Mortgage and Grow Rich

What Others Say About This Book “This book is a gem for a variety of reasons. First, it has crystal clarity content. Second, it provides sound and practical examples. Third, any layman can pick up the book and take control of their mortgage planning choice. It deals with the fundamentals that every person needs to know to walk the path of financial freedom. Don’t just buy the book – buy two, so you can give one away as a gift!”

Dr Tan Tee Khoon CEO Singapore Accredited Estate Agencies Ltd (SAEA) “Allow Alfred Chia to guide you on your way to being your very own financial guru and start steering your money the right way in ‘Mortgage And Grow Rich’ – a financial bible for potential property investors and home buyers!”

Mr Ismail Gafoor President, Institute of Estate Agents (IEA) CEO, PropNex Realty Pte Ltd “A book that brings you through the maze of mortgage loans and how you can breezily navigate through them in life.”

Mr Raymond Ng President, Association of Financial Advisers (AFA) Managing Director, Ray Alliance Financial Advisers Pte Ltd

“A great practical hands-on guide covering all you need to know about mortgages, general financing and managing your financial wealth. It is a simple, interesting and easy-read full of great practical tips, hints, images and cartoons. A must-read for all would-be ‘Financial Gurus’.”

Steve Melhuish Group CEO PropertyGuru.com “With the clever use of illustrations and real life examples, this book successfully captures the message of proper financial planning for both the young and old.”

Mr Wong Wong Hong Director Singapore Press Holdings Ltd Popular FM 1003 radio show host “...finally a clearer insight into the world of mortgage – a much awaited book for the masses. Good job, Alfred!”

Ms Fadilah A. Majid Section Editor Berita Harian Business Desk, Ekoniaga “A commendable job. The only book that covers everything; from knowing the basic principles of mortgage planning to recognising your various property financing options available for a smoother property investment journey.”

Ms Stella Tan CEO Tenet Insurance Company Ltd ii

“Real estate has been, and continues to be, the favourite investment asset class for Singaporeans. This book is a recommended read for most Singaporeans as it methodically illustrates how Singaporeans can manage their mortgages prudently, and take advantage of opportunities that come along the way.”

Mr Lim Chung Chun Chairman and CEO iFAST Corporation Pte Ltd “All aspiring property owners must read Alfred’s much awaited book.

Alfred generously enlightens and guides us on how to handle mortgage loans and deploy the right financial strategies while investing in properties. Buy this incredible book. Read it and keep it handy as a constant companion.”

Mr Rayney Wong Investor, Lawyer, Author

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Mortgage And Grow Rich Financial freedom through borrowing

Alfred Chia BSc, CFP, FChFP, ChFC

First Published: May 2011 Published by: Alfred Chia Email: alfredchia@singcapital.com.sg ISBN 978-981-08-8709-4 Copyright © 2011 Alfred Chia Typeset and Cover Design by: Rank Publishing (www.rankbooks.com) All Rights Reserved. No part of this publication may be reproduced or copied in any form or by any means — graphic, electronic or mechanical, including photocopying, recording, taping or information retrieval systems — without written permission of the author.

Conditions of Sale: This book is sold subject to the condition that it shall not, by way of trade or otherwise, be lent, resold, hired out or otherwise circulated without the publisher’s prior consent in any form of binding or cover other than that in which it is published and without a similar condition including this condition being imposed on the subsequent purchaser.

Disclaimer: While every reasonable care is taken to ensure the accuracy of information printed, no responsibility can be accepted for any loss or inconvenience caused by any error or omission. Government policies mentioned in this publication are subject to changes. Please check for latest updates before taking any action. The ideas, suggestions, general principles, examples and other information presented here are for reference and educational purposes only. This book is not in anyway intended to give investment advice or recommendations to buy, sell, or lease properties or for any form of property investment. The author and publisher shall have no liability for any loss or expense whatsoever relating to investment decisions made by the reader.

Printed In Singapore

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Acknowledgements I would like to thank the following people, without whom this book would not have been possible.

Fiona Tan Lee Lin Cher Lui Natasha Amanda Fazilla Nordin Goh Kheng Chuan Edmund Baker Ismail Gafoor Rayney Wong Alson Kong SingCapital Advisers, Staff and Management

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About the Author As the CEO of a leading MAS-licensed Financial Advisory Firm, SingCapital Pte Ltd, Alfred has more than 18 years of experience in helping people realise their financial dreams with the right planning tools.

Graduating from the National University of Singapore, Alfred also holds professional qualifications – Certified Financial Planner (CFP), Fellow Chartered Financial Planner (FChFP) and Chartered Financial Consultant (ChFC). He is an approved trainer for Real Estate Salespersons (RES) courses by the Council of Estate Agencies (CEA), helping individuals who intend to pursue careers as salespersons in the Real Estate Agency industry. Alfred is also a lecturer for Chartered Financial Consultant (ChFC) professional courses.

As an ardent believer in the power of education, Alfred strives to share his knowledge of financial planning through as many conduits as possible. He is the Creator and Chief Trainer for the popular program, ‘Singapore Accredited Mortgage Planner’, for real estate professionals and financial planners. On top of that, he is also a regular radio show consultant to the FM 1003 program “星期二理财”节目. His name is a prominent feature on many articles on financial planning.

Besides helping individuals, Alfred is well-sought after by companies and corporations that look to him for proper business solutions to steer them in the right direction.

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Content Acknowledgements

vii

Prologue

xvii

Why This Book

xviii

Chapter 1: Financial Freedom

1

Financial Freedom – What Is It?

2

Make The Choice

3

But I Am Already Past 40! Isn’t It Too Late?

4

Chapter 2: Wealth Strategies Of The Rich

5

Role Modelling The Mindset Of The Rich

6

Role Modelling The Methods

8

Creating Money – The Only Path To Financial Freedom

9

Vehicles Of Money-Generation

10

Real Estate – Favourite Asset Class Of The Rich

10

Chapter 3: Mortgage Loan

13

What Went Right For Mr Lim Ko Pi

20

What Went Wrong For Cheong Kao See

27

Mortgage – It’s A Sword, It’s A Chopper

28

Prudence – The 1st Law Of Mortgage Management

29

Ensure That You Have The Financial Capacity To Service The Loan

30

Treat Yourself As The Sole Financier… Even If Your Tenant Is Your Financier

31 ix

Chapter 4: The 4A MethodTM To Financial Freedom

33

The 4A MethodTM To Financial Freedom

34

1. Assess – Determine Your Current Financial Health

34

2. Arrange – Organise Your Finances Around Your Intended Purchase

35

3. Analyse – Identify The Different Types Of Financing Available

35

4. Act – Execute The Plan And Review It Regularly

36

The 4ATM Method Explained

36

Part 1: Assess – An Unexamined Life Is Not Worth The Living

38

Chapter 5: Personal Income And Expense Statement

39

Income Vs Expense – The Battle Rages

40

Income Implications In Mortgage Applications

46

Chapter 6: The Personal Net Worth Statement

49

Assets And Liabilities – What They Are And What They Do

51

Debts – Bad Versus Good

53

My Property – Asset Or Liability?

54

Chapter 7: Magic Numbers

61

Magic Number 1: Debt Servicing Ratio (DSR)

62

Magic Number 2: Cash & Near Cash / Monthly Expenses

63

Magic Number 3: Liquid Asset / Net Worth

65

Magic Number 4: Savings / Gross Income

66

Magic Number 5: Total Debt / Total Asset

67

Magic Number 6: Total Invested Asset / Total Asset

69

Magic Number 7: Net Worth / Total Asset

70

An Overview Of The Numbers That Matter

71

A Case Study Of John And His Wife

73

Your Turn For A Thorough Self-Evaluation

77

Chapter 8: Take Control

79

Cut Down On Your Expenses

80

Reduce Liability

80

Increase Your Knowledge

81

Pay Yourself First

82

Part 2: Arrange – Creating Order Out Of Chaos

84

Chapter 9: How Do I Finance My Dream Property?

85

D1 – Determine The Maximum Loan You Can Take.

86

D2 – Determine How Much You Need For Down Payment.

87

D3 – Determine How Much Cash Over Valuation (COV) You Will Need.

88

D4 – Determine The Stamp Duties You Will Need To Pay.

88

D5 – Determine The Legal And Miscellaneous Fees To Be Paid.

89

D6 – Determine The Agent’s Fees To Be Paid.

89

D7 – Determine The Renovation Costs.

90

Chapter 10: How Much Do I Need In The Beginning For That Bungalow?

91

Using The 7Ds For Your Own Purchase

94

Do You Have Enough?

96

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Chapter 11: How Much Do I Need Every Month?

97

The 6 Major Functions of Casio FC-100

97

How Much Do I Need To Pay Every Month – Worked Example 98 Chapter 12: Central Provident Fund (CPF) And Mortgage

101

Central Provident Fund (CPF) Basics

102

Using Your Ordinary Account To Repay Your Loan – The Limits

103

If You Are 55 And Above…

104

Conditions Attached To The Remaining Lease

106

Using Your CPF For Multiple Property Purchases

106

Non-Related Singles Using CPF

107

Asset Rich, Cash Rich Too

107

Chapter 13: Positive Personal Credit Worthiness

109

Credit Worthiness = Trust

110

What Happens When I Apply For A Loan?

111

CBS? What’s That? And What Will They Find?

112

What A CBS Report Shows

114

OH NOO!! Then What Do I Do To Improve My Credit 115 Reputation?

Ways To Save Your Credit Reputation

116

Part 3: Analyse – And Decide

118

Chapter 14: To Each His Own

119

Bank Loans – Choose Clearly, Borrow Wisely

120

Factors You Should Consider When Choosing Your Loan Package 122 Different Types Of Loans In The Market – What Are They? xii

124

Fixed Rate Loan

125

Variable Rate Loan

126

Market Pegged Interest Rate

127

Interest Offset Loan

130

Comparison Of Home Loans

131

Chapter 15: A Bridge To Your Dream Home

132

The Bridging Loan – Your Saviour

133

Not Enough Cash, But More Than Enough Equity

135

Bridging Loan = Greater Opportunities

136

How Much Can I Borrow With The Bridging Loan?

136

What Are The Conditions To Securing A Bridging Loan?

137

Chapter 16: Choosing Your Mortgage Term

139

Why A Shorter Amortisation Period Is Better

140

The $500,000 Illustration

140

The Subtle Bane Of A Smaller Amortisation Period

142

Going For Long The Right Way

144

Chapter 17: Paying Off Your Mortgage Earlier

145

Investing – Unlearn The “Basics”

145

Monthly Investment Plan (MIP)

146

The Dollar Cost Averaging (DCA) Approach To Investing

147

Mr Wee’s Monthly Investment Plan

147

Heeding The DCA Approach

148

Discipline Keeps You Ahead

149

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Chapter 18: Buying And Financing Your HDB Flat

150

Financing Options For HDB Flat Purchase

152

Taking An HDB Concessionary Loan

152

HDB Concessionary Loan – Features And Uses

154

Taking a Bank Loan

155

Bank Loans – Features And Uses

155

HDB Concessionary Loans Versus Bank Loans – An Overview

156

Why Choosing A Bank Loan Might Be More Favourable For You 156 The 7Ds Applied To The HDB Purchase

157

D1: Determine The Maximum Loan You Can Take

157

D2: Determine How Much You Need For Down Payment

158

D3: Determine How Much Cash Over Valuation (COV) You 158 Will Need D4 : Determine The Stamp Duties You Will Need To Pay

159

D5: Determine The Legal And Miscellaneous Fees To Be Paid

159

D6: Determine The Agent’s Fees To Be Paid

160

D7: Determine The Renovation Costs

160

The 7Ds Applied: Case Studies

160

Utilising Your CPF To Pay Off Your HDB Concessionary Loan

162

Utilising Your CPF To Pay Off Your Bank Loan

163

Part 4: Act – Streamlining Your Loan Package

167

Chapter 19: Refinancing To A Clearer Loan Path

168

Keeping Yourself In The Know – Your Responsibility

169

What Is Repricing And Refinancing?

170

Refinancing

170

Critical Questions

171

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Cost Of Refinancing

171

Refinancing Illustrated

172

Chapter 20: Unlocking Valuable Dollars From Your Property 175 Selling Your Property – Familiar But Not The Best

176

Equity Term Loan – Unlocking Your Property’s Value, When You 177 Need It Advantages And Risks Of An Equity Term Loan

178

Chapter 21: Sheltering Your Property And Yourself

180

Guarding Your Fortress With The Right Insurance Plan

180

The Type Of Coverage

185

Are You A Landlord Or A Tenant?

185

Provision For Home Emergencies

186

Personal And Family Liability Coverage

186

Penalty For Underinsurance

187

Specialized Features

187

The Four Layers Of Protection

188

Protection For The Structure Of My Property

188

Protection For The Contents In The Home

190

Protection For Your Ability To Service Your Loan

191

Protecting My Ability To Service The Loan

192

How To Choose The Right Fit Mortgage Insurance For You And 192 Your Family Protecting Myself – Medical And Life Insurance For Ultimate 194 Peace Of Mind Choose Wisely

197

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Chapter 22: Overcoming The Odds

198

The Process Of Foreclosure

199

What If I Really Can’t Pay?

200

1. Never Avoid Banks Like The Plague. Instead, Always Engage 200 Them.

2. Request For A Longer Repayment Period.

201

3. Interest Servicing Only.

201

4. Sell Off The Property To Recover Property.

202

A “Notice Of Default” Is Not A Death Sentence.

203

Epilogue: Acting On The Knowledge

204

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Prologue

prologue Financial Freedom ~ A Possible Dream ~

I

s attaining financial freedom merely a dream? Or is it a dream that can be realised with the right skills and planning? And how can mortgage – a long-term loan that can potentially tie you down for the next 25 to 35 years – put you on the path to financial abundance and freedom?

Greetings, and good day to you.

My name is Alfred Chia, and I have been practising in the financial advisory profession for more than 16 years. During the 16 years that I have spent in the field, I have served many clients of various profiles, and I have had the privilege of advising quite a number of influential businessmen and captains of industry who enjoy wealth on an unprecedented level.

As a financial consultant who deals with such affluent clients on a personal level, I have come to learn and understand that many of these xvii

Mortgage And Grow Rich

rich clients of mine are just as human as you and me, except that they have done things very differently from most ordinary folk.

The first thing that I have observed of the rich and successful is that they all manifest an industrious attitude and a relentless drive towards continual upgrading and self-improvement. Not only are they hardworking and willing to go that extra mile, they push themselves beyond their comfort zones to learn new skills, knowledge and ways of thinking. That never-say-die attitude sets them apart from ordinary folk, and they successfully stand out not just because they are competent, but because they are exceptional. Because of the level at which they compete, these clients of mine also enjoy a level of success that is reasonably many cuts above the rest, even if they did not enjoy the benefit of a good education, privileged family background and influential contacts.

But the most important thing that I have observed about these successful people – which is also the main focus of this book – is that they have a penchant for good money management and investments.

Having made their first pot of gold, these affluent clients of mine proceed to protect their new-found wealth, and invest it in items that give them a magnificent return. They also employ professionals to research and recommend to them the best investment vehicles available at any given point in time.

With industriousness, a can-do attitude and the assistance of wellinformed consultants, it is no wonder that these clients achieve what they achieve.

Why This Book Having been a financial consultant for more than a decade, I can attest to the fulfilment and satisfaction that most professionals in my field xviii

Prologue

experience when we see our clients successfully grow their wealth and protect their families with well-laid out plans that go beyond even the life spans of our clients. I also hope that more people will achieve the very wealth and financial independence that many of my clients enjoy.

That said, I do understand how the common man or woman might find the path of financial abundance an impossible journey.

For starters, not many of the books available in the market now are customised for our local context. Yes, there are useful references available in them, but this book provides concrete steps for you to act upon to begin your financial journey.

Also, financial institutions – with their individual specialities and strengths – tend to focus on what they do best. For example, in my early years as a corporate trainer for insurance companies, I discovered that most of the training revolved around retirement, education and medical insurance planning. However, when I attended a bank’s mortgage training in my previous outfit, the emphasis was on credit assessment.

Thus, while such financial institutions can potentially do a lot of good for the common man or woman by focusing on their specific areas of expertise – and they do serve a purpose by specialising – they are hardly in a position to synergise the different aspects of financial planning into a functional wheel that will propel the client on the road to financial success.

Having been taken through the different aspects of the financial planning wheel, I hope to be given a chance to share with you what I have learnt as a financial consultant, as well as what I have learnt from my clients who have generously shared with me their secrets of success. The many talks and seminars that I conduct on a regular basis are testament to my desire to freely share my knowledge with you. xix

Mortgage And Grow Rich

Sharing at SingCapital Wealth Management Seminar Series.

xx

Prologue

Sharing at Property Millionaire Program.

Speaking on Implications of Singapore Budget 2009 for Companies Seminar. Organised by EDC@ASME, MOM & WDA.

Above: Sharing at SMART Property and Investment Expo 2011.

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Mortgage And Grow Rich

Left and Below: Sharing at SPH Real Estate & Wealth Management Seminar.

Presentation to High Networth Individuals on Wealth Management at Tanglin Club.

xxii

Prologue

Above: Sharing at

上海交通大学.

China Research Trip.

Weekly session @ Radio 1003 on various Financial Planning topics, 理财星期二钱 哥教您理财法则. In studio with popular radio host, 文鸿和阿栋.

xxiii

Mortgage And Grow Rich

Financial Education in Progress.

Mortgage Planning Course Training in Progress.

xxiv

Prologue

3rd batch Graduates of ‘Make Millions through Mortgage Planning’ course. More than 500 members to date.

SingCapital Professional Financial Consultants.

xxv

Mortgage And Grow Rich

This book serves as an introduction to an approach towards financial planning, with a focus on mortgage management. For those who are new to financial planning, I hope that by the end of this book, you will at least realise how important it is to chart your own financial destiny.

For those who have been thinking of putting your finances in order, I hope this book will be a catalyst for you to take action on getting your money to flow in the right direction. And for those who already have a plan to achieve what you want, I hope this book will value-add to what you are already doing, as well as shed new light on how you can get your money to work harder for you on a daily basis.

The path to financial freedom is a long one, but it does not have to be a hard one. We can make your journey easier and more enjoyable. If at any time you need clarification for any part of the book, you can always visit me on my blog at www.alfredchia.com. I also conduct various finance and investment seminars throughout the year so do sign up at my blog for updates of any upcoming ones. So let’s begin!

xxvi