Mortgage
Cash Out On Property With Singapore Mortgage Home Equity Loan
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Cashing out on your property can be a shrewd leveraging move to generate funds for use or simply to free up your personal cash flow.
Taking up home equity loans make very good sense when the rates for mortgage loans are lower than any other credit facility available in the market.
For example, if a business loan has an interest rate of 13% while a cash out home equity loan has an interest rate of 1%, you don’t have to do a lot of maths to figure out which option is a shrewder choice for your business to use as working capital.
There is also an increasing number of home owners who consolidate all of their debts with a cash out refi.
In this case, the funds generated will be used to pay off existing car loans, business loans, education loans, personal loans, etc.
Another good reason to take up such a loan is to put the money in other investments that gives you a return higher than the interest charged for your new refinanced housing loan.
However, before taking up a new home equity loan to replace your existing housing loan, you have to conduct proper analysis on whether it is going to be worthwhile financially.
The returns that you generate from the use of the cash out funds have to exceed the interest rates that you will be paying for your new home loan.
Otherwise it will not make sense to do so… unless you are freeing up your home equity for personal luxury purposes and short term spending sprees.
Banks like cash out home equity loans a lot. This is because any borrower will definitely not want to default on a loan against property.
Defaulting on your home will usually be a last option considered by borrowers as it affects your whole family.
Another reason is that lenders seldom lose money on home equity housing loans.
Due to Singapore properties rising fast in values, financial institutions can still get their money back if they are to foreclose your home.
Do note however that foreclosure is usually the very last thing a bank will want to do.
Interest rates for cashing out are generally similar to Singapore mortgage rates that are for resale properties.
They can be on fixed rates, variable rates, floating SIBOR and SOR rates, board rates, etc.
However, different lenders will have different assessment policies and criteria to meet. So you might find that there may be exclusive rates for home equity loans in Singapore.
It is best you check with each lender to learn about their rates. Or you can do so easily by contacting us.
The number one rule for refinancing plus cash out on your property is to determine the property value.
Because the final loan quantum amount that you will be offered can heavily depend on the loan to value of the real estate’s indicative value or appraised valuation, you want a value on your home at a fair market value, not undervalued.
You can obtain a quick indicative valuation of your property by sending us an enquiry.
If you want a back up of available funds only when you need it in an emergency, you can also consider getting a home equity line of credit (HELOC).
This will work like a credit card or overdraft where you will have a line of credit for use when you need to.
When the term of the credit facility is reached, you are required to repay the amount owing in full.
And because the size of the credit line or overdraft is usually a reflection of your real estate value, you can usually obtain a higher quantum than if you were to get a personal overdraft or line of credit.
Credit lines and overdrafts also tend to have a higher interest rate compared to a straight cash out home equity loan.
This means that the interest on the HELOC will be separated from the mortgage rates that is used for refinancing your existing outstanding housing loan.
4 Things To Take Note Of Cashing Out Your Property
It’s always a risk when taking on more financial liabilities, especially from a bank.
1) You are taking up more debt
Always make sure that you you can afford the payments and increased monthly installments.
You might be tempted to take on more debt when you realise just how much extra cash you can generate with your house.
Do not take up more loan than you really need.
2) You are taking up a new housing loan to replace the existing one
Depending on the type of home loan you choose to accept, there may be a lock-in period where you can be charged a penalty fee if you redeem the loan before the lock-in period expires.
Also take note of whether the legal clawback penalty period applies to your current loan.
3) There may be lenders that are willing to loan you your desired loan quantum with high interest rates
Loan quantum approvals can vary greatly for equity loans. This is because different lenders use different assessment criteria and variables to underwrite a loan application.
If you are offered a big loan, weigh up your options carefully and decide if you really need that much cash in the first place.
Always be careful when taking up more debt.
4) You house at risk
If you already fully own your house, you definitely have to know that a new loan against property puts your house at risk should you default on the home equity loan for any reason.
This change can have the most impact if you own an unencumbered property.
From fully owning your home, you now have the pressure of a debt against it which you are obligated to repay.
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