Tags: eco / home loan / housing loan / riversails / sky miltonia

Business as usual despite new housing loan restrictions!

- October 8, 2012 11 Comments

According to reports, more than 300 units have been sold at Allgreen Properties' 920-unit Riversails, with at least 20 homes sold over the weekend. Prices of the larger units average slightly over $800psf while the one-bedroom units average $1,000psf.

The larger units (three-bedrooms and above) at the 99-year project have been doing well, with quite a few sold to upgraders. Three out of the five stacks of one-bedroom units launched have been sold.

Over at Sky Miltonia, 67% of units at this 420-unit have found buyers. The developer is offering an 18% discount and throwing in the option for buyers of certain units to upgrade their flooring to marble.

The 748-unit eCO in Bedok South has thrown in an additional 2% furniture voucher in addition to an array of discounts offered.

According to our central bank, the average tenure for new residental property loans jumped from 25 years to 29 over the last three years. Over 45% of the new home loans have tenures exceeding 30 years.

Lower initial monthly repayments from long loan tenures and low interest rates may cause borrowers to overestimate their loan servicing ability, says MAS (The Monestary Authority of Singapore).

Our blog posting on the new housing loan restrictions have generated a fair amount of discussion between our readers (which the wife and I are extremely pleased, as it is another small indication that  people actually read our blog). A few have expressed the opinion that the new restrictions will have little to no impact on demand. But if it is indeed true that over 45% of the current new home loans are more than 30 years, we believe that the "penalty" imposed on loan tenures that exceed 30 years will have a significant effect on demand going forward. Already units at new launches are not flying off the shelves as they used to be just a couple of months ago.

While we cannot claim to be a representative sample, the new restrictions have effectively put us out of the market for a second property - the longest tenure that the wife and I can qualify for a new housing loan is about 20 years, else we be hit with the new LTV ratio of 40% of the property value should we decide to extend the loan period beyond the retirement age of 65 years.

And we are pretty sure that we are not alone in this predicament.

Having said that, the fear of potential (especially younger, first-time) buyers being lulled into complacency by the combination of lower initial monthly repayment with a longer loan tenure and low interest rates are very real indeed. We were once guilty of such back in our early days of property venture, and it took a bout of rising interest rates to jolt us back to reality...

Tags: home loan / housing loan

50-year housing loan: Down the Californian road?

- August 14, 2012 1 Comment

Longer mortgage tenures could have adverse implications for the property market, borrowers and banks if it becomes more widespread.

Deputy Prime Minister Tharman Shanmugaratnam gave the assessment in a written reply to Parliament on Monday.

He added that the government will continue to closely monitor the property market.

Stretching a home loan out over 50 years does translate to a lower monthly instalment. But this is just an illusion of affordability.

Mr Tharman said that the borrower ends up paying more interest. The repayment period could also stretch past the retirement age, when the borrower may no longer have a steady income stream.

According to analysts, the higher interest rate on a longer term loan would mean that loan repayment can be easily be 20% more in the long run, compared to taking a 30-year loan.

The government said it will monitor mortgage tenure in the context of how banks structure their mortgage products, as well as banks' underwriting standards.

Still, analysts said the government is wary such loans could fuel speculative buying and undo its efforts to cool the property market.

Alfred Chan, director, Financial Institutions, Fitch Ratings, said: "Had property prices not been where they are, let's say (if) they were to be increasing at a more moderate pace, I think affordability wouldn't be an issue and banks wouldn't need to go out that aggressively to offer 50-year loan tenors."

Analysts added that the move to offer 50-year tenor loans also reflects the stiff competition among banks.

Loan yields in Singapore are at 2% compared to emerging markets like Indonesia, with 6%.

Timothy Kua, director, SmartLoans.sg, said: "I don't think the property market has cooled very significantly. It is still fairly healthy and UOB's 50-year loan tenor is probably more of an inter-bank competitive move to try and win over a bigger chunk of the mortgage market."

The government said its cooling measures in recent years have helped reduce the risk of a sharp escalation in property prices.

Still, it has cause for concern.

Fifty-year tenor loans first appeared six years ago in California, driven by sky-rocketing home prices.

California now has the second-highest foreclosure rate in the United States as of last July. According to reports, its foreclosure rate is one in every 239 households.

Source:  Channel News Asia

It seems that whenever property prices are shooting through the roof, 50-year tenor loans start to surface. This happened not only in California but Japan and Spain as well... which eventually contributed to bursting the housing bubble in each case.

.

Tags: home loan / housing loan

Singapore Homebuyers: Shorter term mortgage preferred!

- July 24, 2012 1 Comment

Homebuyers in Singapore will likely opt for mortgage loans with shorter repayment periods.

That's despite the availability of new home loans that offer up to 50-year tenors.

Experts said more are taking into account their retirement age and interest costs when servicing their loans.

Serene Loong and her husband took a $760,000 home loan when they upgraded to a two-storey, three-room private apartment at Upper Serangoon in 2005.

With a 35-year home loan they got from DBS Bank, the couple was paying $2,000 in monthly repayments.

That loan has since been refinanced to 28 years with another bank, and monthly payments have come down to $1,800 at a lower interest rate of 1.88%.

"I definitely was taking into account the affordability, as well as when I would retire," said Loong, who is the founder of website www.reallifetheory.com.

She added: "I wouldn't want to be servicing a home loan after retirement because I think there will be other expenses that I might have to take care of like medical expenses, etc."

So far, Singapore banks are offering home loans with a maximum term of 35 to 40 years with age capped at 70 to 75.

UOB has come up with a first by offering home loans that stretches repayment to 50 years and a maximum age of 80.

UOB said that for the maximum tenor of 50 years, the requirement is to have at least 35 years remaining on the lease for leasehold property and no more than 80 years of age at end of loan tenor.

Still, some market players said such loans may be more suited for investors.

Dennis Ng, who is the founder of mortgage consulting firm HousingLoansSG.com, said: "A longer loan repayment period may make sense for investors because the investor is always looking for return on investment. So the less capital they put into the property, the higher their return."

For ordinary home buyers, experts said they should tailor their loan repayment period to the age they want to retire.

DBS Bank's head of deposits and secured lending, Ms Lui Su Kian, said: "The average loan period we are seeing now for customers is about 30 years. In general, I think, especially in Asia, we do see that our customers are prudent when it comes to managing their mortgage, so most of them do not stretch out to the maximum period."

While a 50-year tenor may reduce monthly repayments, experts said interest could push the loan's amount by up by 15 to 20%.

For example, a $1 million loan at 50 year tenor will total to $1.45 million by the end of its term - much higher compared to the 1.3 million principal and interest if the loan was taken up at a 35-year tenor, according to DBS.

And comments from Channel NewsAsia's Facebook page show most buyers are averse to half a decade loans, with some saying 25 to 30 years is their threshold.

HousingLoansSG.com, which sees 20 to 30 enquiries a day, said around 70% of its clients opt for 25 to 30-year loans, while 15% go for the 30 to 35 year loans. The rest prefer terms of less than 25 years.

"If you have problems paying the installment right now when you are much younger and your income is much higher, I think you will have a bigger problem as you age," said Mr Ng.

Ms Lui said: "In this current interest rate environment, where interest rate is relatively low, we actually encourage our customers to try to shorten the loan period based on their affordability. Because rates are low, you can actually pay down as much as you can."

Ms Phang Lah Hwa, Head of Consumer Secured Lending at OCBC Bank said customers generally take up to the maximum loan tenor as they can repay or make capital repayment along the loan tenor.

"Shorter loan tenors are typically taken up due to the age of borrowers or by those who have the funds to service a higher monthly commitment," she added.

Mr Harmander Mahal, Head of Customer Value Management at HSBC Singapore, said: "We observe that customers who take up housing loans with longer tenor (30 to 35 years) tend to be younger in the age group of 35 years old and below.

"They are usually financing the purchase of their first homes and therefore, prefer to stretch their repayments over a longer period so that they can pay lower and more affordable monthly instalments."

HSBC said its housing loan portfolio has seen double-digit growth over the last five years with an increase in market share.

In its 2011 annual results, residential mortgages have increased 21% in value year-on-year for 2011 compared to 2010.

Source: Channel News Asia

Coincidentally the wife and I have just made a partial repayment on our home loan. And we have chosen to reduce the loan tenure instead of the monthly repayment amount. So the cat's ouuta bag... we do not belong to the age group of 35 years and below!

.

Tags: home loan / sibor / sor

SOR is soaring..!

- January 6, 2012 No Comments

A KEY interest rate that determines how much home owners pay on their mortgages is continuing to rise and is likely to increase further.

Borrowers could be facing hundreds of dollar a month in extra repayments in the wake of the steadily increasing swap offer rate (SOR) as the benchmark rate is called.

It was at 0.53428% yesterday - down a touch from the 23-month high of 0.56185 it hit on Dec 15 but still well above the rare negative level of -0.6987% it dived to in August.

The SOR has also increased more than the other key interest rate linked to mortgages - the Sibor (Singapore Interbank Offered Rate).

That was at 0.3985 yesterday, up 5 basis points since last August.

The weak Singdollar in recent months and rising borrowing costs amid the global credit squeeze are behind the SOR's rise of 1.23 percentage points since that low point.

Whatever the reasons, home owners with SOR-linked loans are facing repayments of about 50 basis points higher once the movement from the negative level is taken into account.

A borrower who took out a $1 million loan over 20 years back in August is now paying about $250 more a month in the first year on the initial repayment of $4,688.72, assuming no other charges to the conditions.

As the SOR has been increasing steadily since August, the monthly repayments would also have risen in tandem. The extra interest paid works out to around $5,000 a year.

In August, when the SOR went into negative territory, banks had to invoke special clauses to floor SOR rates at zero. Otherwise, they would have been in the strange position of having to pay borrowers for taking out a loan.

Only ANZ Bank and the Bank Of China offer SOR-pegged loans now.

The SOR is fixed daily by the Association of Banks in Singapore using a formula that takes into account the current and expected exchange rates of the US dollar against the Singdollar and the local interbank lending rates for the greenback.

OCBC Bank economist Selena Ling expects the SOR to keep rising, hitting 0.55% this year as the economic conditions will probably not change in the foreseeable future.

Mr Rohit Arora, Barclays Capital's emerging markets fixed-income strategist, thinks the SOR could even reach 0.7% by the end of the year if the euro zone crisis worsens.

Currency experts say that the Singdollar is likely to stay weak against the greenback for the first half of the year - just the sort of conditions that will keep the SOR trending up.

The US dollar is heading north because investors around the world are bailing out of almost every other assets and seeking safety in the old standby of the greenback.

UOB economists expect the Singdollar to fall to $1.33 against the greenback this quarter, with more declines in store in light of the global economic woes.

UOB economist Chow Penn Nee said: "We think the unresolved crisis in the euro zone will continue to weigh on the Singdollar and will be the key factor in guiding (its) direction."

"So far, European Central Bank measures, such as providing liquidity for banks to participate in European sovereign debt, are only stop-gap measures, which do not solve the debt problems."

But home owners who have a loan pegged to the SOR should not rush to refinance as they may incur additional administrative costs.

Mr Vinod Nair, chief executive of Smartloans.sg, which offers home loan comparisons, said: "My opinion is that if they are on SOR, they should stick to it because the SOR is still at an acceptable rate."

Mr Nair advised that only when the difference between the SOR (now at 0.53428%) and the Sibor (now at 0.3958%) exceeds 0.5 percentage points should homebuyers look for alternatives.

Source: The Straits Times

Back in August 2010 when SOR was hovering around negative territory, the wife and I were cautioning anyone who bothered to listen that the low interest rates are not sustainable. We also raised concerns about possible rate hikes in the foreseeable future . But some of our friends (esp. those who had taken a second SOR-based home loan for their investment property) had waved off our concerns. How high can the rates possibly go given the low base-level, they said. It'll be silly not to take full advantage of the "cheap money" that the banks are offering, they added.

Now that SOR has risen by a whopping 1.23% in just 4 months, we wonder how much longer the monies offered by our banks will remain... "cheap".

And speaking of banks, we also wonder if any of those who had discontinued their SOR-based packages back in August 2010 (citing reasons like SOR-based loans are unsuitable for property buyers who buy residential property for owner occupation, in view of their inherent volatility and the long-term nature of mortgage loans) will do an about-turn now that SOR is back in the positive and rising...

.

Tags: home loan / interest rates / sibor

Thinking about refinancing your home loan?

- September 4, 2011 No Comments

Everyone (probably even the dog) knows that local interest rates have hit rock-bottom lately. Sibor/SOR rates are at record lows so it may be a good time to refinance that home loan.

Following is taken from an article in The Sunday Times today, which provides some useful pointers for those of you who are thinking about refinancing.

Fixed or pegged rates?
Customers usually take fixed-rate loan packages – where the rates are fixed for the first two to three years – when they need protection against rate hikes.

The United States Federal Reserve has pledged to keep interest rates low until mid-2013 so rates here are also likely to remain flat. Packages pegged to the Sibor or SOR may be more cost-effective.

Mr Goh Eck Hong, a housing loan adviser at MyHousingLoan.com.sg, said: “People who took up fixed-rate packages should give some thought to refinancing.”

“Since local lending rates move in tandem with the US’, it is reasonably safe to assume that the local mortagage lending rate is going to stay where it is for some time to come.”

But there is no guarantee, so some customers might want to opt for the fixed-rate option, said Citibank Singapore’s business director for secured finance, Mr Peng Chun Hsien.

“An attractive fixed-rate package, which will fix the interest rates for a specific duration, can offer peace of mind. There will be certainty in their monthly repayments for the next two to three years.”

Attractive packages
Citibank is offering a one-month Sibor plus 0.7% loan package. With the one-month Sibor at 0.218%, this works out to effective interest rates starting from as low as 0.918% throughout the loan tenure.

Their customers can also switch between one-, three-, six- and 12-month Sibor tenors, or from a floating rate to a fixed rate free of charge.

OCBC Bank’s deal has a three-year lock-in, and on top of the three-month Sibor, has a spread of 0.55% for the first year, 0.6% in the second, and 0.65% in the third, and 1.25% thereafter.

DBS Bank’s latest offer is pegged to the one-month Sibor or three-month Sibor, with a spread of 0.85% for the first three years. For the three-month Sibor package, the interest rate is capped at 1.49% for the first three years.

HSBC has a loyalty package, which is Sibor plus 0.9% for the first year, 0.85% for the second and 0.8% thereafter. There is a cash incentive of 0.4% of the loan amount, capped at $10,000.

Is this a good time to refinance?
If you have borrowed $1 million over the next 20 years with a current interest rate of 3.75% and refinance it to 1.18% in the first year, the savings amount to about $1,000 a month.

Mr Derrick Ang, director of mortgage sales at consultancy portal SingaporeHousingLoan.sg, said that in general it is prudent for home owners to review their loans every three year or so, regardless of interest rates.

He added: “If there are significant cost or interest savings, I would recommend it.”

But there are various costs that come with refinancing, so home owners should make sure the savings outweigh them.

Cost-benefit analysis
As a rule of the thumb, if you plan to sell your property in the short term, it may not be wise to refinance, taking into account the cost incurred and the limited time that home owners get to enjoy the interest savings.

Costs incurred from refinancing include:
1. Lock-in period of the existing loan
A typical lock-in period is two to three years so if you withdraw your loan within this time, there might be a penalty of 1% to 1.5% of the outstanding loan.

Property owners thinking of selling in the next two to three years should choose a package with a shorter penalty period or one with no penalties attached over one that imposes a penalty.

2. Conversion fee
There is a conversion fee of $500 to $1,000 which will be incurred even if you are no longer within the lock-in period.

3. Clawbacks
Refinancing requires conveyancing paperwork. However, the new bank will usually subsidise this cost, about 0.3% to 0.4% of the loan amount, capped at $2,500 for private properties or $2,000 for HDB flats.

Mr John Lee, head of free online home financing service LaonGuru.com.sg, said that the legal clawbacks is always three years; even if the lock-in period is two years, the legal subsidy has to be returned.

Some other subsidies, such as valuation and fire insurance, may also have a three-year full clawback period.

Is refinancing for me?
The choice comes down to whether there will be a significant amount of savings after subtracting the cost of refinancing.

DBS Bank’s managing director and head of deposits and secured lending, Ms Lui Sau Kian, said: “Buyers should remain prudent and take into consideration how interest rates will impact their repayment and not focus solely on the initial years’ interest rates.”

UOB’s head of loans division, Ms Chia Siew Cheng, agreed: “Buying a home is a long-term financial commitment.”

“Regardless of the prevailing interest rate environment, home buyers should always assess what they can afford to ensure they are able to service a housing loan over a longer period of time.”

Source: The Sunday Times

The final remark by Ms Chia is especially apt – One can easily fall into the lull of complacency when interest rates are so low, and end up overstretching their loan amounts to the point whereby servicing becomes a problem once Sibor starts to climb.

.