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Fixed rates, SIBOR, FHR18 or HDB housing loans?

Saturday, August 6, 2016

Over the last year or so, I received quite a handful of emails and messages from readers on the subject of home loans. I think this blog post is probably overdue.


The banks can come up with fancy acronyms or names for their offers but there are basically two types of home loans: fixed rate or floating rate.






This is my take:

Fixed rates are for people who want to have a higher level of certainty and are quite happy with the lock in period. 

Floating rates are for people who wish to have the flexibility that comes from not having any lock in period.

















I believe that which option we choose should depend on our circumstances, our beliefs and, hence, our strategy.

I choose a floating rate home loan pegged to the 1 month SIBOR (+ 1%) because I believe that I have the resources to pay down my home loan rapidly if interest rates should spike. 

For example, when interest rate on my home loan spiked to 5.1% many years ago, I chose to pay down the loan for my previous home. 

5.1%? Yes, I know this might look unbelievable to younger readers but ask the older folks and they should remember and, for some, it might have even been higher.

However, if I did not have the resources to pay down my home loan, I would have been stuck with the relatively high financing cost. 

I was not eligible to re-finance my home loan as the quantum was lesser than $200K by then. Banks weren't interested in refinancing relatively small loans.


















This was a chat I had recently with a reader:

  • Reader: Hi Ak, are you able to update on your home loan vs bank loan blog. Do you think is advisable to get dbs bank loan. 1st year fhr18 + 0.4%, 2nd year onwards, fhr18 + 1.2%. Lock in for 2 years. Cpf is still 2.6%.

  • Assi AK
    11:16am
    Sounds like a good deal. The worry is the FHR18 and how high it could go but interest rates are likely to stay low for a while.

  • 11:21am
    Reader:


    I read your blog about paying home loan within 10 year. Lower interest. Is there a ideal year that we should finish our loan

    Number of year. Or a formula we can used
  • Assi AK
    11:23am
    10 years was because the fixed rate would end by then.

    It was an offer by POSB.

  • 11:23am
    Reader:


    That offer ended. So this is the current promotion. I hope it wouldn't go up more than 2.6 percent
  • Assi AK
    11:25am
    The first 2 years, you are probably safe but the FHR is floating. So, in the 2nd year, if it does not go to 1.4% or higher, you are safe. Further along the road, it would be harder to say.
  • 11:26am
    Reader:


    So in the other words. Hdb will be a better opinion
  • Assi AK
    11:31am
    Nope. I didn't say that. ;p It depends on our strategy, our circumstances and our beliefs. If we have the resources or are actively preparing the resources to be able to pay down our home loan rapidly in the event interest rates spike up, then, bank loans with the lower interest rates now are viable options to consider. Why not? Remember that once we opt for bank loans, we cannot go back to a HDB home loan.





The offer made to the reader by DBS here is pretty interesting because it is a floating rate with a lock in period of 2 years. Floating rates don't usually have a lock in period. 








What's the catch?

If the FHR18 should spike in these 2 years, bad luck, although it seems unlikely that it would.

What is FHR18?

The FHR18 is basically the interest rate on an 18 months fixed deposit offered by DBS. This is currently at 0.6% per annum. 

So, in the above example, first year interest rate is effectively 1% and for the second year and beyond, effective interest rate is 1.8% as long as the FHR18 stays unchanged.

There are debates on whether using the SIBOR (1 month or 3 months) plus a spread is better or whether FHR18 plus a spread is better. Central to the debates is the matter of transparency with the FHR18 being the winner. 






However, to me, what is more important in the decision making process apart from getting a good deal is to consider our circumstances and what we are able to do in the event that interest rates should spike. 

I always say that we cannot predict but we can prepare. If we are prepared, all is good. Peace of mind is priceless.

Take the good with the bad investing in Singapore's economy.

Friday, August 5, 2016


Dear AK, 

How are you, hope you're in good health.
I have 2 questions.
 
1) what do you think of investing in ETFs, eg. SPDR and the 

2) such ETFs' dividend yields compared to buying single stocks.

For retail investors who don't really have very much appetite for volatility and time to do a lot of research. Yet still hope to invest safely. Hope it's not a silly question.

Hope you have a nice day. 
Thanks and regards,
S





Hi S,

Putting money regularly in an STI ETF is good for someone who would like to participate in the growth of Singapore's economy but who has no time nor inclination to research into individual stocks.

There is less risk of a total capital loss but, still, be prepared for volatility as the ETF will track the ups and downs of Singapore's economy.

Best wishes,
AK


Related post:
Risk averse and putting money in STI ETF, REITs or stocks?

Funding your child's university education.

Thursday, August 4, 2016

Hello AK,


I've been following your blog closely for up to 3 years now. Your philosophy to investing has helped to influence mine from investing purely for growth to one that invests for income as well. I would like to seek your insights on something that might be beneficial for young parents.

I have an 18 months old daughter and have been considering saving up for her university education. I would like to explore using a monthly savings plan in the STI ETF to achieve this. Using the financial data available, we can calculate the CAGR from its inception in 2009 to 2016 to be approximately 11 percent. But I know that this does not apply for a monthly savings plan. Any idea how I can do that?

Thanks and Best Regards,
R


Source: ASSI



Hi R,

11% is in retrospect. It is unlikely that STI ETF will deliver that kind of performance in future. It is likely to be much lower. Remember that Singapore recovered sharply from a deep recession in 2009.

This option should still do reasonably well and is probably less costly compared to getting an endowment plan from an insurance company.

I don't know how to calculate base on a monthly savings plan but it shouldn't matter. Over a very long term, it is about smoothening performance over time.

Best wishes,
AK


Parents should read this post too:
How to have enough to fund a university education?

Another fantastic buy! Don't say AK bo jio! (Buy potato chips or blue chips when marked down.)

Wednesday, August 3, 2016

UPDATE (7 SEP 17):
I simply love dark chocolate.



Made in Belgium.

It is super smooth and tastes soooo good.


Price: $1.00 per bar

Yup. This makes it taste even better!

Where to get this? 

Scroll to the end of this blog for the address.

Don't say AK bo jio. 




----------
Many know that I have a weakness for chocolates and ice cream. Without chocolates and ice cream, I think life is not worth living. To me, they are like an essential food group.

There is something else that I like but not to as big a degree. Potato chips. Specifically, Pringles potato chips.

Some might remember how I would eat Pringles potato chips with baked beans, eating them like horderves.

OK, if you must be very French about it, hors d'oeuvre). 


As I have been avoiding beans in my diet in recent months, I eat potato chips with fried eggs or tuna flakes these days. Yup horderves again.

When I went to Japan for vacations, I would buy their Pringles potato chips because they taste better than the ones we have here. The texture is smoother and the taste is less salty.

They are also available here in Isetan, Meidi-ya and some specialty shops but they are pretty pricey, as you can imagine.

Recently, however, I discovered that I could buy them really cheaply somewhere in Singapore and what did I do?










Price?

50 cents per can.  


Really?

Really!


Not joking?

Nope.


Where to buy this?


They are selling fast and I am wondering if I should buy more.

If you want to get some, better be fast hands, fast legs. OK, you better be faster than AK.


What? Where exactly in Bedok?

Er...


OK, I tell you (reluctantly):




Don't say AK bo jio. 




---------------------------------------------------
Update 4 Aug 16, 10.45AM.



Cepat!

Related posts:
1. How AK saved 32.7% + 9% in a supermarket?
2. Cheap cheap chocolates!

Motivations and methods in investing (Part 2).

Hi AK,

I am a 38years old male and have been following your blog since the start of the year.

Firstly, i must say i am truely inspired by your example and most importantly enlightened on the need for passive income for people like us in SG so armed with a little warchest of $50K i have picked up a number of stocks based on your advice on your blog.

Acromec - Entry price : 0.3
Capitaland - Entry price : 2.9
China Aviation oil - Entry price : 0.835
AIMS Amp - Entry price : 1.3
Sheng Siong - Entry price : 0.86
Venture - Entry price : 8.35
Singapore O & G : Entry price : 0.8

My problem is i do not have an exit plan. Based on current situation, should i take profit and sell  off some of the stocks? I do find a few of them overpriced at the moment like O & G.

Hope to hear your advice soon!

Thanks in advance!
 
Cheers
Y



Hi Y,

Alamak. I don't give advice. I am just talking to myself.

So, I say to myself:

"Always question what was your motivation for buying into a certain stock. If it is for income, then, price movements should not matter as long as the fundamentals are intact and it is bringing home the bacon. Of course, if you could find a better income stock than the one you have and if funds are limited, liquidating and moving your funds makes sense. Money should go to where it is treated best.

"If you are investing in something because you feel that it is undervalued and that its price should be higher, then, you probably have an idea of its intrinsic value. You could then sell if you find that your investments are now trading at prices above their intrinsic values."

Best wishes,
AK

Progress and learnings in money and investment matters.

Tuesday, August 2, 2016


Hi AK,


1) I've automated my monthly fixed expenses to be paid out of my credit cards - actually just one credit card - where possible. I now just need to refer to my month-end statements when they come, and cross-check them with the respective companies' billing statements for discrepancies (usually stat boards are accurate to the tee lah hor). 

2) After much research and small A/B tests, I've also decided to use the same credit card for my other everyday spends as well. Hence maximized and optimized, at least for now while the T&C is still to my spending patterns' favour.

It also gives me a good black-and-white copy of my expenditures, and I often use it as a form of accountability check on myself if I'm actually spending my monies wisely or am I regretting some spur-of-the-moment purchases. 

3) I've cultivated a habit of putting aside monies for savings towards my personal goals: opening savings accounts and filling them up to the minimum amount required is my new-found hobby (though it will die out soon as there are only so many that I can open). 

I'm just gamifying what seemed to be a mundane task i.e. saving money. May seem bo liao, I know. Maybe for your level, it's opening various priority/premier/privilege banking accounts? :P

4) Now each time after I receive my pay, I do a 30 min exercise of paying of my credit card bill (see point #1) and transferring amounts to my different saving accounts (see point #3), and soon after that, I'll know how much more excess cash I have for myself. 

5) Also automated (because GIRO) the amount that I set aside for long-term savings cum investment. It's just STI ETF for me for now, and I'm still working towards increasing and maximizing that monthly amount as my personal goal. Again, gamification of things. 

6) Outside of all these automations, I've also developed this habit of not paying items in full value, or at least their full face value. 

So I'm very auntie liao because I always keep a look out for discounts, coupons, credit card rebates for the items that I need to buy. For my wants, the decision-making process always get stuck in the deliberation stage, and more often than not, I forget about it. But if I don't, it probably something that I really, really wanted or am willing to reward myself for.

7) To occupy my time, I've also started to invest in stocks by paper trading with $15,000. 

Initially it was exciting: I took out my watchlist, screened them once more with my own self-approved parameters that I've learnt from different sources, and added a couple of counters to my portfolio.

It's not so exciting for me because I've reached a stage whereby I only have limited amount in my war chest to spend on, and gotta spend wisely. Assuming all the fundamentals are already self pre-approved, it's really more of waiting for the right entry points (negative P/B? lower end of the 52-weeks MA?) So what do I do? Wait for the next GSS (Great Stock Sale) lor. Told you I very auntie liao.

But one of the things I do learn on the side is why having a ready-to-deploy war chest becomes very important. 

I also learnt that looking at my portfolio everyday is not gonna help in anything. So long as I've bought the businesses for the right reasons, it doesn't really matter if the price moves up or down because I'm not trading and earning from margins anyway. 

Aside from capital gains, which will not be realized unless it's a time horizon of a few years, I'm just awaiting for dividend payouts which only happen on a bi-annually or quarterly basis. 

Right now I'm only sitting on 0.363% paper profits :D 

From this I also learnt why people always ask "if $x.xx is a good price to enter for counter A", and perhaps more importantly, why you always choose to be neutral about sharing such calls or actions. Because really, to each their own set of reasoning. 

8) Growing wealth is really like watching grass grow. Now I know why you started gardening. :D

Maybe this is why I always see the same aunties and uncles lim kopi at Toast Box, in an air-conditioned shopping mall near my place or doing line dancing in the CC. If all the pillars of your life are already sound and strong, and money no longer an worrisome issue, really what more is there to be done? Just smile and live life happily lor. :)

Sincerely,
F


Sunflower seedlings.


Hi F,

Your update made me smile.

1. You are doing a great job in saving money and tracking your expenses while trying to have fun doing it.

2. Priority/Privilege/Premier banking relationships are all attempts by banks to make more money from us. Seriously, give me OCBC 360, UOB ONE or BOC Smartsaver any time.

3. An STI ETF is a good way to start your journey as an investor.

4. Why pay full price for anything if we can pay less? I agree. A penny saved is a penny earned!

5. Paper trading to gain experience is a good idea. The stock market will always be there. No hurry.

Finally, welcome to "gardening" as a hobby. ;)

Best wishes,
AK

-----------------

AK shared a recent development on Facebook:




Related posts:
1. Investing or gardening, be ready for war.
2. UOB ONE or OCBC 360?
3. Matthew Seah on Dollar Cost Averaging.

Used Hock Lian Seng as an example in August 2016. (Technical Analysis, Valuation and War Chest.)

Monday, August 1, 2016

I used Hock Lian Seng as an example to chat with this reader in August 2016. 

I wonder if he bought any before my next blog on Hock Lian Seng in February 2017. Don't scold me hor, I am just curious.

Blog in February 2017: 
Hock Lian Seng returns 100% and more.




-----------
Reader:
may i ask which TA you are using? candlestick, moving average or ?

AK:
I try to keep it simple. Example:

http://singaporeanstocksinvestor.blogspot.sg/2014/12/hock-lian-seng-robust-order-book-at-3.html
Hock Lian Seng: Robust order book at a 3 year high.

I also try to spot divergences sometimes:

http://singaporeanstocksinvestor.blogspot.sg/2013/05/hock-lian-seng-buying-on-weakness.html
Hock Lian Seng: Buying on weakness.






Reader:
I read, sometime u can't time the market, so shld we enter at a price we still think it's undervalue or use ta to determine entry price?

AK:
We can never get the lowest price. If we did, we were lucky. 🙂

So, if FA tells us it is undervalued, we can nibble.

Keep the TA picture in mind if it tells us prices could go lower. Have a war chest ready, always.




Reader:
Am reading this, have the same dilemma on when to sell
http://singaporeanstocksinvestor.blogspot.sg/2015/05/should-i-sell-my-investment-to-lock-in.html?m=1
Should I sell my investment to lock in gains?
Currently my war chest is hovering 20% 😁

AK:
Gambatte!

Paid off $15K debt and pondering other money matters.

Sunday, July 31, 2016

Hi AK!

Few days ago I happen to come across your blog while searching for some information regarding finance management. So i'm considered a new reader of yours. 

After reading them I find that you are someone that is quite knowledgeable in this area and I though maybe you could give me some advise on my situation based on the current knowledge and experience that you have.

So here's my current situation:

My take home income after deducting cpf is currently 3k per month. I have been working for exactly 3 years (since I started this first full time job on 1st aug 2013). I manage to clear off a 15k debt within these 3 years (5k per year). 

And in my second year I started to buy insurance. This is the problem number 1. I really spent too much on it I guess it's because I didn't have enough knowledge regarding finance options at the point of time that I bought them.

Insurance that I bought:

1) Ntuc income: it's an endownment plan which I bought it for savings purpose. Payment term is 5 years (about $2.5K per year); contract term 20 years. The guaranteed amount that I will get back after 20 years is $15k.

2) Ntuc income: another for savings. This is the one that I later regret buying but I had already paid the annual amount and terminating it would mean losing money. As I spent too much on it. Contract term is 20 years as well; payment term is 10 years (about $5.8K per year)... I have already paid about $8.3K.....

3) Prushield monthly is about $350 per annual for my current age.

4) Prulife (about $3.3K per year) for 15 years. I have paid for 1.5 years already. 

I am now very confused as I am not sure if it's a good idea to hold it out for so many years or should I consider suffering some short term losses and just give up on the one or two policy? 

If I were to give up on prulife and revosave I would lose about $13-14k in total which is an 'ouch' for me considering I just started working. HAHA but trying to be optimistic I just turned 27 years old June this year so I guess the good thing that I have here is time.

After all these I currently have $10k in my bank account as emergency fund. I have been using 360 account from ocbc and have been fulfilling the 3 criteria. I didn't start the SRS account but I read some of your post and I will be getting it soon but I don't think I will be able to transfer a lot of money into it to totally avoid income tax. Afterall my income tax is about $300 plus per year. Probably help to cut a little. As SRS will be locked up for a very long time till we are age 62 and I am only 27  that is really a long time to lock away our money. But I am not sure how much should I put into SRS as having cash on hand is also important.

The way I see myself now is that I made decisions in the past that didn't allow my money to work harder for me. However, regarding investment I really have zero knowledge and I am also someone that wants certainty more than taking high risk. Especially on something that I am not sure I will not go into it. 

So the second problem I have is do you have any advise for a newbie like me regarding investment. For example what are the skills that I need to have before deciding to go into investment and what are the risk etc. The thing about investment is that I have read about people losing alot of money imagine 100K or more and I am not sure if I will be able to take that blow in the future especially if I were to start a family. 

Currently I don't intend to go into investment as I think I do not have the required knowledge and $$ and I don't like to go into something I am unfamilar of.  

My priority now is to save up. I wanted to take this time while saving up to gain more knowledge. But I felt really lost as investment look like a very big world to me so many things and I don't know where to start.

I guess I have the discipline to save up since I am able to pay off 15k and still have 10k in my bank after paying all the insurance, bills and daily expenses etc. With my 3K take home pay. I can still feel my heart ache when I type the word "insurance".

The last part would be on cpf:
I am 27 this year so I believe transferring OA account money into SA would be advantage to my situation. However i have some concerns. Because me and my partner is planning to get a bto flat hopefully by next year. We are planning to get a 3 room flat in a non-mature area so as to get more grant. Assuming the flat is 200k. 10% would be 20k which i think the grant should be able to cover. 

So now my question is should I keep the money in my OA and pay for the rest of the bto flat and get as little loan as possible to save on the loan interest or should I just aim to pay for the minimum 10% and try to get the maximum loan. We are planning to sell this flat away instead of for permanent stay. 

My current plan now is to transfer about 15k to my SA but my concern here is after that every month how much should I transfer from OA to SA in order to hit the minimum sum by the time I am 55 years old. Is there a way that can help us calculate because I really have no idea what is the minimum sum that I must have in my SA by the time I am 55 years old. And how to calculate how much i should put in every month in order to hit that amount. 

Cheers,
XY =D





Hi,

Welcome to ASSI! :)

1. You seem like a prudent person when it comes to debt. Stay that way.

2. You only need to buy Term Life for as long as you have dependents. It pays in case you die. You buy some Critical Illness coverage for in case you don't die and have to stop working due to these illnesses. You need H&S coverage and if you think class C or B2 wards are good enough for you, you only need Medishield Life. You don't need to spend a lot of money to get the insurance coverage you need. Whether you want to make changes to your insurance portfolio or not is your call, of course.

3. Having an emergency fund is prudent. Roughly, it should be enough to cover 6 months of expenses for those in their 20s. For those in their 30s, 12 months and for those in their 40s or older, 24 months. Nothing sacred about this. Just a comfortable guide for myself.

4. SRS is useful if we want to sock away more money for retirement. The income tax relief is a nice feature. We can also consider doing MS Top Up to our CPF-SA to enjoy 4% interest per annum. Will get income tax relief for the first $7K contributed per year too.

5. Read up and learn about investing. Then, decide if this is something we want to do and are comfortable doing. To be quite honest, many people are not cut out to be investors because they cannot stomach volatility. If you do decide to invest, never invest with money you might be saving for other purposes.

6. Doing OA to SA transfer in the first few years of my working life was an important move that helped to get my CPF savings to where it is today. Whether you should do it and at what pace if you do it would depend on what you plan to do with your OA money. Just remember what is the primary purpose of the CPF and also the opportunity costs involved in using your CPF money. I won't say more.

Gambatte!

Best wishes,
AK


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