount that can be left in CPF also earns more interest. On top of that, lesser amount of CPF use accrued lesser interest too.
If Mr & Mrs Khoo have adopted the 1.5% 5 years fixed with maximum loan at $285,000 (75% LTV of $380,000 purchase price) and uses $76,000 (20% of $380,000) from their CPF. The couples would have saved around $28,000 on interests and on CPF accrued interest in the 5 years period.
Summary – Having an End in mind
If you are able to understand and evaluate your best options, based on your current financial situation, you will be able to leverage on the loan and maximize your savings. Our consultants at SGLoanAdvisor will help you to visualize your choices through a detailed consultation.
CASE STUDY 3 – Equity Term Loan
Many people teach that debt is bad or evil. They preach that it is smart to pay off your debt and to stay out of debt. And to an extent they are right. However, there are good debt and bad debt. It is wise to pay off bad debt - or not get into one in the first place. Simply said, bad debt takes money out of your pocket, and good debt puts money into your pocket.
You can dramatically increase your Return on Investment (ROI) on your property with smart leveraging on good debt.
Our Case Study – Mr and Mrs Lim
Mr and Mrs Lim, both 45 years old, have plan to grow their real asset portfolio and wanted to buy another property. They have currently a paid up private property and is contemplating on what they can do to better manage their cash flow and save on the interest.
After meeting with our consultants, they are able to restructure the loan and cash out from their current property. Besides able to invest in an additional property without paying extra, they managed to keep some rainy days funds too.
Summary – Leverage via Good Debt
Learn to use good debts to grow your net-worth, the earnings and/or savings could be use for retirement planning or investment over time.
Our consultants at SGLoanAdvisor are equipped with loan knowledge to help you work out on the financing possibilities, which allows you to make well informed decision. We seek for a win-win situation to make sure you understand your financial status and calculate your risk to pursue asset growth.