Get out of debts

[tonychat]

There is no plural in Debt. Hence, there is no such word as Debts. I don't know how you can start a thread on Debt without knowing how to spell.

what is sinkies' real debt that plague them?

 

[Papsmearer]

TDSR not applicable for singaporean buying malaysian properties. All you have to do is to loan with malaysia banks, eg. OCBC Malaysia will ignore your loans with OCBC Singapore. A working Sg couple can loan max. 90% in malaysian residential properties for about 5-6%pa loan, if both sign on the line. Many seminars teach you how to hold 5, 7, 10 or 30 properties in the world with loans. But really, in the end, you are just making yourself so busy for the bankers.

If you understand the financing-mechanics of our massive property-loan sector, margin-calls/forced-sellings will be triggered like a domino for each 10-15% drop, for those who loan 70-80% for investment property because these clients can never cover the slightest increment in interest rates. Yes, the less-geared individuals can easily survive such short-term 30% meltdown.

However, if the downturn is prolonged, those who loan more than 50% will face a slow death, eg. market drops appx 5-10%pa going forward.

The financial sector can prepare for any scenario so long it doesn't catch them by surprise, but not the clients. Evil bankers can draw up master plans to swallow prime assets of the mid-leveraged. Prolonged period of asset price weakness and surging interest rates offer the best opportunity for banks to squeeze every juice out of weak clients.

What kind of fucktard stupid post is this? TDSR is always applicable for any sort of mortgage financing for a property purchase. Even if the bank waives a TDSR requirement (highly unlikely), you should still calculate your own TDSR. WHy? If you don't do it, you will not know whether you are over stretched or not, and especially for investment properties (since you are mentioning it), when you factor in your rental income less vacancy allowance, you can play around with the ratios to see when you might need to top up and when you can run monthly surplus. Right off the bat, when buying Malaysian properties, the foreigner requirement by the Malaysian govt. says that you have to buy a property minimum worth $1 million ringgit. Very few investment properties of RM$1 million in malaysia can debt service at all. Even if you borrow only 70% of the value and not 90% in your example (and I think you mistakenly use the word loan interchangeably between a borrower and a lender), the vacancy rate for high end properties in malaysia is high. Therefore, you might easily run a loss for the year and years after that even with a low interest rate environment. Most people I know who bought in Malaysia when the requirement was only RM$250K, and than later $500k, have not made any money at all. There are tons of investor condos on Batu Ferringhi sitting empty because they can't get tenant.

Your only guaranteed real estate play in malaysia is to sell your overpriced HDB/Leasehold condo for whatever you can get for it. pay back whoever you borrowed the money from, use the difference (hopefully several hundred thousand Sing $), buy something in JB, and move yourself and your family into a nice large freehold landed property for RM$1 million in JB. Go back to work in SIngapore, commute there everyday. Hundreds of thousands of malaysians and singaporeans do that. You have automatically lowered your costs of living and hence your have increased your competitiveness. Plus your family enjoys a better lifestyle not cramped into a HDB flat.

 

[Papsmearer]

Thanks Borom and many others who contributed to this thread which I feel is very important, as being debt free did changed my life. I fully paid up my humble 3-room HDB pigeonhole using CPF and cash within 8 years of purchase during the late 90s.

Initially, I opted for the maximum 30 years load period. But after calculating the interests, I was determined to shorten it to 10 years but did it in 8 years! Nothing magical or fantastic. I used all my CPF to paid them off and the rest paid with cash.

And why I did it? Remembered receiving the HDB statements during the first few years of purchase. And looking at the statements make me very upset and demoralised. KNN, every month deduct and deduct. still owe so much, almost like never move like that.

BUT, Now, this pigeonhole is a profit centre and also my private room money. If continue to rent out for another 4 years, all my capital cover back plus interest plus upgrading cost.

In the late 90s, I would venture to say that you did not pay more than $120K for a 3 room flat. Its easy to pay off a mortgage that size early. Not possible today when u see flat prices regularly exceeding $400K and than end up over $500k after the renos. In addition to the average sinkie salary being depressed by the influx of cheap FT labour, its almost impossible to pay a flat off early under your scenario. So, its no point telling people to live debt free, because practically speaking,t hey can't.

 

[Papsmearer]

paiseh, no offense. Those are sales talk by housing loan sales man. The tide turns against you when SIBOR surges. Historically, you enjoy the best prices in property when SIBOR exceeds 3%. So do you wanna buy-cheap or buy-expensive with cheap loans that are meant to trap you? If you wanna buy-cheap, then we should save our bullets.

I don't think you understand the universal concept of good and bad debt. Let me enlighten you.

A good debt is when you incur a borrowing and use it towards a purpose that increases your wealth. For example, borrowing to start a business. Borrowing to buy an investment property. These are all good debt examples.

A bad debt is a debt you incur that decreases your overall wealth. Examples of bad debt include borrowing money to fund a holiday. Borrowing money to a flashy car.

SIBOR has nothing to do with this.

 

[Papsmearer]

Excellent example. Please let me simplify it, with the risk of oversimplifying:

HDB loan = 2.6%
Reimbursement back to OA account when you sell HDB = 2.5%
Effectively, your cost of financing is 5.1% for HDB
Excellent example. Please let me simplify it, with the risk of oversimplifying:


Now let's go one-step further:
Many PMET got spare cash and choose to use them to invest in shares/equities (nothing wrong).
Assuming you got enough cash, if you use the cash for the HDB loan-payment and use your OA $$$ for shares and unit trusts instead,
effectively, you will reduce your HDB loan quantum (save on 2.6%) and you don't have to reimburse your OA account 2.5% when you offload your shares/unit trusts.
Note: this is just an simplified example


HDB costs you 5.1% in terms of overall-financing Very outstanding example. deserve +1

I am hoping that financial planning is not your day job. I was laughing at your HDB loan example.

Your HDB loan is at 2.6%. Your reimbursement to your CPF is 2.5% from the sale. They are not cumulative. Your OA account is the down payment for your flat "purchase". Let's say your flat costs $400K to "buy". Since you have to use your OA for the down payment, you decide to put down $80,000 (20% DP). This 20% has to be repaid to CPF at 2.5%, not all of the $400K. You than have to borrow the rest of the 80% (i.e. $320,000) from HDB at 2.6%. Together your OA down payment and the HDB loan constitute 100% of the purchase price. You therefore do not pay 5.1% financing, that would be double counting the interest. Your real cost of borrowing is actually a blend of 80% at 2.6 and 20% at 2.5. Therefore, by my calculation, your overall blended financing should be 2.58% and not 5.1% as you claim. You should really stop patting yourself on the back for the "very outstanding example. deserve +1". hahahhahahaha

 

[potter]

Hdb loan shd clear by ~age 40 or below, for working class. Not by loan period. Then u r quite safe.

 

[Papsmearer]

Good thread for everyone. We used to get a lot of these types of discussions in the early years of SBF, thats more than 10 years ago.

This is an idiotic thread, the TS knows shit about financing.

 

[Papsmearer]

The bank doesn't want your money ...they can get funds at super low rate.

You are right. which bank would allow a customer to arbitrage their own rate and let the customer earn 2% for doing nothing. LOL. They can go to SIBOR and borrow millions at less than 0.5%. banks are swimming in deposits right now and offering very low rates for deposits. I would venture to say this TS is some kind of simpleton. Using his example, if he wants borrow at 2% from the bank to buy a bank issued bond with a coupon rate of 4%, than likely the bond is selling at a premium. So, say a $1000 4% rate bond might sell for $1100. You have to look at the yield minus cost of borrowing and not the coupon rate. He will probably end up paying so much for the bond, that the yield could well be less than the 2% he has to pay for his funds.

 

[Papsmearer]

TS has a point. The core of Keynesian economics is to encourage the govt to run debts and deficits during economic slowdown in order to boost the recovery process, and then let the debt be washed away during the upswing. Problem is during the upswing not all debt gets washed out; in fact sometimes the debt remains or even builds up to a greater level due to human greed and lust for leverage.

That is why the world is caught in a debt spiral now. We had 50 years of debt supercycle in which every economic cycle (defined as one downturn followed by one upturn) saw the overall debt level increase. Now the debt supercycle is coming to an end (as all unsustainable trends eventually will), and the next 20 years may be miserable years. I pity our young who have just graduated from school. They are entering the world economy at about the worst possible juncture.

And all because of Keynesian economics. Or rather to be fair, the implementation of Keynesian economic theory by modern central bankers who are fucking beholden to the banking cartel. I'm sure Lord keynes himself did not envisage his theory to be used in this fashion. Unfortunately unlike LKY he won't rise from his grave if something goes wrong.

I am sorry, was this the TS's point? he hasn't even heard of Keynes. And by the way, there is nothing wrong with Keynesian economics. The theory is sound and proven. where it fails is in the end game because governments do not have the will nor discipline to run surpluses during the upswing and pay down the debt incurred. Governments who continue austerity measures in order to run surpluses in order to use the surpluses to pay down earlier incurred debt are voted out by citizens who want to have the services and freebies now that the economy has improved. this is the fault of the democratic system and not keynesian economics.

 

[Papsmearer]

I think this is a very misleading and dangerous thread. People should be careful when they read it.

 

[chonburifc]

In the late 90s, I would venture to say that you did not pay more than $120K for a 3 room flat. Its easy to pay off a mortgage that size early. Not possible today when u see flat prices regularly exceeding $400K and than end up over $500k after the renos. In addition to the average sinkie salary being depressed by the influx of cheap FT labour, its almost impossible to pay a flat off early under your scenario. So, its no point telling people to live debt free, because practically speaking,t hey can't.

OK, got your point. Agree and disagree. Agree that HDB pigeonhole was much cheaper during the late 90s as compare to recent years. Disagree on the repayment was easier as I was also earning much lesser during that time. If I remember correctly, was earning slightly more than 1K when I ROD and slight less than 2K when I purchase the pigeonhole.

My point is those who purchased HDB pigeonholes should set a target to repay off their outstanding mortgages. I personally feel the loan period should never exceed 15 years. Preferably able to pay off the pigeonhole before 40 years of age. It's also because at this age, there are other major expense like kids education and possibly health related expenses.

 

[chonburifc]

I think this is a very misleading and dangerous thread. People should be careful when they read it.

Thread correct lah but somehow got deviated from origin topic along the way.

Here's one wise cina saying "无债一身轻" - "No debt whole body light" or translate to "No Debts No Burden"

 

[Papsmearer]

OK, got your point. Agree and disagree. Agree that HDB pigeonhole was much cheaper during the late 90s as compare to recent years. Disagree on the repayment was easier as I was also earning much lesser during that time. If I remember correctly, was earning slightly more than 1K when I ROD and slight less than 2K when I purchase the pigeonhole.

My point is those who purchased HDB pigeonholes should set a target to repay off their outstanding mortgages. I personally feel the loan period should never exceed 15 years. Preferably able to pay off the pigeonhole before 40 years of age. It's also because at this age, there are other major expense like kids education and possibly health related expenses.

Incorrect point. The purchasing power of your $2000 back than is far more than what it is today. It is a fact that the cost of living and in particular the cost of "purchasing flats" have far outripped the gain in real term income. Therefore, it was much more affordable in your day.

 

[potter]

OK, got your point. Agree and disagree. Agree that HDB pigeonhole was much cheaper during the late 90s as compare to recent years. Disagree on the repayment was easier as I was also earning much lesser during that time. If I remember correctly, was earning slightly more than 1K when I ROD and slight less than 2K when I purchase the pigeonhole.

My point is those who purchased HDB pigeonholes should set a target to repay off their outstanding mortgages. I personally feel the loan period should never exceed 15 years. Preferably able to pay off the pigeonhole before 40 years of age. It's also because at this age, there are other major expense like kids education and possibly health related expenses.

U r better off than mi, mine was below 900. :o

 

[Runifyouhaveto]

Have mentioned this book before but like to recommend this book for those in "Money not Enough" category. This book "The Richest Man in Babylon" by George Samuel Clason. Very simple to read without all the financial and economics jargon. To summarize, the main point is 10% of the income is to save and invest.

hi chonburifc, i seldom read books. But interestingly, i know another book called "The New Babylon" by Michael Collins Piper. Here is a short chapter from the book about "the king of kings".
http://www.amfirstbooks.com/IntroPa...s/New_Babylon/New_Babylon-12-Chapter_Two.html

If you don't have the time to read that chapter, you can study the fine background details in the illustration:

 

[Runifyouhaveto]

You are right. which bank would allow a customer to arbitrage their own rate and let the customer earn 2% for doing nothing. LOL. They can go to SIBOR and borrow millions at less than 0.5%. banks are swimming in deposits right now and offering very low rates for deposits. I would venture to say this TS is some kind of simpleton. Using his example, if he wants borrow at 2% from the bank to buy a bank issued bond with a coupon rate of 4%, than likely the bond is selling at a premium. So, say a $1000 4% rate bond might sell for $1100. You have to look at the yield minus cost of borrowing and not the coupon rate. He will probably end up paying so much for the bond, that the yield could well be less than the 2% he has to pay for his funds.

The bank doesn't want your money ...they can get funds at super low rate.

yup, sibor is low, and fixed deposits is only 1.3%pa, we would believe that banks have cheaper source of funding. However, BASEL-III Accord requires them to have a larger capital base to sustain or run bigger businesses. Funds from depositors or open-market funds (eg. SIBOR) are not qualified.

The bank shareholders don't really wish to see their shares being diluted during any capital-raising. So the leeway out is to raise Tier-1 debts / perpetual securities (bonds) / preference shares. These notes are considered "capital" under BASEL-III and are only payable in the event of bankruptcy after the bank clients, lower-tier bonds are fully reimbursed.

Here's an example of HSBC's need to for higher-cost fundings:
HSBC needs ‘$111 billion capital injection’: Analysts
Friday, 17 Jan 2014
http://www.cnbc.com/id/101344158

 

[Runifyouhaveto]

This is an idiotic thread, the TS knows shit about financing.

I think this is a very misleading and dangerous thread. People should be careful when they read it.

I admit that I am telling you things that are rather different from your belief-systems. You are entitled to your own opinions. You don't have to fear such discussions.

 

[Runifyouhaveto]

Sorry forgot to add something important, cover back in cold hard cash, not CPF statements.

You should really stop patting yourself on the back for the "very outstanding example. deserve +1". hahahhahahaha

I just want to clear the misunderstanding so that we can continue our discussions without making you angry. Engaging in such arguments is like having a good beer session with like-minded people.

The +1 was for chonburifc's example of using cash instead CPF OA for HDB payment. Only the financially stable can do that to minimize the cost of their loans

 

[Runifyouhaveto]

TDSR is always applicable for any sort of mortgage financing for a property purchase. Even if the bank waives a TDSR requirement (highly unlikely), you should still calculate your own TDSR. WHy? If you don't do it, you will not know whether you are over stretched or not, and especially for investment properties (since you are mentioning it), when you factor in your rental income less vacancy allowance, you can play around with the ratios to see when you might need to top up and when you can run monthly surplus. Right off the bat, when buying Malaysian properties, the foreigner requirement by the Malaysian govt. says that you have to buy a property minimum worth $1 million ringgit. Very few investment properties of RM$1 million in malaysia can debt service at all. Even if you borrow only 70% of the value and not 90% in your example (and I think you mistakenly use the word loan interchangeably between a borrower and a lender), the vacancy rate for high end properties in malaysia is high. Therefore, you might easily run a loss for the year and years after that even with a low interest rate environment. Most people I know who bought in Malaysia when the requirement was only RM$250K, and than later $500k, have not made any money at all. There are tons of investor condos on Batu Ferringhi sitting empty because they can't get tenant.

You are very correct on this part. You might be mistaken about my words, our frequency is very similar on this part. I am also highlighting the risk of these max-gearing nonsense.

TDSR not applicable for singaporean buying malaysian properties. All you have to do is to loan with malaysia banks, eg. OCBC Malaysia will ignore your loans with OCBC Singapore. A working Sg couple can loan max. 90% in malaysian residential properties for about 5-6%pa loan, if both sign on the line. Many seminars teach you how to hold 5, 7, 10 or 30 properties in the world with loans. But really, in the end, you are just making yourself so busy for the bankers.

If you understand the financing-mechanics of our massive property-loan sector, margin-calls/forced-sellings will be triggered like a domino for each 10-15% drop, for those who loan 70-80% for investment property because these clients can never cover the slightest increment in interest rates. Yes, the less-geared individuals can easily survive such short-term 30% meltdown.

chill man :o sorry if i didn't express myself that well.

 

[Muthukali]

The +1 was for chonburifc's example of using cash instead CPF OA for HDB payment. Only the financially stable can do that to minimize the cost of their loans

Using cash is a good idea but wait, indirectly you are pumping more money into CPF, which is irreversible and taking into account the minimum sum which increases yearly. And with the recent high cost of a new HDB flat, who would have the ready cash to purchase one?