In our earlier blog entry on Who will be Hardest Hit by 3.5% Interest Rate, we identified the homeowners most likely to be affected by the interest rate uncertainty brought on by the possible removal or reduction of the United States Federal Reserve Quantitative Easing measures.
Since then, there has been a succession of other events and articles that reinforce our expectations. As reported in Yahoo, several banks in Singapore have either raised interest charged on their fixed-rate home loans or abolished such loans altogether. We, at BLUTA, expect more banks to do so in the coming weeks. Another recent article by CNBC also discussed the dangers of Singapore’s soaring household debt and point out that “the 10-year Singapore government bond yield has risen to 2.5 percent from 1.4 percent in May”.
Do we need to prepare for this? Of course, the million dollar question here is the probability of the interest rates rising and the extent that they do. Some homeowners will need some concrete evidence before even consider making provisions for it.
We do not have the answer to that question specifically, but for those who are aligned with us on the on our expectation that interest are soon to be heading north, now is a good time to start preparing for it and hopefully reduce the impact of it on our daily lives when it becomes a reality. For those who have followed out articles and in so doing, have identified yourself among the “at risk” groups, the following suggestions will probably be very prudent measures to adopt – the sooner the better.
To start and if at all possible, we must first reduce the actual exposure to interest rate shock. How? Well you may:
(a) Reduce the number of properties owned
Yes, even if you are a multiple property owner, you may not be immune to interest rate shocks. Many others have similarly fallen during the crisis of 86 and 97. So if you are indeed the few fortunate ones to have multiple properties today, it may be a good time to review and consolidate your portfolio.
(b) Downgrade your property
Some of us may be occupying a house or apartment that is more spacious or have more rooms than absolutely required. This will put you in an enviable position and a prime candidate to consider downgrading. However, do bear in mind that you MUST consider the often complex and numerous considerations when downgrading. It is most important that you also ensure that you do not erroneously put yourself into a worse position in your quest to downgrade. For example, downgrading from the established central core region to the new outer non-core regions, where some home prices have spiked up and in certain cases, even more so than the central core region, is likely a bad idea as capital losses may be more intense in these outer lying areas.
(c) Pay down the loan(s) for your property(ies)
This is something that may be a luxury that many cannot even consider, but if you are the lucky few, it may be worth your consideration. However, before embarking on it, please ensure that the remaining cash and cash flow will still be sufficient to provide for most foreseeable crisis situations.
(d) Replace that floating rate loan with something more fixed.
As mentioned earlier, some banks have already adjusted their offerings and the choices for fixed rate loans are starting to become limited. So, if this option is viable for you do you comparisons of the suitable loan and act on it now if not in the very near future.
(e) Keep that HDB Loan
If your current home loan happens to be granted by HDB, keep it. The interest rate fluctuation with HDB loans tend to be less volatile and it is not uncommon to hear that HDB may have more empathy for those in arrears than the commercial minded banks – we do know that some may contest the validity of the last point, but if this situation applies to me, I will place my bet on keeping the HDB loan.
Well so much for those lucky few who can reduce their interest risk exposure with the measures above. For those among us who cannot do as earlier suggested, you are not left without options to mitigate matters. You may:
(f) Start saving more by reducing expenditures
Well some may say that it may be too little too late. Yes, that may be true at the point of impact, but if we are to start now, before the expected reality is upon us, we will nonetheless be in a better situation than otherwise. Look hard and cut deep if your situation looks unfavourable. Ask yourself if certain luxuries like the car, annual holidays, enrichment classes or such are indeed necessary. If not, consider reducing or even cutting them out altogether.
Do not fret if the above items do not even feature in your or your family’s lifestyle, there are still plenty more to do in this respect. You can still look into the daily expenses and budgets for grocery, eating out or entertainment and look for that extra savings.
These are just a few simple suggestions that may go a long way and you will do even better if you ask for help in reviewing your expenses. Get someone practical and have them to help put your itemised spending in perspective. Go for the jugular and cut those expenses to the minimum if needed.
(g) Look for another source of income
Last but certainly not least, especially for those whose income source is at risk, getting another job may well be your biggest lifeline. It does not need to be as drastic as abandoning your established career altogether, but getting that second job or getting your homemaker partner a job now may, on one hand, help build up your savings with extra income and the on other hand, turn out to be your only source of income when the economy tanks. Another advantage of hunting for a second job or the extra source of family income now, is the fact that jobs are hard to come by if not completely unavailable in bad times. Of course the follow-up trick to that is how to hold on to that job when the time of needs comes.
We recognise that our suggestions do not fit everyone and there are many other ways and means to deal with the interest rate risks ahead. For that we welcome you to leave your suggestions in the comments section below, or reach us on our social media channels, Facebook, Twitter, and Google+.