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Getting a home loan? Get reality check first

This is a very interesting headline. Read on to find out why.

Straits Times today (01 Mar 12)

Summary:

  • Monetary Authority of S’pore (MAS) has mandated that from today, banks will have to provide potential borrowers with a fact sheet when discussing on credit facility.
  • Objective: to help potential customers work through the nuts and bolts of the mortgage, with information such as loan quantum and repayment schedule.
  • There will be notes to inform the borrower that the bank may have the right to ask for additional payments if the property falls in value.
  • Customers will have to be told that monthly repayments can increase if interest rates rise.
  • Banks have to provide a fact sheet as and when there are changes to the key features of the proposed credit facility. This can be in written, printed or any electronic form, with a copy retained by the bank.
  • The bank also has to obtain a written self-declaration by the borrower that he has received such a fact sheet before the mortgage is signed.

My take on this:

  1. Almost 100% of my clients who invests in private properties are financially savvy.
  2. Some of my clients do not even take 80% loan, even though they are able to do so.
  3. Majority of my clients are fully aware and they monitor the interest rates almost daily. Naturally, they know that if interest rates rise, their monthly payments will increase.
  4. 80% of my clients who are investors are investing for long term gain. In fact, they are very prudent and are very careful to plan their finances.

This headline is interesting. It assumes that investors probably cannot afford the property and they should look into their finances first. I beg to differ. In order to invest, one has to be comfortable with parting with at least $200,000. I don’t think anyone will be willing to part with $200,000 without any backup plans, at least, I did not see that happening to the majority of my clients. There will be some who are willing to take the risk, but that represents a minority of investors.

I would think that the intention of the headline is to scare off the faint-hearted who are on the verge of investing or upgrading their property. So, some potential buyers will probably back off from investing a property. This is good news for those who have the holding capacity. The key point here is: you must always have the holding capacity first to invest in a property!

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