With the increase in property prices in Singapore, owners have another option to borrow cash on their private and commercial properties. With rates hovering around 1.5%, borrowers practically get cheap cash on the increased equity of their property. How do you proceed to cash out?
What is cash out?
This is not only great for those buying their own house, but also for those who own a house but want to invest in another property. So if you have a partly paid private property, you can use this paid-up part of the house as collateral for getting a loan. You will refinance the existing loan and concurrently, obtain a cash out loan.
This money can be used not only for buying a new house, but also for anything you like like a new car, undervalued stocks or to finance your business. The benefit of this loan is that it not only saves interest money, but lets you cash in on the recent property boom without selling your home.
While these loans are common in developed countries, the conservative attitude of Asians towards credit and their homes have lead to few Asian people taking advantage of this loan.
However as cash out loans provide cheap finance for anything from business investments to daily transactions,at low mortgage rates that may fall even further, it’s time to look at tradition with a new perspective.
Equity home loans are now available for between 1.5% in interest charges, similar to home loans. This is cheaper than unsecured loans with double digit interest rates and cheaper than small business loans.
Though car loans look cheap at ~2%, interest is charged for the full loan amount for the loan tenure. In contrast, regular loans charge interest only on outstanding principal as the loan is repaid. This means that car loan’s interest rate reaches twice its advertised rate.
Points to consider
Getting an equity loan is somewhat similar to getting a regular mortgage where the lender lends money based on the outstanding mortgage, total borrowings on the house and if any Central Provident Fund savings was used for paying the loan.
Banks also look at the lenders’ income to ensure he can safely pay the monthly installments even with existing financial commitments. However before getting cash out loan in Singapore, remember that though they are cheap, be careful with them as the home you live in is at stake.
Moreover, banks advise that a property market downturn can lead to lenders pulling back at the loan because of falling collateral values. Cheap credit and a housing boom may entice borrowers to overspend with the cash out loan, only to find themselves short in cash and struggling to keep their homes from getting repossessed by lenders once the housing bubble bursts.
Basically, never let ‘good deals’ overcome your common sense and prudence and consider a cash out loan in Singapore as a means of reducing financial costs you may otherwise incur.
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