Comments on: How to buy additional properties with mortgage refinancing?

By: ongkl

ongkl — Thu, 12 Mar 2009 05:53:32 +0000

Hi Jess,

If interest rate is going to hike, that means the economy is doing good and government is concerned about inflation. When that happens, it should be a good news to real estate investors because their properties’ value and rent is going up. We have discussed this in our previous article Inflation may come back soon (or it has never left?)

If by that time the property can be refinanced again to a fixed rate mortgage, investor should be able to take back some tax-free profit from the appreciation of property value. Otherwise the rent should be revised to reflect the latest market condition.

However, whenever inflation strikes, cost of living becomes higher and higher, including the price of a new house, monthly installment of new housing loan, maintenance of house, utililty and other household expenses. Unlike property investors who can benefit from higher rental income and property prices, home buyers don’t earn income from their houses, they have to rely on their existing sources of income to cover the increased home-related expenses. They should quickly refinance to a fixed rate mortgage before interest rate is getting higher.

Cheers

By: Jess

Jess — Mon, 09 Mar 2009 02:26:39 +0000

It may sound like a bed roses now to take up re-financing regardless for houseowners or for property investors RIGHT NOW. I’m not too sure that the adverse effect is going to bring the optimism to the houseowner or property investors if the interest rate is going to hike up in the future. Let’s say taking a loan of 90% with a tenure of 30 years now, may sound very promising with the low interest rate with low montly installment. What if there’s a time the interest rate is rising and will continue to rise? Then the monthly installment will continue to rise as well and definitely impact on the monthly cost to hold onto the property? If the investors have more than one property, then it might be even more for him or her to hold on to all the properties. I would love to hear your opinion or suggestions on this on how to handle the properties differently when there’s a time the interest rate is on a going up trend. Thank you.

By: ongkl

ongkl — Fri, 20 Feb 2009 02:58:37 +0000

Thank you, Jacques, for further sharing with us The Problem with Mortgage Refinancing from richsnail.com.

Hope can hear more from you.

Cheers

By: ongkl

ongkl — Fri, 20 Feb 2009 02:53:55 +0000

Yes, refinancing has its problem. In fact, to be exact, it is the people who uses this financial tool indiscriminately that creates the problem. To further explain the potential problem of mortgage refinancing, we have to understand an important ration - the housing debt to equity ratio (also called loan to value). This is the ratio of the mortgage debt to the value of the underlying property; it measures financial leverage. This ratio increases when homeowners refinance and tap into their home equity through a second mortgage or home equity loan. A ratio of 1 means 100% leverage; higher than 1 means negative equity. The advisable maximum range of the ratio is normally between 0.80-0.90. That's why the maximum housing loan margin offered by most banks is 90%. As of 2006, several areas of the world such as US are considered by some to be in a housing bubble state. Major causes of the bubble include overvaluation and excessive borrowing based on those overvaluations, which increased the debt to equity ratio of most houses rapidly. Eventually when the bubble bursts, and house value drops, the debt to equity ratio of most houses become negative. This triggered a dramatic rise in mortgage delinquencies and foreclosures in the United States, and then the well-known subprime mortgage crisis, with major adverse consequences for banks and financial markets around the globe. The crisis became apparent in 2007 and has exposed pervasive weaknesses in financial industry regulation and the global financial system. WY has beed posting several articles on his blog which further discuss the on-going financial crisis with its causes and policy issues together with the current effort of G30 in reforming the global financial system through a more stable financial framework. We hope can see more readers to share with us their views about the pros and cons of mortgage refinancing here. Cheers

By: The Problem with Mortgage Refinancing | Rich Snail

The Problem with Mortgage Refinancing | Rich Snail — Fri, 20 Feb 2009 01:07:14 +0000

[...] recently commented on the How to buy additional properties with mortgage refinancing? and wanted to further develop my opinion [...]

By: KCLau

KCLau — Thu, 19 Feb 2009 05:01:42 +0000

Obviously, there are risks in every investment. I think it should be safe if the investor know what he is doing.

By: Fauzi

Fauzi — Thu, 19 Feb 2009 03:17:37 +0000

For a start, this could be one of the option. Obviously, this should only ’safely’ applied if some one had measured the risk involved, particularly their nett take home pay, potential rental opportunity and list of ‘what if’, i.e loosing a job, no rental income in future etc etc..

By: Jacques

Jacques — Thu, 19 Feb 2009 00:18:13 +0000

The exact same reasoning US home owner had since 2000
We saw where it lead them….

Instead of piling up properties and loans, why not diversify and max out a good fixed deposit and/or invest in regional index tracking funds?