Time flies fast; but this time is boring! Only consolation out of these two boring years is that he was shown his basic living expenses by Mr. COVID since he is an Ant in retirement planning. Ants love Numbers!
Read? When Your Bank RM Called??? (6)
12 months of interests payment have passed. Another 24 months to go before receiving monthly few hundred bucks till 2040 when the loan period end by surrendering the policy to fully redeem $144K loan.
Let see how fast can interest rate rises in 2022 and 2023!
Posts
Uncle8888,
ReplyDeleteIf your loan is based on sibor or sora, pray that Fed doesn't raise rates early!
Currently, it is still on sibor; but that time RM told me all loans from DBS will be transited to sora soon. "Soon" is already 1 yr since Dec 2020. LOL!
DeleteWas publicly announced that SIBOR will be discontinued by end 2024. Transition would probably take place earlier. Won't be a straightforward transition because SORA is more predictable & stable than SIBOR, thus rate is lower (latest 1 month SIBOR ~0.265%, vs ~0.123% for 1 month SORA). Spread will be adjusted to take account of the difference in rate, just hope existing borrowers will not be shortchanged by the banks (given vast majority of existing home loans are priced in SIBOR, MAS will probably intervene if otherwise).
ReplyDeletere the projections above. these were based on investment return @4.74% & borrowing cost @ 2.5%. not realistic anymore. If the current low interest continue, investment return will be less than 4.75%, but so is borrowing cost. You will benefit overall, with return above 7.8%, probably above 9%. For my case, just received a letter from Manulife saying my monthly payout will be reduced by $600, but my monthly interest payment to DBS is reduced by $2,500! Just "make" an extra $1,900/month out of the policy thank to COVID! a bonus unexpected when I bought the policy in 2019 based on an investment case of borrowing cost @2.7%
With US seeing 5+% inflation for the past few months & lots of basic goods/commodities at multi-year high (energy, electronics chips, aluminium, steel, copper..), a matter of time FEB will raise rate. Your return would be reduced if this happens, lower than 7.8% if all in interest exceed 2.5% (versus 1.04% now). But need not be too concerned, there is a sizeable safety margin to breach before your return drop to CPF OA 2.5%, or worse, turn negative. Will share how I come to this view if interested.
My only concern is this coming inflation is not a "normal" one triggered by red hot economic expansion, but one by supply chain disruption, unlimited & irresponsible money printing (especially US) to combat economic fall out from COVID, shore up the equity markets etc. Hope this is not the onset of stagflation or a return of ultra high inflation in similar fashion as that triggered by NIXON when he abandoned the Brenton Woods Agreement & unpegged the US$ from gold. But under such a scenario, there will be no escape for all forms of investments - property, equity, bonds. Just hope for the best.