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Cashing Out From Your Property With Equity Loans

By Jasper Eng

Cashing Out From Your Property With Equity Loans

Traders and investors are always looking out for the next money making moment against a dynamic and volatile landscape.  Time is of the essence, all the time.  There is nothing more frustrating than not having the necessary and adequate capital resources to jump on the bandwagon when the next opportunity presents itself. 

Do you know that your property may be a potential tool that allows you to gain liquidity to prevent this unfavorable situation from happening to you?  More than just having a safe roof over your head, you can derive greater value from your private property and convert it to a real performing asset

How do you unleash the power of your private property and put money back into your pocket?

The answer is in 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:

1st Charge Outstanding housing loan from your financier
2nd Charge CPF principal sum up to 100% Valuation Limit plus CPF withdrawals used for the legal and stamp fees in the purchase
3rd Charge Equal ranking (pari passu) 
  - CPF principal sum beyond the 100% Valuation Limit plus accrued interest
  - Repayment of outstanding balance of the housing loan interests
4th Charge Equal ranking (pari passu) 
  - CPF legal costs and expenses
  - Financier's legal costs and expenses
5thCharge Equity loans/ term loans/ overdraft facilities

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   

It is always good to know that you have an alternative option to get your hands onto additional capital to position yourself for the next available opportunity.  With equity loans, you can convert your private property from being a non-performing asset into one that puts money back into your pocket, without the need to sell it.

It is closer to home than you think.

Interest rates for mortgages are going up. Find out your refinancing options by contacting Redbrick Mortgage Advisory at enquiry@redbrick.sg

 
Jasper Eng
Jasper Eng

Jasper has spent the last 10 years in the banking and finance industry. His professional experience covers a diverse portfolio in the field of wealth management as a financial advisor, relationship manager and a mortgage specialist. As a senior member of Redbrick Mortgage Advisory, he manages a team of dynamic brokers/advisors in the area of sales management and performance.

Website: http://www.redbrick.sg
Facebook: https://www.facebook.com/redbrick.sg