How To Earn More From Your Condominium Or HDB In Singapore
● Always check with your agent and bank representatives before taking up a loan on repricing options since this allows you to save money on interest rate differences.
● Using cash instead of CPF to pay for your property allows you to accrue interest in your CPF account. Conversely, using CPF to pay for your property means that part of the sales proceeds will be returned to your CPF account.
● Understanding mortgage interest calculations like amortization can help you save money in the long-term.
Repricing of bank loan
Repricing bank loans is different from refinancing. While refinancing involves switching banks, repricing involves switching to the current promotion package with the same package. Before you purchase property and sign a bank loan package, you should check with your agent and the bank representatives whether there is a repricing option. Some repricing options involve a $300 charge while some are free.
In addition, some repricing options involve a lock-in period. For example, my loan included a lock-in period of two years with a floating rate, during which I cannot change bank or reprice without a penalty. Once the lock-in period expires, I was able to call up the bank for repricing at current rates.
For the first few years, the rates are usually very attractive. But in some packages, the rates increase after the first few years. Repricing allows you to save on the costs incurred from higher interest rates.
Earn more money using cash to repay loan
If you have enough cash, you should use the cash to pay for the mortgage loan. Firstly, once you sell your house, you can take back the proceeds in cash assuming your property value keeps going up. Secondly, you will continue to earn interest from your Ordinary Account (2.5% as of 21 March 2021).
If you use your CPF to pay for property, some of your sales proceeds will need to be returned to your CPF account. This includes the CPF interest you would have accumulated if you had instead used cash to pay for the property.
Understand mortgage interest calculation
While some prefer to be debt-free, there are some benefits that accrue to you with amortization. Amortization is the calculation for property bank loans. The way it works may be mathematically complex. Basically, in the first few years, 60 - 70% of your instalment payments goes to interest payment, while 30 - 40% of the instalment goes towards repaying the principal. Over the years, this reverses with 60 - 70% of your instalment payments going to paying your principal and 30-40% going to interest payment.
Because of amortization, taking longer-term bank loans come with its benefits. For example, if you take a bank loan of 25 years and sell your property on the 6th year, there will be lesser to none interest payment over the remaining 19 years. This is because most of the interest is paid out in the initial few years. Some of you may notice that this is very different from how the car loan works.
Furthermore, some even take a mortgage loan to finance their car in a process called gearing-up. Even though the calculations may be complex, understanding how to calculate your mortgage interest can help you save a lot of money in the long-run.