THE COSTS OF FINANCING A HOME (BUILD) IN SINGAPORE

Financing, Refinancing & Doing the Tango

In truth, this has nothing to do with the Tango - although conversations with banks (or rather bankers) sometimes feels like it.

Wait - let me qualify. I don't dance the Tango (or any formal dance really) because I don't like to. same way I don't like speaking to bankers, or anyone really. That's why I blog. it's sad, I know, but i digress.

To set the context,  this is what the existing (inter-bank) interest rates look like

Updates can be obtained from http://www.moneysmart.sg/home-loan/sibor-trend

It does not look good if you want a loan as we have interest rates creeping upwards.

Ok here's the deal. I have a mortgage for the existing property. The good news is, I have a property; the better news, is that the property has actually appreciated in the last 10 years. so I have a few options to extract the value from my property.

In order to get a construction loan, banks typically have given me the following terms & conditions:

Construction Loan Financing:

Up to 70%  of the construction cost and subject to approval. Construction cost must not exceed land cost

Interest charge

~6.00% Upon issuance of the Temporary Occupation Permit (TOP), the construction loan will be converted to a housing loan at the prevailing interest rate and remaining loan tenure.

Loan size

Minimum loan amount is S$200k and maximum S$2m

Loan tenure

Up to your age 65 years olf or 30 years loan tenure whichever is earlier For construction loan, project mus be completed within 24 months from 1st drawdown

Valuation

Will be conducted in 2 stages: - prior to disbursement - at TOP stage

There are a bunch of other clauses, but it's pretty boring. Bottom line is that for a $1 mil build, the cash outlay will be a whopping $300,000. I DON'T HAVE $300,000 lying around!!!! And If I did, I wouldn't te telling everyone on a blog!!! (trust me I don't)

Anyway, the alternative, is an equity based term load. ie, using the value of my property as collateral to take a loan.

Home Equity/Term Loan Financing:

There is certainly more flexibility in this, but EVENTUALLY, the interest rate would be higher than if you took a construction loan which you could convert into a home loan upon completion of the build.

One bank gave me a detailed breakdown on repayment based on a $1 mil loan. the various permutations, taking into account rising interest rates are as follows.

The repayment schedule based on a ~1% Sibor

Year	Year 1	Year 2	Year 3	Year 4...
Gross Interest Rates (p.a.)	2.43075%	2.43075%	2.43075%	2.48075%
Monthly Instalment	$3,915.30	$3,915.30	$3,915.30	$3,938.94
	Over 3 Years	Over 5 Years	Over 10 Years	Over Loan Term
Total Interest Payable	$70,454.71	$115,403.34	$216,469.92	$417,165.71
Total MI Payable	$140,950.76	$235,485.20	$471,821.30	$1,417,165.71

The repayment schedule based on a ~2% Sibor

Year	Year 1	Year 2	Year 3	Year 4...
Gross Interest Rates (p.a.)	3.43075%	3.43075%	3.43075%	3.48075%
Monthly Instalment	$4,451.88	$4,451.88	$4,451.88	$4,477.42
	Over 3 Years	Over 5 Years	Over 10 Years	Over Loan Term
Total Interest Payable	$99,958.22	$163,942.10	$309,712.58	$610,952.62
Total MI Payable	$160,267.69	$267,725.83	$536,371.19	$1,610,952.62

BEST OF BOTH WORLDS

So, I'm not totally convinced that we can afford this rebuild. BUT, if we did want to game it, we could take a $400k Home Equity Loan (on the pretext of "personal investments") and thereafter, take a 70% construction loan for the explicit purpose of the rebuild.

The alternative, and I am waiting for other banks to get back to me, is to refinance my mortgage completely.