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
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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.
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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.
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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!
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