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00:00 Introduction
01:40 Introduction to Redbrick Mortgage Advisory
06:30 What does it mean to be ‘Asset rich, Cash poor’?
09:04 2 in 3 working Singaporeans do not have enough savings
10:00 Is it better to have Assets or Cash?
15:31 Majority of mortgages are moving into fixed rates
16:05 Extensions of tenures for cash flow improvements
18:51 Should you make partial prepayments for your property?
21:14 What are Equity Term Loans?
28:24 How to unlock property's value by extracting equity directly
31:41 Decoupling can help couples to qualify for an equity release
Introduction to Redbrick Mortgage Advisory (01:40)
Clive: Redbrick Mortgage Advisory is the largest mortgage advisory in the market today. We not only broke mortgage loans locally in Singapore but overseas as well. Till date we have broken about 25 billion dollars worth of mortgages which roughly translates to about 25 thousand properties. Our value proposition is that we provide our clients with unbiased personal advice.
Clients come to us with a unique situation and based on our knowledge of the different credit policies that we have from the different financial institutions, we break it down for them and we structure their loans through strategic means to make sure that they get what they're looking for. We simplify the entire process to make it easy for them to understand.
What does it mean to be ‘Asset rich, Cash poor’? (06:30)
Ee Chien: What does it mean to be asset rich and cash poor? Let us look at a hypothetical example of a couple in Singapore that is getting close to retirement. 55 years old is right when you complete your contributions into your Ordinary Account (OA). These are people with a substantial amount of their money locked into their property. This couple has spent a good amount of time working and they have been able to pay off their HDB flat which is close to a valuation of $700, 000. In terms of the retirement funds, their CPF is doing quite great because they have 130 thousand dollars in their CPF OA account. Their Medisave (MA) is pretty decent that takes care of their healthcare, and lastly they have their Special Account (SA), which will combine with their OA to form their Retirement Account (RA).
Ee Chien: All looks great, but unfortunately they do not have much in the bank. If you look at the total assets here, it's a million dollars, that's seven figures and they are, in that perspective, millionaires. If you look at that big red circle, the cash in the bank is actually very low. This is somewhat typical of a decent number of people in Singapore where their money is locked up in assets and that is fairly illiquid. You know they have worked hard but they've locked it up and it is hard to monetize assets. They are living paycheck to paycheck from the salaries that they make now.
2 in 3 working Singaporeans do not have enough savings (09:04)
Ee Chien: Based on a survey, you see that two in three working Singaporeans do not have enough savings to last them beyond six months. The median income in Singapore is about $4,500. Rounding that up to $5,000 multiply that by six months and then by two for a couple, that estimates to about $60,000, which is not a lot of money for your retirement. Then you have to de-accumulate after that assuming you don't want to work till death and you want to enjoy your life and your retirement. You really need to think about how you can maximise the equity or the money.
Is it better to have Assets or Cash? (10:00)
Ee Chien: Is it better to have Assets or Cash? Let’s break it down. On the left side, you are looking at Cash. Cash is simple in the bank. It is insured against loss as the SDIC, the Singapore Deposits Insurance Corporation ensures that no matter what happens, you will be protected up to $75 000 in case the bank goes bust. Cash is also good since it is affected less by the market. The problem with Cash, in inflation, which is projected to be going up quite a lot. The value of your dollar today is worth less tomorrow because the value of that money actually depreciates if you keep it in your bank account, which gives a low interest rate that is not enough to keep up with inflation.
Ee Chien: From an assets perspective, it can appreciate in value a lot faster in comparison to cash and it can be used to generate income for yourself. But the problem with that is that to a certain point it can be illiquid and it can be hard to monetise.
Majority of mortgages are moving into fixed rates (15:31)
Clive: The first major trend a lot of people are moving from the variable interest rate packages into fixed mortgages at this point of time - whether it is a two-year fixed interest rate, a three-year or even a five-year fixed interest rate. Because in a rising interest rate environment, you just want to hedge at the current cost and that gives you a very stable cash flow. This is very natural in a rising interest rate environment. Back in 2018, when interest rates were first picking up, we also saw the same trend.
Extensions of tenures for cash flow improvements (16:05)
Clive: Secondly, if you have a current mortgage and you're refinancing your mortgage there is always an ability for you to extend your loan tenure. There is a trend that people are extending their loan tenure now. There is an opportunity to go in for the floating interest rate and to also stretch the loan tenure. The difference of one percent is very huge especially if it is based on a million or two loan. In the meantime they would want to capitalise on this low interest rate and they would stretch the loan tenure right to the maximum. Your monthly instalments will drop because the loan is now amortised over an additional number of years and your cash flow becomes more manageable. Expected interest rate increases are still manageable because they have started with slightly lower instalments and interest rates.
Clive: The second group of people are going for fixed interest rates to hedge against rising interest rates of course and stretching their loan uh their loan tenures as well. This also improves their cash flow and because you can secure a three-year fixed interest rate at 1.85 percent, which is generally decent. Everyone is trying to lock in to stability for the next three years to deploy their cash somewhere else.
Should you make partial prepayments for your property? (18:51)
Clive: Thirdly, a lot of people are coming to us with an interest in making partial prepayments, which are lump sum repayments on the property. These people do not want to incur a lot of interest and want to clear the loan as soon as possible. Most commonly, many like to use CPF for partial prepayments, but what I would tell you is that your CPF ordinary account is virtually earning you a risk-free return of 2.5 percent per annum. Your mortgages pay for example, an estimated three-year fixed interest rate at 1.85 percent. So it is a little bit more efficient to leave your money in your CPF accounts because you can then enjoy a higher return and if you decide to deploy your CPF later on into other alternative investments that give you a higher return.
Clive: Alternatively, some others might look to use their cash in bank accounts for the property. They can consider instead, if they had earlier used CPF for their property, to use the cash on hand to repay back the CPF monies, and this would go back to your CPF ordinary account when it grows at 2.5 percent, higher than what banks are charging on mortgages. The name of the game is to always try to make your monies work.
What are Equity Term Loans? (21:14)
Clive: There are a growing number of people who own private properties who are looking to extract equity from the property. They are trying to extract as much equity as they can based on today’s interest rates and they are deploying this cash into investments or instruments that can generate a higher return on investments.
How to unlock property's value by extracting equity directly (28:24)
Clive: There are some banks that might allow structuring of loans in a way that retirees can also extract equity from the properties, but generally, it is going to be a little bit more challenging for you to extract equity. However, if you have a child, for example, in this case Jack and Hazel have a daughter who is already working. The daughter can be the co-owner of the property. She can purchase one percent share to also be considered an owner of the property. If she is a partial owner who is also earning an income, she can extract equity from the property itself. Alternatively, she can go into the property not as an owner, but only as a borrower and then that additional stamp duty requirement does not exist anymore.
Decoupling can help couples to qualify for an equity release (31:41)
Clive: For example, Celeste here owns fifty percent of the property, she shares half the debt, which works out to $250,000. Jason on the other hand, has used 250 000 of his own cpf when they were purchasing the property. Using the earlier calculation, for a market valuation of a million dollars, we multiply that by 75 percent valuation, and after netting off the outstanding loan and CPF, you realise that there is no equity for you to release at all.
Clive: When we first purchase our first private property we may be starting our careers or fresh graduates with some cash savings for example. But after a few years, once our earning power has grown, each individual in the couple has the ability to buy a property under their own names or to take over the outstanding mortgage under their own names. Couples can take part in decoupling to release equity. For example, Celeste is going to sell her share to Jason, who is going to buy over Celeste’s shares. He buys it for $500,000 (5% in Cash, 20% in Cash or CPF, and 75% in mortgage). Jason then takes on a loan of 75 which is $375, 000 and because he is buying over the share, he needs to pay the buyer stamp duty. Celeste sells his share, and she has to repay the existing mortgage of $250,000. Jason has used 25 percent to buy over her shares and after netting off it's going to be $115, 400. This is the most financially efficient way of extracting equity from your property while still living in the property itself.
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