Calculation of loan interest

[lifeafter41]

Was talking to a friend earlier on and we talk about interest rate. According to him, he mentioned that he has received an update from the bank stating that the interest rate of his housing loan has been changed from 0.705% to 0.72% per annum on a monthly rest basis.

Question is what does it mean by per annum on a monthly rest basis. And what is the actual interest he is paying.

Told him not financially savvy to answer him.
Forummer here can enlighten?

 

[Papsmearer]

Was talking to a friend earlier on and we talk about interest rate. According to him, he mentioned that he has received an update from the bank stating that the interest rate of his housing loan has been changed from 0.705% to 0.72% per annum on a monthly rest basis.

Question is what does it mean by per annum on a monthly rest basis. And what is the actual interest he is paying.

Told him not financially savvy to answer him.
Forummer here can enlighten?

This is otherwise known as a variable rate mortgage. The payment for the next month is based on the outstanding balance of the previous month's principal (and any interest that has not been paid). Unlike a fixed term mortgage where the monthly payment is a fixed amount because the interest rate has been determined for the whole of the 20 year term or whatever lenght it is. For the monthly rest basis, the interest rate can be changed when whatever the rate its based on (SIBOR or something else) changes. 0.72% is the interest rate. Until its adjusted by whatever the terms say. For example:

If the housing loan is $100,000. The rate is 0.72%, and the amortization is 20 year term. than the monthly payment should be $447.51

 

[lifeafter41]

This is otherwise known as a variable rate mortgage. The payment for the next month is based on the outstanding balance of the previous month's principal (and any interest that has not been paid). Unlike a fixed term mortgage where the monthly payment is a fixed amount because the interest rate has been determined for the whole of the 20 year term or whatever lenght it is. For the monthly rest basis, the interest rate can be changed when whatever the rate its based on (SIBOR or something else) changes. 0.72% is the interest rate. Until its adjusted by whatever the terms say. For example:

If the housing loan is $100,000. The rate is 0.72%, and the amortization is 20 year term. than the monthly payment should be $447.51

Thanks for the clarification.
If this is the case, would it be better to convert to a fixed rate. Just my thoughts there, if the fixed rate is at 2.18% for 5 years (saw on DBS website).

what would be the actual rate in this instance on a per annum basis. Not sure, if it is really at 0.72%pa.

 

[Runifyouhaveto]

Thanks for the clarification.
If this is the case, would it be better to convert to a fixed rate. Just my thoughts there, if the fixed rate is at 2.18% for 5 years (saw on DBS website).

fixed rate is usually more expensive than flexi-rate bro. Of course, you can sleep soundly without worrying for SIBOR fluctuations.

Please note that fixed rates is just fixed for 1-year, 2-years, 3-years or 5-years, not permanently or even 30years like US mortgage loans.

 

[Papsmearer]

Thanks for the clarification.
If this is the case, would it be better to convert to a fixed rate. Just my thoughts there, if the fixed rate is at 2.18% for 5 years (saw on DBS website).

what would be the actual rate in this instance on a per annum basis. Not sure, if it is really at 0.72%pa.

I am afraid that i don't understand your question? Are you referring to the DBS 2.18% That should be the annual rate.

 

[Papsmearer]

I am afraid that i don't understand your question? Are you referring to the DBS 2.18% That should be the annual rate.

Yeah, SIBOR rate almost guaranteed to trend up in the coming years.

 

[lifeafter41]

fixed rate is usually more expensive than flexi-rate bro. Of course, you can sleep soundly without worrying for SIBOR fluctuations.

Please note that fixed rates is just fixed for 1-year, 2-years, 3-years or 5-years, not permanently or even 30years like US mortgage loans.

Hi RUN, yes, saw on the website of DBS it's fixed for 5 years.
Can we say that for this instance, the fixed rate at 2.18%pa is higher than the 0.72%pa and on monthly rest basis. (Numerically, of course, its higher, but without the jargon).

Not sure what is the SIBOR rate now and if this friend rate is tied to SIBOR.
But if 0.72%pa is the lower rate without SIBOR than would tell him to leave it as it is rather than refinance.
Understand the quantum of his loan is less than 800k though.

 

[lifeafter41]

I am afraid that i don't understand your question? Are you referring to the DBS 2.18% That should be the annual rate.

Pap, yes, understand that DBS rate is 2.18%pa.

Just confused by the monthly rest basis.

 

[Papsmearer]

Hi RUN, yes, saw on the website of DBS it's fixed for 5 years.
Can we say that for this instance, the fixed rate at 2.18%pa is higher than the 0.72%pa and on monthly rest basis. (Numerically, of course, its higher, but without the jargon).

Not sure what is the SIBOR rate now and if this friend rate is tied to SIBOR.
But if 0.72%pa is the lower rate without SIBOR than would tell him to leave it as it is rather than refinance.
Understand the quantum of his loan is less than 800k though.

Maybe u are approaching it from the wrong side. U are keying in on the rate and the absolute number. Instead, I would just calculate the total interest payment over the life of the mortgage (say 20 years amortization). For the fixed rate mortgage, you will know this number for sure. For the mortgage with the monthly rest basis, you just play around with the number. On paper, the calculations will show the fixed rate is costing more in interest over the span of its term, try plugging in 0.72. Than try 0.75. Than go up, and eventually you will reach a point where its no difference under any one. Than ask yourself what are the chances that the monthly rest basis will go that high. In most cases, people will find it cheaper in the long run to go with the monthly rest basis rate.

 

[Runifyouhaveto]

Hi RUN, yes, saw on the website of DBS it's fixed for 5 years.
Can we say that for this instance, the fixed rate at 2.18%pa is higher than the 0.72%pa and on monthly rest basis. (Numerically, of course, its higher, but without the jargon).

Not sure what is the SIBOR rate now and if this friend rate is tied to SIBOR.
But if 0.72%pa is the lower rate without SIBOR than would tell him to leave it as it is rather than refinance.
Understand the quantum of his loan is less than 800k though.

Handsome brother, please let me sidetrack a bit.

never mind, even if you are not sure about betting on flexi-rates or hedging with fixed rates, this mortgage loans give u the ability to anyhow switch between various SIBOR tenures or from flexi to fixed.
https://www.ipb.citibank.com.sg/gcb/landing_page/mortgage_with_header/mortgage.htm
Widest variety of interest rate packages ranging from index-linked (1/3/6/12 months SIBOR, 2/3 years SWAP) to fixed rated packages

Usually, longer tenure SIBOR (eg. 12-mth) commands higher rate than short-tenures (eg. 3-mth), just like getting 0.5%pa for 3-mth FD vs 1% for 12-mth FD.

However, during big market crash, inverted yield curve will happen and short tenure interest rates will be higher than longer tenure. As recent as the subprime crisis, USD 6-mth FD were giving higher %pa than 12-mth FD. This special loan package from Citibank allows u to anyhow switch, provided you fulfill the duration of your prefered SIBOR-tenure.

 

[Runifyouhaveto]

Maybe u are approaching it from the wrong side. U are keying in on the rate and the absolute number. Instead, I would just calculate the total interest payment over the life of the mortgage (say 20 years amortization). For the fixed rate mortgage, you will know this number for sure. For the mortgage with the monthly rest basis, you just play around with the number. On paper, the calculations will show the fixed rate is costing more in interest over the span of its term, try plugging in 0.72. Than try 0.75. Than go up, and eventually you will reach a point where its no difference under any one. Than ask yourself what are the chances that the monthly rest basis will go that high. In most cases, people will find it cheaper in the long run to go with the monthly rest basis rate.

good suggestion, are these good enough?
http://www.propertyguru.com.sg/mortgage_calc_interest_only
http://www.propertyguru.com.sg/mortgage_refinancing_calculator

http://www.propertyguru.com.sg/property-mortgages-calculator

 

[Papsmearer]

Handsome brother, please let me sidetrack a bit.

never mind, even if you are not sure about betting on flexi-rates or hedging with fixed rates, this mortgage loans give u the ability to anyhow switch between various SIBOR tenures or from flexi to fixed.
https://www.ipb.citibank.com.sg/gcb/landing_page/mortgage_with_header/mortgage.htm
Widest variety of interest rate packages ranging from index-linked (1/3/6/12 months SIBOR, 2/3 years SWAP) to fixed rated packages

Usually, longer tenure SIBOR (eg. 12-mth) commands higher rate than short-tenures (eg. 3-mth), just like getting 0.5%pa for 3-mth FD vs 1% for 12-mth FD.

However, during big market crash, inverted yield curve will happen and short tenure interest rates will be higher than longer tenure. As recent as the subprime crisis, USD 6-mth FD were giving higher %pa than 12-mth FD. This special loan package from Citibank allows u to anyhow switch, provided you fulfill the duration of your prefered SIBOR-tenure.

The problem is that by the time you switch out of the SIBOR based flexirate, the fixed rate term interest would likely also have increased. So, its like jumping out of the frying pan into the fire. The banks have it all covered, u are betting against the house.

 

[Papsmearer]

good suggestion, are these good enough?
http://www.propertyguru.com.sg/mortgage_calc_interest_only
http://www.propertyguru.com.sg/mortgage_refinancing_calculator

http://www.propertyguru.com.sg/property-mortgages-calculator

Yup, these are good enough.

 

[SadPlumpGal]

No money don't buy! That's why the government had to nanny Singaporeans and introduce the Total Debt Servicing framework.

 

[frenchbriefs]

No money don't buy! That's why the government had to nanny Singaporeans and introduce the Total Debt Servicing framework.

like that sinkies stay east coast park tent,foreigners stay hdb and elites stay condos lah?

 

[Runifyouhaveto]

The problem is that by the time you switch out of the SIBOR based flexirate, the fixed rate term interest would likely also have increased. So, its like jumping out of the frying pan into the fire. The banks have it all covered, u are betting against the house.

Good point