Ravi Chandran
Home equity, which is typically known as the 2nd mortgage is ideal for larger purchases, such as extensive renovations, buying a second home, or to expand your business
A 2nd mortgage is an equity home loan is a loan from a bank for a specific amount that has a specified repayment schedule and a fixed or floating interest rate.
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For example, if you’re looking to borrow a large sum of money and have a property on hand, you may be able to “cash out” the property’s value by taking a term loan or an home equity loan. Many banks have equity home loan programs that can offer small businesses the cash they need to operate from month to month.
Equity home loan is very useful for small businesses to purchase fixed assets such as equipment for its production process. Term Loan is not the most accessible option for everyone in the market, and approval is highly conditional upon the bank, but it is possible.
Whether you call it a 2nd mortgage, an equity term loan, a home equity loan or a term loan, they all mean the same thing. A term loan lets you borrow money, while using your house as collateral. Equity home loan is another option available to homeowners who may have a tight cash situation but have have a valuable house at their disposal, which they may sell and downgrade. But a home equity loan lets you get money out of your house, without having to lose it.
If your property has increased in value over time, you may take a term loan by using the equity of your property as collateral and at a relatively low interest rate. The term loan extended against your property means that its equity becomes collateral.
There are plenty of advantages of taking an equity term loan by using your house is the collateral. For example, the bank feels a lot more secure knowing you can’t exactly pack up your house and run away with it. Because there’s something they can foreclose on, banks consider term loans to be low-risk, secured loans.
That means banks charge a super-low interest rate, seldom above 1.3 per cent per annum. For reference, that’s less than a third of your CPF Ordinary Account rate (up to 3.5 per cent per annum), and about 1/6th of a personal loan rate (about six per cent per annum). That super-low interest rate means home equity loans are quite cheap, and can provide a much bigger loan than you’d get through, say, a personal installment loan. Most other, unsecured loans can only lend you up to four times your monthly salary.
On top of this, the government in 2017, made regulatory changes to equity home loan restrictions. If your house is already paid up, you can borrow up to half its value, without having to meet Total Debt Servicing Ratio (TDSR) restrictions.
This is how a 2nd mortgage typically works:
Suppose you have purchased a property in 2010 for $650,000.
Loan was 80% = $520,000 amortized over 30 years.
In 2018, a new valuation was done and the property is worth $1 million.
The current loan amount is $440,000.
If this property loan is the only one you have in Singapore, then you may qualify for 80% lending on valuation, which is $800,000.
Equity home loan amount = (80% * valuation) less current loan amount less CPF usage including accrued interest.
Assuming you have used $160,000 CPF with accrued interest, this is the home equity loan amount you would get:
$800,000 – $440,000 – $150,000 = $200,000
Together with the outstanding loan, the total debt on the property now would be $640,000.
As a high number of applications for SME loans are unsuccessful, it is important for passionate business-owners to consider term loans to grow and sustain their business operations. It is also important for them to work with trusted hands, and with people who know the industry.
One recent research report said that up to 81 per cent of SMEs in Singapore do not qualify for business financing. Many applications for bank loans are delayed or rejected because business owners are not familiar with the qualifications for the loans or of how to apply for such loans.
Access to crucial credit facility is often hindered by the lack the relevant financial knowledge and / or the resources to engage professional business consultancy services to manage and address their obligations and financial liabilities as business owners. The terrain to apply and qualify for loans is also uneven because creditors are not just banks but finance companies and other licensed lending entities whose security arrangements may be different or more complicated.
How to secure a 2nd mortgage quickly
If you are searching for a 2nd mortgage, trusted loan consultants can set you up on a path that can get you a it in a quick and seamless manner. Good loan consultants have close links with the best lenders in town and can help you compare various loans and settle for a package that best suits your needs. You should also find out about money saving tips.
There are also certain affordability tools which can help you make better property buying decisions. Mortgage calculators too can help you ascertain the fair value of a property and find properties below market value in Singapore.
If you are looking for a new home loan or to refinance, trusted Mortgage brokers can help you get everything right from calculating mortgage repayment, comparing interest rates all through to securing the best home loans in Singapore. And the good thing is that all their services are free of charge. So it’s all worth it to secure a loan through them for your business expansion needs.
