First of all, what does home equity means? When you first bought a house, most probably you did not pay for it fully in cash. You would have taken a home loan from the bank.




Home Equity Loan is One of the Best Loans Around

 First of all, what does home equity means? When you first bought a house, most probably you did not pay for it fully in cash. You would have taken a home loan from the bank. If you opt for the traditional package, you would have to pay 20% of the transaction in a mixture of cash and CPF, and 80% comes in the form of the home loan. Once the transaction goes through, you will have gotten 20% equity in your home. Along the years, you made your monthly payments promptly and you own more of the house. That means that you have more equity in your house.
 
If you are holding onto a non - HDB property, you may be eligible for a home equity loan or a term loan. This means that you are allowed to borrow against your home. Borrowing against your home is one of the best option available in terms of interest rates. Why is that so?
  
To better understand why, you have to know how much interest is the banks charging you for the different loan products and have a reference rate to measure against:
 
Inflation Rate: 6% - 7%
Credit Cards: 20% - 25%
Personal Loans: 7% - 16%
Car Loan: 5% - 7%
Housing Loan: 1.5% - 5%
 
As you can see, housing loans have one of the lowest rates among all the products and by borrowing against your property; you are pegging your equity loan's interest rate to your housing loan's interest rate. That makes the equity loan's interest rate one of the cheapest options available to you. Some people actually use an equity loan at a cost of 2% and invest in certain instruments that generate a return of 5% or more. They then pocket the profit from the investment. Of course, this scenario safely assumes that you are going to hit a return of more than the interest you borrowed. Do take note that in whatever investment that you undertake, the risk of it underperforming is always there.
  
A home equity loan or a term loan is definitely a good tool for investing for the financially diligent kind of people. On the other hand, if you were to take that equity or term loan and spend it on a holiday, new spa, game console, car and etc. I suggest that you refrain yourself from taking that equity loan.  
 
To understand more about equity loans or term loans, it is best to talk to a mortgage expert or advisor. Different banks attach different terms, conditions and interest rates on each product. A mortgage advisor will be able to clear all those doubts and drive you towards a loan that is the most acceptable to your unique financial situation.    

Zeng Han Jun is the Business Financial Manager of Chan & Partners Consulting Group. He actively contributes articles about business and finance on a weekly basis, so as to share his knowledge with the financial consumers. He specializes in mortgage advisory and business brokering services in Singapore. He has been directly involved and plays a crucial role in marketing and sales of businesses in CPCG. He also provides advice on various kinds of mortgages and construction financing for private individuals.

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