{"id":19861,"date":"2022-10-21T19:03:00","date_gmt":"2022-10-21T11:03:00","guid":{"rendered":"https:\/\/www.99.co\/blog\/singapore\/?p=19861"},"modified":"2022-10-24T21:32:33","modified_gmt":"2022-10-24T13:32:33","slug":"home-equity-loans-cash-out-refinancing-property","status":"publish","type":"post","link":"https:\/\/www.99.co\/singapore\/insider\/home-equity-loans-cash-out-refinancing-property\/","title":{"rendered":"Is cash-out refinancing your property a good move for your home equity loan?"},"content":{"rendered":"
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You\u2019ve already spent donkey years footing the housing loan, and now you’re a proud owner of a fully-paid up private property.<\/strong> In this situation, it’d be crazy if you went to take out another mortgage on that property, right? Actually, it might not be. Depending on your situation, there may be times when it makes sense to use a reverse mortgage (a.k.a cash-out refinancing<\/strong>) in the form of a home equity loan. <\/p>\n\n\n\n

Here\u2019s when you might want to consider doing just that.<\/p>\n\n\n

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But first, what is cash-out refinancing?<\/b><\/h2>\n\n\n\n

Cash-out refinancing (also known as a reverse mortgage) is using your private property \u2013 preferably a fully paid-up house \u2013 as collateral for a lump-sum cash loan. This option is only available for owners of private property, not HDB flats. <\/p>\n\n\n\n

Here\u2019s an example:<\/p>\n\n\n\n

Say you bought a condo for S$500,000 back in 1990 (yes, this was possible at the time). Today, you have finished paying off the entire loan, and the condo\u2019s value has appreciated to S$1.2 million.<\/p>\n\n\n\n

Great news, but there\u2019s one problem: how do you unlock the profit you\u2019ve made?<\/strong> In most cases, you can only do it by selling the condo. But you may not want to do that, if you\u2019ve grown comfortable living there.<\/p>\n\n\n\n

Instead, you can opt to use a cash-out refi. You could borrow, say, half the value of your property (S$600,000), and put up your condo as collateral for the loan. Since this is a secured loan, the interest rate for the cash-out refi is very low; typically around 1.6% per annum.<\/p>\n\n\n\n

In this way, you\u2019re able to convert the value of your property into cash without selling it.<\/p>\n\n\n\n

What’s so attractive about it?<\/h3>\n\n\n\n

Here’s the attractive part about a home equity loan, compared to most other loans: As the loan is secured by your property, the interest rate is much lower than other types of loans \u2013 under 2% per annum right now. <\/strong><\/p>\n\n\n\n

Like home loans, banks and financial institutions may offer several types of packages for home equity loans, such as a SIBOR-pegged<\/a> package.<\/p>\n\n\n\n

At 75% of your home’s current value, the principal amount that you borrow for a home equity loan can be substantial, depending on your credit history, financial situation and any outstanding loans.<\/strong><\/p>\n\n\n\n

One of the main plus points of cash-out refinancing is that you can unlock the appreciated value<\/i> of your house<\/strong>, for example:<\/p>\n\n\n\n

You bought your house for S$700,000, back in the year 1988. Today, the value of your house has appreciated to S$3 million, and you\u2019ve fully paid back the home loan.<\/p>\n\n\n\n

If you use cash-out refinancing, you could borrow up to S$2.25 million for a home valued at $3 million (minus any CPF used) at below 2% per annum.<\/strong> That’s dirt cheap credit, in our opinion.<\/p>\n\n\n\n

Some banks may even extend a home equity loan even if the home loan isn’t fully paid. The loan amount will, of course, be lower than that of a full paid up home. Here’s a rundown of the rules for a home equity loan:<\/p>\n\n\n\n