Loans

Planning a strategy to get out of debt

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Loans
  • Asked by Kkel Viin

    Christopher Tan
    Christopher Tan, Executive Director at MoneyOwl Private limited

    Top Contributor (Jan)

    48 Answers, 93 Upvotes
    Answered 2w ago
    Hi Kkel Viin, thank you for your question and so sorry for the late reply. In every financial decision, there are different perspectives you can look from, so it is really not a straightforward answer. From the investment perspective, it is really simple. If your loan interest rate is lower than your OA interest of 2.5% p.a., then it make sense to drag the loan. If you have cash sitting in the bank account doing nothing and earning less than your mortgage rate, you might want to use your cash to pay off your loan. But things get more complicated when you start to also consider the financial planning aspect of the equation. How is your total debt servicing ratio (defined as your total monthly debt repayment/Grossincome)? Is it higher than 40% of your gross income? How is your debt to asset ratio (defined as your total liabilities/total asset)? Is it higher than 50%? These are some of the ratios you can use (there are of course more). What I mean is that if you are too much heavy laden with debt, you might want to pay down your debts even if it does not make investment sense because if you are financially unhealthy, your ability to invest drops. Things get even more complicated when you overlay your financial decisions with your relationship with money, your history with money. One way to look at this is, what is your feelings about debt? Do you feel comfortable? does having debt make you worried and cause you to lose sleep. Does it go against your values? Do you have a situation in your life or in your family life that debt was a major cause of a family breakdown? You get my drfit. Sometimes, there are things in life that cannot be explained away by investment and financial principles. My conviction is that money is not a goal, It is an enabler. As such, even though following solid investment/financial planning principles make sense logically, but if it does not make you comfotable, if it goes against your value system. If it causes you to lose your health, then perhaps you need to reconsider how to better balance your decisions. It is about managing the tension between investments, financial planning and your relationship with money. I hope this helps.
  • Asked by Anonymous

    Gabriel Tham
    Gabriel Tham, Kenichi Tag Team Member at Tag Team

    Top Contributor (Jan)

    415 Answers, 742 Upvotes
    Answered 2w ago
    Can try applying for bursary, financial aid from the school. Check with the school, usually they will have consultants to advise on getting student loan or even preferential rates.
  • Asked by Anonymous

    Jacob Chong
    Jacob Chong, Executive Financial Advisor at PIAS
    11 Answers, 20 Upvotes
    Answered 3w ago
    No 1. on the list is do check with the banks and see if the loan quatum is the amount that they are willing to take. No 2. If i am not wrong there isnt many FD linked rates now. OCBC, UOB and Maybank have taken that down. No. 3. Dont take Sibor if you are someone who is worried about interest movement. 3months SIBOR has you to jump out of bed every 3 month because the rate changes and in current climax definetly not SIBOR. Leaving you with Fixed and Variable rates. Fixed Rates across all banks are about 2.3- 2.48 some higher. For that minimal saving of 0.2% off from HDB loan rates why bother. Variable are different across all banks. Some have Mortage Rate with a markup (ie. MR+0.75= 2.25 therefore you MR is 1.5 ), Some uses preferred rate (currently about 5.5%) then gives you a discount (Ie Preferred Rate -3% = 2.5%). Ranging about 2.18- 2.3 there about so there is still risk in the interest rate movement ya... Above are some of the examples and rates that I have gotten for my clients. Not for actual reference or quotation I hope what i mentioned will help you. CHeers
  • Asked by Anonymous

    Loh Tat Tian
    Loh Tat Tian, Ex-Financial Advisor, Founder at Singapore Insurance Value Finding

    Top Contributor (Jan)

    228 Answers, 327 Upvotes
    Answered 3w ago
    1) Deal with the highest loan % first. This is the most correct issue. 2) For CPF payment to parents, you might want to do RSTU instead for tax savings. Hopefully they can start to drawdown their RA account. If not, it's a double whammy. They can't waive off if I remember correctly. Best to pay it off 2nd if you can't RSTU. (Retirement Sum Topping Up for parents.). This is because CPF earns 6%-4% interest (combined CPF, stepped down, from first 30k 6%, to next 30k 5%, then to 4% to 2.5% for the rest). I am in a similar scenario (except that I have no loans to pay off). My mum could take her RA, so I top up while giving the rest in cash (to maximise tax relief and also maintain their monthly cash).
  • Asked by Anonymous

    Loh Tat Tian
    Loh Tat Tian, Ex-Financial Advisor, Founder at Singapore Insurance Value Finding

    Top Contributor (Jan)

    228 Answers, 327 Upvotes
    Answered 3w ago
    With regards to the CPF scheme, you will need to understand the following: (1) CPF-OA earns 2.5% interest which will be directly credited back to CPF-OA. The additional interest of 1% will go into CPF-SA. Do take a look at this https://www.cpf.gov.sg/Members/AboutUs/about-us-info/cpf-interest-rates " Extra interest received on monies in the OA will go into the member’s SA or RA to enhance his or her retirement savings. " (2) As a freelance, to even consider doing Voluntary contrbution, do also check on the tax relief that you will be getting. If your annum taxable has hit 7%, then maybe, just maybe, it will make sense for you to voluntary contribute to CPF. (because every $100 you put in, gives you $7 which you can use instead of being taxed by IRAS). If you wish to capitalise on CPF as a pepertual bond, I would just say, keep at least combined amount of 60k (to earn the extra interest for retirement).
  • Asked by Anonymous

    Gerard Ong
    Gerard Ong, Tax consultant at Ernst & Young
    11 Answers, 37 Upvotes
    Answered on 06 Sep 2018
    Yes of course, because it is akin to "borrowing" a loan from your own cpf account. The 200k would have generated interest had it remain in your cpf; so since it is being taken account the interest will need to come from you. Having said that, do take note that accrued interest will only be applicable if you sell that BTO subsequently. If you don't sell, no need to return accrued interest.
  • Asked by Anonymous

    Jonathan Chia Guangrong
    Jonathan Chia Guangrong, Fund Manager at JCG Fund

    Top Contributor (Jan)

    326 Answers, 466 Upvotes
    Answered 4w ago
    Is your cash flow able to cover the loan repayments for both your reno and car? And how confident are you to achieve 5% returns with your investments? If you are not confident consider paying down or redeeming the loan with the highest interest to give you some breathing room first. Then work on the other loan before building up some emergency funds and eventually going into investing.
  • Asked by Anonymous

    Julie Tan
    Julie Tan
    8 Answers, 13 Upvotes
    Answered 4w ago
    1. You will need to talk to the banks on how much $ you can borrow. a) If one of you is holding the property in name AND the housing loan, this is going to affect your TDSR of 60%, there will be a limit to what the bank can lend. Talk to a few banks, they can advise you on your combined borrowing power as a couple. b) If one of you is holding the property in name BUT no housing loan, good news, less restrictions, you can borrow more $, you might even be able to leverage on any rental income this property is generating to borrow more $. Just that, the killer is the ABSD. With this information, then you can set a budget and decide on what type of private property you can afford. - The total property price - bank loan = more than 25% of the property price, this is what you need to pay in cash to afford your private property + 12% ABSD, (3% +1% stamp duty) - if, The total property price - bank loan = less than 25% of the property price, you will need to have at least 25% of the total property price in cash for downpayment + 12% ABSD, (3% +1% stamp duty) All these require some math and if the sum is too large for your combined savings to handle, then this plan may not work out as other costs e.g. renovations (will need cash upfront), wedding, furnishings require cash. After these extensive calculations, you might want to speak to both sets of parents to see if they are willing to lend you all some $. 2. With your budget, check on property guru/engage a property agent and discuss with your partner on: an older but larger unit OR newer but shoebox size to 1-2 bedroom unit There are small condominiums 1 bedroom going at 500-700K. In areas that are cheaper, older 2 bedroom condos can be 800K. If the above does not work out, probably have to consider other alternatives: (a) live with either set of parents (b) sell this private property to get your own private/BTO/EC/Resale (c) negotiate to stay in this property in the meantime (d) offer to buy over the current private property
  • Asked by Serene Toh

    Loh Tat Tian
    Loh Tat Tian

    Top Contributor (Jan)

    228 Answers, 327 Upvotes
    Answered on 28 Dec 2018
    Let's do some maths. Accrued interest are amount you will earn, if you leave the money in CPF. That's incurring 2.5% loan imho (which you can waive later on). Tax Relief is immediate saving of 2% up to 22% CPF RSTU is a 4% interest or If you do Voluntary contribution, it's a 2.8% to 3% interest. If we add up tax relief and interest rates, my humble opinion is CPF RSTU + Tax Relief is better than refunding.
  • Asked by Anonymous

    Yixiong Chang
    Yixiong Chang
    182 Answers, 238 Upvotes
    Answered on 09 Jan 2019
    Yield to maturity is just basically the average compounded return of the bond taking into account the Purchase price and its remaining term (Time) . Imagine all of us bought the exact same bond, but at different price and at different Time. The yield would be the same for all of us as it is the same bond. But YTM will be different. Those who bought cheaper will have a higher YTM. And the longer the remaining Term of the bond, the lower the YTM. YTM is usually worked backwards. That means using the purchase price (or market price) as the present value. Then using trial and error to find the discount rate, that will discount all future cashflow to get the current present value (market price). This discount rate is the Yield to maturity.
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