Australian Expat, Living in Singapore Mortgage Case Study.
Australian Expat, Living in Singapore Mortgage Case Study.
At a recent seminar, one of the attendees approached me and asked whether we could review her current portfolio. She owned a property in her hometown of Sydney. She estimated its value to be approximately $2.5mil, with a current loan of $1.5mil.
The current loan had 21 years to go. It was variable and P&I, and the interest rate was 6.79%. She had recently reached out to the lender, and they had reduced the rate from 6.99% to 6.79% (which she felt was great!).
From a cash flow perspective, the rental income was $1,500 per week or $6,500 per month, but the mortgage repayments were $11,368 per month, so she had a notable monthly deficit that was eating away at the offset account.
As part of the review, we considered the following points:
Interest rate
Loan term
Interest Only (IO) v Principal and Interest (P&I)
We recommended refinancing to a new lender, extending the term to 30 years, and keeping the repayments as P&I. With the above, an Australian Expat Investor's interest rate dropped to 6.09%, which is a great result and saves thousands of dollars in interest annually for this particular client.
Extending the loan term to 30 years reduced the principal component of the repayments.
The reason for keeping the loan as P&I was that the interest rate differential between a P&I loan and an IO loan was considerable, so the overall reduction in repayments was relatively small.
So, the outcome of the refinance was that the monthly mortgage repayments were reduced from $11,368 to $9,081, an overall reduction of $2,287 per month!
From a cash flow perspective, the deficit was $4,868 before we reviewed the loan; after the refinance, it dropped to $2,581. While there is still a deficit, it's far more manageable.
Everyone's financial situation is different. If you'd like to explore your current situation and empower yourself to make an educated decision to help you reach your financial goals sooner, please reach out.
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