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Loan refinancing- to maxi tenure?, PLS advise

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2nd Gear

Hi all bros and sis,

 

I need some advice for those experts in loan especially home loans.

 

My loan due for refinancing soon and i have to decide the following:

 

1) SIBOR or fixed rate

2) Tenure.

 

I am currently have abt $235K on O/S principal on my loan and currently a bank offers me 3mth SIBOR +1% for 3 years without lock in. I am tempted to take this as my current loan interest is 3%. tenure left 18years.

 

My question is that should i stretch the tenure to 30 years again and maximise my savigings in CPF which will be gettign abt 2.5% where SIBOR +1% is only abt 1.6%. In this way, i will have more CPF savings in my oridnary account and earn more interest to offset the interest incurred on the loan.

 

any experts please advise.

 

Thanks.

 

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2nd Gear

any experts here?

 

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Supercharged

It is silly for not refinance your current loan. 1.4% saving is huge!

Of course, your risk is SIBOR movement. SIBOR might remain low, and it could only goes up in the future.

Anyway, SIBOR could goes up to 2% before it becomes worse off for your case. By then, you could refinance to another loan.

 

As for the tenure, for me, I will keep it at 18 years.

Use the money in the CPF for other investment. Like buying a second or third property. The access CPF + monthly rental might be just enough for you to own another property.

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2nd Gear

Left 18 years from 30 years? Means you are half way thru?

I would chose to think that the monthly breakdown of interest portion and debt deduction portion is around half half. Meaning the amount you pay monthly half is to clear your debt and half is the bank profit.

 

If you chose to take up another new loan, I think the ratio will be revised. More will go towards the bank profit and lesser towards the debt deduction. Even if the interest is low for the first three years, the ratio pf the payment has more weightage towards the banks interest/profit.

 

Of course using a excel spread sheet to analyse the situation will give you a clearer picture. Make the new banker work for his money, ask him to simulate your current situation and the new Sibor situation for your to decide. FREE SERVICES make use of them if I were you.

 

 

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1st Gear

No lock in? Definitely take the refinance. The only thing is the admin fees. So just a few months and you'll earn it back.

 

But I guess that's obvious enough, you're probably more concerned about the tenure.

 

That one I can't advice. Look at your life style, look at what you want to do (2nd prop?) then decide. This is becoming, basically, your overall financing strategy already.

 

Personally (caveat emptor), I'd not get any properties now.

 

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Twincharged

Personally (caveat emptor), I'd not get any properties now.

 

quite right. was rewatching an old CNBC documentary last night abt the contributory factors to the sub-prime bubble. guess most ppl know the reasons by now but it was a good reminder nonetheless.

 

among these were: low interest rates, lending liquidity by banks, big inflows of foreign funds, the market's eagerness to buy and flip, fear by ordinary folks of prices going beyond their reach - hence, juz buy first, greed and the hearsay of someone who knew someone who made easy money in property. heck, this seems to be exactly the situation we're seeing in sgp today!

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2nd Gear (edited)

My choices for property in current mkt:

 

1) Fixed rate

2) Maximum tenure.

Edited by Fourth

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2nd Gear

Should i stretch the loan period to pay less from my CPF so that the monies in CPF can earn 2.5% interest while i will be paying only 1.6% on my loan.

 

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Neutral Newbie

You should definitely refinance your loan. 3% is way too much currently when you can get around 1% currently.

 

I had my loan refinanced via a mortage broker last year. Basically they get all the quotes from the banks in Singapore and get you the best deal possible. You need not even pay them as they get their cut from the bank. All you need is paying the legal fees for the refinancing which I think the bank will absorb a portion of it as well.

 

Let me know if you are interested to know more on this and I can hook you up with them. :)

 

 

 

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Supercharged

Should i stretch the loan period to pay less from my CPF so that the monies in CPF can earn 2.5% interest while i will be paying only 1.6% on my loan.

Straight forward, you get paid 0.9% by CPF. Good. But, the money is not yours until you are 55, or older.

Actually, the saving is not much la.

For 18 years, your monthly is $1253

For 30 years, your monthly is $ 822.

Diff is $431 per month.

0.9%/12*$431=$0.32 for 1st month, $0.62 for 2nd month..

After 1year, you have $5k extra in your CPF which the additional interest only is $50 per year.

 

Btw, are you refinancing from the same bank? If not, you might want to call your existing back to "inform" them your intention to jump ship. You will be surprise with their counter offer.

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2nd Gear

sure, appreciated.

 

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Clutched

quite right. was rewatching an old CNBC documentary last night abt the contributory factors to the sub-prime bubble. guess most ppl know the reasons by now but it was a good reminder nonetheless.

 

among these were: low interest rates, lending liquidity by banks, big inflows of foreign funds, the market's eagerness to buy and flip, fear by ordinary folks of prices going beyond their reach - hence, juz buy first, greed and the hearsay of someone who knew someone who made easy money in property. heck, this seems to be exactly the situation we're seeing in sgp today!

 

Yeah man, spoke to my close friend who's doing bank housing loan the other day & we all agree we're in the above mentioned situation just like the states & japan(japan's bubble is 3 generation loan).

 

The other day, one real estate friend call up & told me about recent new property launches to look at. I asked him, buy high sell higher ar? He straight away diam & sian 1/2. Wahahahah.

 

Like what warren buffett & peter lim(remiser king) had shared: 1) Be fearful when the market is greedy & be greedy when the market is fearful.

2) During good times or bull markets, it's best to consolidate & hold cash then deploy it during depressed times.

 

Good luck guys! ^_^

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Twincharged

i tink those who hv seen the hype b4 the '96 crash and the doldrum years of 1997-2005 will understand it better. my gut feel is that many foreign buyers and youngsters may not hv lived thru those dark days of sgp property n think that the sky is the limit.

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Clutched

i tink those who hv seen the hype b4 the '96 crash and the doldrum years of 1997-2005 will understand it better. my gut feel is that many foreign buyers and youngsters may not hv lived thru those dark days of sgp property n think that the sky is the limit.

 

Ohh yes, if you have those lao jiao top producing bankers friends, ask them & they'll they you alot of hot money coming in as investment property from indon, malaysian & chinese(park here as they you can see chinese gov coming down hard liao). Once they make, they zao kah mo lang ya [laugh]

 

Was told by them tat even got enquiries from those combined income couples of $6k wanting to buy as they they scared it going out of reach for them soon, down payment perhaps sponser/borrow from parents.

 

Aiyo, simple logic ley. When most people(friends, business aquaintance, relatives, colleagues & etc) you meet say now stocks going up & up & can make easy money then better siam liao.

 

Nowadays, when i go meet business partners(business owners themself & managerial staff) their topic sure cannot avoid property but nobody talk about stocks. Kekeke :blink:

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Neutral Newbie

Can consider taking SIBOR rate and maximum tenure. I've done this..took mortgage loan from DBS at SIBOR rates so don

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Turbocharged

consumer are very funny people.. in 2003-2006 when loan financing interest are typically at around 3.5-4.5% range, everybody scared that it will go up higher to 5-6% so most go for fixed rate instead of floating... then after they start to fixed themselves at aound 3.5-4% for the next 3 years, the interest rate starts to come down...

 

nowadays interest rate at almost historical low, most people stil prefers floating rate. The trend is really similar to stocks speculation.. when it is dirt cheap, nobody buys, but when it is high, everybody rushes in. [laugh]

 

if u have bloomberg, go see 15 years historical SIBOR trends & SOR trends.. it is at REALLY historical for 3month SIBOR at less than 0.6%, and 3month SOR at less than 3.5% (strange that SOR is lower than SIBOR as SOR=SIBOR+cost of holding funds).. therefore we are starting to see housing loan interest at around 1% for floating and 1.8% for fixed rate. This is very rare in Singapore.. maybe the 1st time it ever happen.

 

And now at this prolonged low interest rate environment, house owners are starting to second guess that interest rate will remain low.. and all started to take up floating rate package instead of fixed rate. if you have gotten yr property since early 2009 and has been staying at floating rate, good choice as you have enjoyed low interest all this 1.5 years, but if its time to refinance, think hard at how long will this low interest rate environment will stay?

 

there is no right or wrong choice in either floating or fixed rate now.. it depends on your needs. Example if you are more incline to take floating rates, is your property meant for speculative and investment purposes? where you may likely to sell within the next few months, therefore no-lock in floating rates will be more suitable?

 

If the financing is not for investment property but for owner occupied property, you will most likely be continue to stay in the property for a long period of time. by taking floating rates, your monthly prepayment amount changes every few months, maybe up or down... and at current low SOR or SIBOR, what is the potential savings? SIBOR or SOR becoming zero? what's the possibility of rate going up to the normal 3%?

 

talking to a more experienced banker may possibly let you make a better decision.

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Turbocharged

Can consider taking SIBOR rate and maximum tenure. I've done this..took mortgage loan from DBS at SIBOR rates so don

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Neutral Newbie (edited)

Current SOR rates being lower than SIBOR is not suprising, as the opportunity cost of holding reserve funds is lower. And don't assume bankers are hard up for your loan.

 

To TS, if you are considering doing partial repayment during the lock-in period, you might want to consider both variable and SOR-pegged package. I would suggest you would want to reprice your loan with the same financial institution, so that you need not incur legal and valuation cost again.

 

Assuming you are to refinance with a different financial institution, do note the clawback period for the legal and valuation subsidies. It is usally extended to 36mths from disbursement date. If you take up a Fixed 2yrs lock-in period, do note that you might run into risk of having to reprice at a higher interest rate after 2yrs. In 2007, fixed rates hovered about 3+%pa.

Edited by Ilix
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