Congratulations!
You have finally paid off your home loan. You can now come home to a property you own and even dig for extra cash in your pocket which otherwise would have gone to paying your home mortgage. What bliss! But did you know that, more than just owning a safe roof over your head, you can derive greater value from your private property and convert to a real asset? Without being able to cash out on your private property, it remains to be a non-performing asset or even a liability.
How do you make your private property put money back in to your pocket?
The answer is Equity Loans.
Make Profit From Your Private Property Without Selling It!
An equity loan allows you to cash out on a property that has been fully paid for and for properties with outstanding loans. Equity loans are available only for private properties and not for HDB flats.
If and when your property has appreciated, banks will agree to lend you more and will use your private property as loan collateral.
Equity loans give you the benefit of easing your cash flow if you are faced with an emergency, or if your business needs expansion. Equity loans also give you the option to consolidate your debts and pay a lower interest. With an equity loan, the interest rate ranges from only 1.7% to 2% per annum for a loan tenure of up to age 75 or 35 years, whichever is lower.
Equity loans are ranked fifth under the CPF board’s residential properties scheme.
In the event of a default payment and foreclosure by a bank, the proceeds from the sale of your property will be used to pay off relevant charges, as stated below:
How much can you cash out from your property?
With mortgage advisors assisting you with your equity loan application, there is a great chance you can cash out up to 80% of your property’s current market value.
For example, if you purchased your property for $600,000 in 2010 and if it is presently valued at $1.2 million, then you can cash out up to $960, 000 which is 80% of your property’s current market value. This is a significant amount of money which can help you diversify your investment portfolio. In fact, we have seen how property investors would cash out on their private property to purchase investment products like bonds, shares and unit trusts. With this, these savvy property owners would use the yields earned to pay off the interest for the equity loan and enjoy capital appreciation on their investment.
The loanable amount will be reduced, however, in case you have another mortgage loan. In which case, the loan to value amount will be up to 60% of your private property’s current market value.
To illustrate, we have prepared a computation for three scenarios, as follows:
Scenario 1: No other mortgage loan at the point of application
Valuation: $1,000,000
80% of valuation: $800,000
Less
Loan outstanding: $200,000
CPF usage (Principle plus accrued interest): $200,000
Equity loan you can explore: $400,000
Scenario 2: No other mortgage loan and no CPF usage at the point of application
Valuation: $1,000,000
80% of valuation: $800,000
Less
Loan outstanding: $200,000
Equity loan you can explore: $600,000
Scenario 3: More than 1 mortgage loan at the point of application
Valuation: $1,000,000
60% of valuation: $600,000
Less
Loan outstanding: $200,000
CPF usage (Principle plus accrued interest: $200,000
Equity loan you can explore: $200,000
Scenario 4: More than 1 mortgage loan and no CPF usage at the point of application
Valuation: $1,000,000
60% of valuation: $600,000
Less
Loan outstanding: $200,000
Equity loan you can explore: $400,000
Whatever the case, remember that equity loans enable you to unlock the value of your private property. It can do more for you than give you shelter; you can cash out on it at low interest rates and long tenures. You can convert your private property from being a non-performing asset into a real asset that puts money back into your pocket; even without the need to sell it!
By Jasper Eng, Associate Director, Redbrick Mortgage Advisory
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