Refinancing And Equity Loan

[Newie-X 1]

Hi guys,

I am very happy to find a thread discussing about equity loans.

I have several questions about equity loans.

Hope you guys can help me out with some or all of them.

1. Is equity loan a new loan on top of my mortgage loan, or is it a replacement loan for my mortgage loan?

2. What criteria does the bank look at in granting the equity loan to me? Because I already have a mortgage loan outstanding.

3. Are there still SOR-rate equity loan?

4. Can I ask for the same rates of my mortgage loan from my mortgage loan bank?

5. Should I source for other banks' equity loans other than my present mortgage loan bank?

6. Is the period of the loan similar to property loans, ie 20-year or 30-year loan? Is there a lock-in period?

7. Does it carry redemption penalties if the equity loan is redeemed within the lock-in period?

8. If the equity loan is approved, I can start to use it within 6 mths and interest will start when I start to use it? And if I did not use the loan after 6 mths, the loan will lapse and I will not be charged any interest?

Thanks in advance!

[Butoot 0]

Hi Newie-X

I have just refinanced my property and gotten an equity loan. I shall try to answer some of your questions based on my recent personal experience. I hope my answers could be helpful to you.

1. Is equity loan a new loan on top of my mortgage loan, or is it a replacement loan for my mortgage loan?

Yes, the equity loan is a new loan. You get two loans with the same interest rate. You can use your CPF to pay off the monthly housing loan but you have to use cash to pay off the monthly equity loan installment.

2. What criteria does the bank look at in granting the equity loan to me? Because I already have a mortgage loan outstanding.

The most important criterion is the value of your house. Has your house increased in value? The equity loan is given based on the increased value of your house. I have illustrated the formula for the loan in an earlier post in this thread. Different banks will offer different LTV.

3. Are there still SOR-rate equity loan?

This I am not sure. It depends on the bank.

4. Can I ask for the same rates of my mortgage loan from my mortgage loan bank?

I am sure you can ask. The rates are very competitve now.

5. Should I source for other banks' equity loans other than my present mortgage loan bank?

Of course! In fact, the best thing you can do is to engage the service of a Mortgage Broker (MB). That saves you a lot of time calling up banks and checking on their various loan packages. The MB is in a position to compare all the loan packages and advise you on which is the best for you. You don't need to pay the MB a single cent. He/she gets the commission from the bank depending on the size of your loan. I used an MB for my loan and she was most helpful and very professional. If you are interested, I can pass you her contact number.

6. Is the period of the loan similar to property loans, ie 20-year or 30-year loan? Is there a lock-in period?

I believe they have a formula for the tenure for the property loan which is 75 years minus your age. Usually there is a lock-in period of either one or two years, depending on the loan package.

7. Does it carry redemption penalties if the equity loan is redeemed within the lock-in period?

Yes, definitely. It is a certain percentage of the loan amount.

8. If the equity loan is approved, I can start to use it within 6 mths and interest will start when I start to use it? And if I did not use the loan after 6 mths, the loan will lapse and I will not be charged any interest?

I believe so but I cannot answer this question because I wanted the equity loan as early as possible. I got mine in two months after signing the letter of offer from the bank.

Thanks in advance!

You are most welcome! :-) The equity loan will come in useful when investment opportunities arise. But you are not allowed to buy another property using it. It is a guideline issued by MAS. The bank will probably ask you for a statement on what you intend to do with the equity loan. If you say you want to buy another property, it won't grant the loan. Just say that it is for investment or other purposes, eg stocks and shares, paying off other higher interest loans like car loans, children education etc.

[Newie-X 1]

Hi butoot,

thanks for all the useful info!

[Newie-X 1]

hi butoot,

i did a check with the bank where i took my mortgage loan.

they will charge legal fees of $2000 as it is a new loan.

[Butoot 0]

hi butoot,

i did a check with the bank where i took my mortgage loan.

they will charge legal fees of $2000 as it is a new loan.

If you refinance and take an equity loan from your current bank, they shouldn't charge legal fees (but they will charge an Admin fee which is $500). In fact, they call it a conversion and it would be even faster than if you were to find a new bank. If it is a new bank, it would subsidize part of your legal fees.

I think it is best you consult a Mortgage Broker who is in a much better position to advise you on this. Better still, consult two Mortgage Brokers. I did. Both were extremely helpful. In the end, I went with one because she was able to get a bank that gave me a much higher valuation for my house. If you want, I could pass you their contact numbers. There's no obligation as far as they are concerned. PM me if you need.

[Newie-X 1]

If you refinance and take an equity loan from your current bank, they shouldn't charge legal fees (but they will charge an Admin fee which is $500). In fact, they call it a conversion and it would be even faster than if you were to find a new bank. If it is a new bank, it would subsidize part of your legal fees.

I think it is best you consult a Mortgage Broker who is in a much better position to advise you on this. Better still, consult two Mortgage Brokers. I did. Both were extremely helpful. In the end, I went with one because she was able to get a bank that gave me a much higher valuation for my house. If you want, I could pass you their contact numbers. There's no obligation as far as they are concerned. PM me if you need.

Mine is still several months away from the end of lock-in period of my mortgage loan.

I think I will at least need to wait for the end of lock-in period before I can refinance.

Mine is with OCBC Bank.

I have the contact of a mortgage broker who I obtained my present mortgage loan from. Will check with them.

Also, I did a calculation and found out that I probably won't be able to get much equity loan based on the new 60% ruling:

Value of property = $1 200 000 (based on recent transactions) (a)

Equity loan obtainable = 60% of (a) = $780 000 (b)

CPF paid = $214 000 (excluding stamp duties which I don't need will be included in the calculation) ©

Loan outstanding = $520 000 (d)

Nett equity loan obtainable = (b) - © - (d) = $36 000

[Butoot 0]

I don't think you can do much with $36,000. Probably neater to use refinance your property and wait perhaps for the value to rise. :-)

[Butoot 0]

Please note that it all seems rosy & sweet now because

1. Interest rates are low
   
2. Property in Singapore seems so Pretty & Attractive
   

Let's not forget how the sub-prime came about from 2005-2007.

If you take a term loan to 90%/80%/60%, & a global issue kicks in, there's a new term which we need to learn called "Margin Call".

& then it's good luck to all.

Agree. But if you have ready cash or assets that can be liquidated quickly, there is nothing to be afraid of.

[blue_skies 3]

In case anyone is interested, details on MAS regulations regarding home equity loan can be found here

http://www.mas.gov.sg/resource/legislation_guidelines/banks/notices/MAS632_Amdt_27Jul2011.pdf

Edited October 1, 2011 by blue_skies

[Misc100 2]

hi

to take an equity loan, does it mean new legal fees and some processing fees need to be paid?

[KittyJems 0]

hi

to take an equity loan, does it mean new legal fees and some processing fees need to be paid?

Yes. There are new legal fees and processing charges. For the legal fees, mine was paid via CPF. Check with the bank you selecting. They will hv more info on the 'extra' charges.

[matrix0405 0]

What is the typical legal fee for such loans? How much is the subsidy provided (enough the cover the legal fee)?

[greenorange123 0]

This post has been somewhat of a revelation to me.

[bepgof 20]

$$$ drive men crazy. Using "future money" by borrowing for intention to increase(really increase or decrease no one can tell)present wealth or to satisfy material needs, make me wonder the "worth" in the context of equity loan.

To be qualified for such loan, one must have a pte pty as collateral, irregardless the pty is under financing or has been redeemed in full.

Just "throw" some mathermatical calculations and thoughts for forumers to think in deep before action:

1. EQ Loan( called "ordinary annunity" in financial term)amount granted=$200,000= PV (present value)

2. Interest p.a (thought mention here is Per Annum, actually the interest on the outstanding amount is MONTHLY compounded)= 2%=r,

effective "r" is = 2%/12= 0.00167

3. Tenure = 10 years=n= 10x 12= 120 monthly instalments.

4. What is the monthly instalment amount(PMT), and the interest (in $$$ form)payable

Formular: PV= PMT[{1-(1+r)to the power of -n}/r]

PMT =$1,840.27 (Monthly)

Interest on outstanding amount = $333 (Monthly)

Thoughts:

A. If you were to use this $200,000 to buy a car (use future $$$ to enjoy present material needs),

then beside each month paying $1840.27 to BANK A ,

Assume car loan=200,000, for 7yr (84 instalement), flat interest rate = 3%

Formular: [(loan amout*r*yr)+loan amount]/total no of instalment

= MONTHLY PAYMENT OF $2880.95 to BANK B

So, total $4,721 (forget abt those after decimal)payable, EVERY MONTH!

B. If you were to use this $200,000 to "invest" in stocks, make sure that MONTHLY you can

1. Make $333 (interest payment, to be more practical it is called you "work" for free for bank by paying this amount)

2. On top of that your working capital($200,000) will be reducing each month, say you just can "make" that $333 from stk mkt each month. Working capital from second month will be 200,000- (1840-333) = $197,827.

If this situation carries on for 12 months(stk get "stuck" like I do). Working capital = 20,000 - [12x(1840-333)] = $181,916! This is based on the assumption that one has some "reserve" on hand, beside this $200,000, just to pay the monthly instalment.

What do you think? For discussion the "pitfall" and "worth" to engage such loan to purchase car or buy stocks or buy pty?