Posts Tagged ‘Credit’

No, you cannot take up a fresh mortgage for your paid-up HDB

Thursday, November 12th, 2009

In Summary:

“A Home to Call your Own”
– Fully paid HDB flats cannot be mortgaged for a loan
– HDB: Prevent flat owners from losing their flat in the event of a loan default
– Why the different treatment between HDB and other 99 leasehold property?
– Some HDB cost as much as private property
– People these days are more sophisticated
– Is it any different from taking a normal bank loan?
– Time to eases restrictions on flats as loan collateral and let owners decide

“Too Many Risks”
– Most HDB dwellers are low-middle income earners.
– HDB wants to ensure ownership through paid off flats.
– Not much cash equity in flats as most flats are paid with CPF
– What will people do with money unlocked from their flats?
– HDB does have other safer suggestions for flat monetization.

My Views:

I think renting out part of your flat is a much better way to ‘unlock’ your flat’s value then taking out a fresh mortgage. Somehow, “Lehman Brothers” pops to mind. There have been private home owners who have tried to make a killing in the stock market by using their homes as collateral, and end up losing their homes in the end when the market went the other direction.

The other thing that pops to mind is ‘Subprime crisis’. In the US, many home owners took opportunity of their rising home equity and taking out fresh loans based on how much their homes were worth then. Thus instead of having, say, a $200k mortgage, they now have a $250k mortgage, and $50k cash in their pockets. When the property market crashed, many home owners owed more than what their houses were worth, and that $50k cash was long gone.

Yet on the other hand, I’m also for HDB owners being allowed to make their own decisions, and to live by their decisions.

By the way, our HDB flat valuation has risen 15% since we bought it 1.5 years ago. At this rate, our flat price will double in 7 years. Now if only we could unlock that money with a fresh mortgage … $44k in our pockets …. NOT!


Why Banks love to give you Credit Cards

Thursday, March 12th, 2009

A Brief History of Credit Cards

In the 1950s, only people with excellent credit (like successful businessmen) could get a Diners or Amex card (the pioneers of credit cards). Because of this, credit cards were a status symbol, a prestige – if you had one, you were cool!

The initial credit card model was that companies made their money from membership fees and sales commissions, and got mad if you didn’t pay off your bill each month.

Then in the 1960s, banks jumped in and starting offering credit cards too. By the end of the decade, almost every bank were issuing charge cards. However, their business model was different – they generated most of their revenue from interest charges and late charges. In short, they aren’t interested in getting you to pay off your bill in full each month, as they earn more the longer you take to pay your bill off.

Did you know?

Banks love for you to carry a balance. In fact, minimum payments have been lowered, incentives were offered, grace periods were lowered, annual fees can be waived. Although credit cards are one of the 5 ‘C’s, these days, anyone can own a platinum card.

If you have a $12,000 credit card debt, never charge a single dime to the card after, and only pay the minimum due, it would take 400 monthly payments (33 years and 4 months) to pay off everything.

At an interest of 18% pa, it would cost you a total of $29,616 to pay off the $12,000 you charged to the card!

The Simple Rules

You can’t finish rich if you’re carrying credit card debt.
Borrow money to make money, not to lose it.

1) There is a difference between good debt, and bad debt. The only time borrowing makes sense is when you do it to buy something that can go up in value, like a house.

2) Treat your credit card like cash/nets. If you don’t have the cash or money in the bank, don’t charge it.

3) Use the bank. Don’t let them use you. The only reason you should have a credit card is to earn points or get cash-backs and discounts, and not treat it as a loan for money you don’t have. I love credit cards that are tied to a bank account. What I do is charge it for the points/cash-back, then pay it off at whenever I log on to internet-banking.

* summarized from “Start Late Finish Rich” by David Bach, Chapter 4.
Book borrowed courtesy of the National Library.