Interest-free Cash loan for 30 days

While funding for my stock purchases after T+3 recently, I discovered I can pay through my credit card. It is not considered as a cash advance, but as a "swipe" card process that is equivalent to swiping your card in restaurants or retail malls.

The only bank in Singapore that allows you to do this is DBS/POSB. You go to internet banking and go to Bill Payment. As my stock broking firm is Phillips, I add a new biller Phillips, my account number is 20(broker code)(6-digit login). For eg, 20XR123456. After I do this, the amount will go into my Phillip Cash Management Account. This cash management account is your account for debiting/crediting when you buy share or sell share respectively.

The trick here is that I have tried 2 times using this bill payment method to pay for my stock purchases. As playing contra for stocks is usually T+3 to T+5, I can now extend the contra period to 1 month simply because I only need to pay back the amount 1 month later when the credit card bill comes.

If you are not buying shares, you do the same thing "swipe" the card to pay to your Phillip cash management account. Afterwhich, you can log on to phillips online and transfer the money in your account back to your POSB savings account. In this case you are actually borrowing the money free of charge. But remember to pay back when the bill comes.

Facilities required:
1) Phillips online trading account aka POEMS (no initial deposit needed for opening)
2) DBS/POSB credit card
3) POSB internet banking

Limitations: Amount you can take is limited to your credit limit which is 2 times of your monthly salary. And you have to repay in full when the bill comes, else normal credit card interest charges apply.

Additional benefit: If you can't repay in 30 days or lesser when the credit bill comes, you can do a balance transfer to other banks at 0% interest pa, but with one-time processing fee of about 6% or lesser. But afterall, this is still cheap cash loan compared to Cash Advance at 24%pa

Lianhe Zaobao article

There's this article in Lianhe Zaobao encouraging taking up of home loan now.

It can be found at http://www.zaobao.com/finance/pages1/comment080727.shtml

Just in case this website is taken off, I'll paste the contents below:

贷款买房好时机

李韵琳 (2008-07-27)

在通货膨胀节节高涨的时代，有保值能力的房地产是投资者的避风港。

　　一般上，高通胀会碰上利率上升的情况。然而，在美国次贷危机的影响下，目前的贷款利率偏低，我们正处于负实际利率环境，制造了贷款买房子的好时机。

　　贷款咨询网站www.HousingLoanSG.com的创办人吴加万受访时指出，高通胀碰上负实际利率（negative real interest rate）是前所未见的情况，目前贷款买房子的人比不贷款的人来得好，而市面上没有任何贷款比房屋贷款更低。

　　怎么说呢？金融管理局日前将我国全年的通胀率预测从5％至6％调高到6％至7％。目前的房屋贷款配套，即使是利息最高的固定配套，利率都不超过4％，这要比通胀利率来得低。换句话说，与其用现金去买房子，不如向银行贷款，而把现金投资到其他地方，你其实能“赚”多达3个百分点（7％-4％）的利息。

　　为了增加市场的透明度，除了传统的现行利率（single board rate）挂钩配套，本地和外资银行自2006年底陆续推出与公开利率挂钩的房屋贷款配套，包括公积金储蓄利率、银行同业拆息率（SIBOR）、新元掉期利率（SOR）等。

　　在目前的低利率环境中，你应该与哪种利率挂钩？哪种配套能让你节省利息开销？

与银行同业拆息率／新元掉期利率挂钩

　　银行同业拆息率（SIBOR）是指银行间的短期资金借贷利率，间接影响银行给出的房屋贷款利率。新元掉期利率（Swap Offer Rate，简称SOR）则是把美元利率与汇率也考虑在内的贷款利率。

　　随着美联储几度降息，本地3个月银行同业拆息率今年以来已从3.5％下降至日前的1.25％，为2004年以来的最低水平。

　　申请SIBOR/SOR挂钩配套的客户，可根据自己的需求，选择锁定3个月或12个月的SIBOR/SOR。

　　3个月SIBOR/SOR挂钩的配套，利率和每月偿还的贷款，每三个月就要调整一次。如果是12个月SIBOR/SOR，则是一年调整一次。

　　吴加万指出，如果选择12个月SIBOR/SOR挂钩配套，你接下来一年就不必担心利率波动，类似一年固定利率房贷配套。

　　不过，3个月SIBOR/SOR挂钩配套的利率较低。目前12个月SIBOR/SOR利率为1.8125％，3个月则为1.25％。

　　吴加万说：“如果你认为利率会维持在目前的低水平，选择3个月SIBOR/SOR挂钩配套能让你享受较低的利息。”

与公积金储蓄利率挂钩

　　星展银行两年前推出的POSB Home Ideal，是首个把贷款利率跟公积金储蓄利率挂钩的房屋贷款配套。贷款利率相等于公积金普通户头年利率，外加0.25％的利息差幅（interest margin）。

　　公积金普通户头（CPF Ordinary Account）的2.5％年利率自1999年7月以来保持不变，申请这个配套的贷款者将能享受更稳定的房屋贷款利率，同固定利率贷款一样不必担心有突如其来的利率调整。

　　比固定利率贷款更吸引人的地方是，这个配套能让贷款者随时偿还贷款而无需缴付任何违约金。

　　由于仅有星展银行提供这类配套，吴加万表示，除了选择有限外，贷款者必须有心理准备，银行有权调整附加的利息差幅，而公积金局也可能调高公积金储蓄利率或更改利率的基本计算方式。

　　他指出，银行在附属条文中列明，如果1个月的银行同业拆息率超过2.5％，银行就会把利息差幅增加一倍。换句话说，即使公积金储蓄利率保持在2.5％，如果1个月的银行同业拆息率超过2.5％，银行也会把利息差幅调高一倍。

　　此外，银行同业拆息率目前要比公积金储蓄利率低，而且公积金局每三个月检讨公积金储蓄利率，使用的是过去三个月的利率，存在时差。相比之下，SIBOR/SOR挂钩配套的是现时利率。

　　　　　与现行利率挂钩

　　传统配套的贷款利率调整速度一般比SIBOR来得慢，目前为2.75％，较一般3个月SIBOR配套所征收的1.85％利率来得高。

　　比如SIBOR于2003年6月到2006年6月之间从60个百分点飙升到350个百分点，而本地银行所征收的贷款利率仅为150个百分点。

　　此外，现行利率虽然基本上跟着银行同业拆息率波动，但是以不同的名堂出现，而银行也不公开如何计算这些利率。当银行认为有必要调整的时候便会调整，因此在利率波动大的时候，贷款者每隔几个月就会面对利率调整的干扰。

低利率不会长久持续

　　吴加万指出，虽然出现通胀问题，但美国次贷问题造成信贷紧缩，促使联邦储备局不得不维持低利率来避免美国经济走向衰退。此外，新元加速升值，外资大量涌入也将压抑利率上升。

　　他认为，这两个因素一正一负的作用互相抵消，因此未来6至12个月的利率将维持在2％以下。

　　考虑到利率将维持在低水平，比较目前市面上不同利率挂钩配套，从大图表可见，与SIBOR/SOR挂钩配套最实惠。

　　不过，吴加万劝告，低利率环境不会长久持续下去，买家千万不能以目前的低利率来衡量承担能力。以目前1.85％的利率来计算，你每月需偿还的款项仅为1738.39元，一旦利率回升到4％，你每个月就需支付2291.59元，每个月需多付553元。

　　他说，较实际的做法是以4％的利率来计算每月所需偿还的款项。这么一来，如果利率回升，你还是有能力承担较高的偿还款项。

《联合早报》
（编辑：苏亚华）

Taking a loan VS Pay by cash

I have come across many people wanting to use a lump sum to buy property when they can take up a housing loan. Many people like to be debt free, and sort of have some phobia of getting a loan from the bank. Some people also come to the bank and want to make a partial loan repayment whenever they have a lumpsum of money, as if owing the bank money is a very "suay" thing to do. But the truth is exactly the opposite. Here, I want to share some knowledge on why we want to take up a housing loan.

1) Because housing loan is a good debt on an asset, not a consumption.
Yes, your property is an asset, not a car or any luxury. Some mistaken car loan as asset loan, it is not. It is a liability because the value of car can only depreciate. Asset, on the other hand, will appreciate. Taking up a loan on an appreciating asset is always the right thing to do.

2) Because housing loan is the CHEAPEST loan you can ever find in the market.
No other loans can give as low as 3-5% interest rates in the market. Secured loans usually range from 6% onwards. Unsecured loans are at 24% by default.

3) Because housing loan interests runs by REDUCING BALANCE while your savings runs by COMPOUNDED interest
Many people failed to know this. Reducing balance VS Compounded interest, I leave it to you to google it yourself. A simple illustration, a man takes $500k loan for 20 years at 4%pa interest will pay a total of $227k interests, while he puts $500k at savings interest rate of only 3%pa earns a total of $377k interests. He is still better off with a net gain of $150k in 20 years despite lower yields on his savings!

4) Because housing loan is one of few that can be paid by CPF
We will not be able to use our CPF money until the retirement age. But when we are young, it is the time we struggle the most and need the money the most because it is our prime time and we are at the peak of our career and family planning. Therefore paying loan by CPF is a wise thing to do because we are using future money to help us. This may be controversial to our retirement planning. However, retirement planning can be done by making use of insurance and long-term investment plans.

5) Because you can invest the cash to gain higher returns than loan interest rates.
Equities and bonds investing has achieved historically good returns of 8% - 15% in a 20 years horizon. With effective wealth planning, getting 10%pa returns over the long term period is quite achievable

6) Because inflation rate is higher than loan interest rates
Inflation has been on a high of about 5%-7% since the start of 2008. Hence, future's money is less valuable than current money. While home loan rates are stil at 3%-5%, we still have net gains of about 2% by using future's money. For eg, if you can use $6 to buy a big breakfast meal today, one year later it may cost $8. So we use next year's $7 to pay for today's $6 meal first, and unnoticeably we gained $1 by leveraging on loan.

Why buy a HDB flat?

Many Singaporeans earn an income high enough to afford a private property. But I still recommend buying a HDB flat first even if you can afford a private.

The main objective is to earn government's money. For HDB flat, for new buyers you get $30k grant. If you live near parents, you get another $40k. If your past 2 years average income is less than 4k per month, you get additional grant from $5k onwards. All these grants come in the form of CPF.

Let's say your HDB costs 400k and you have government grants of 80k. Considering a 80% loan financing, you can borrow 320k. The other 20% govt pays it for you, you dont have to fork out a single cent from cash or CPF.

After 5 years you can sell away your HDB and buy a private property. You gain the government grants in your CPF account. Though you still cannot touch the funds, at least you gain 80k which can be used for new private home payment.