Cap Yourself Properly for Protection

By: Zeng Han Jun, CPCG, Singapore

Landlords are suffering from the lack of tenants right now. Lists and lists of property advertisements displaying "For Rent" sign bombards every property agencies right now. Faced with this kind of market, landlords with outstanding loans have started to fork out their own money for mortgage payments. Many more are arranging to refinance their home loans, reducing their monthly installments, hoping that it can ease away some of the pain.

Before you rush out and start to negotiate for a refinance right now, why not take a moment and think through a couple of things first?

Benchmark Rate

Many people are glad that packages that are pegged to Sibor are easily available. Sibor packages allow for greater transparency with regards to its movements and allow consumers to at least make a guess as to how is it going to shift in the future. Sibor is also at its historical low now and definitely looks very attractive as a benchmark rate. How about in the near future? Well, it is a question that is very difficult to answer. If you or I can answer such questions, we would not have to spend our time working anymore. No one is smart enough to guess how will the rates move, but during the last financial crisis, Sibor occasionally spiked up to 7% or even higher. What if your loan is a 12 month Sibor, and the rate spikes up to 12% on your rates adjustment date? That means you will be paying for interest rate that is more than 12% for the next one year!

Let's say your home loan is structured at Sibor + 1%, that means that you will be forking out payments at interest rate of 8%, if Sibor turns 7. %. 3 months Sibor has been meandering at levels below 0.8%. How low can it get? How long can it sustain at that level? It is a question that will reveal itself in the near future.

What can I do?

As a real estate investor, the smart thing to do right now is not just to refinance but to refinance with the right kind of financing structure. Certain types of home loans are structured with a capping function. Example; Bank XYZ promotes a home loan with interest rate at Sibor + 1% for the three years, with a 3% cap on the Sibor rate. In the event that Sibor rise to 7%, you do not pay 8%. Instead you will service your mortgage at 4% because your Sibor is capped at 3%.

Stay capped. Have protected real estate investments.

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California, USA--March 12th 2009--According to the latest figures, American unemployment rate has risen to 8.1% which is the highest since 1983. In fact, the US Labor department announced that 651,000 jobs were lost in the month of February 2009 alone, making it the third month in a row where more than 600,000 jobs have been lost.

While this is bad news for the entire economy, the already battered real estate sector especially has been moaning about the latest job loss figures. The industry was hoping that they would see a turnaround in their fortunes with the latest mortgage stimulus plan announced by President Obama but with more job losses on the cards, analysts fear that this will definitely lead to more foreclosures. Homeowners who have already applied for a home loan modification are waiting anxiously to see the outcome of their applications since more bad news is coming in almost everyday.

Loan modification consultants believe homeowners who are struggling with their mortgage payment but still have a job or income coming in should not waste any more time and start with their home loan modification applications immediately as the future seems extremely uncertain for everyone.

Organizations like California based The Loan Modification Foundation have been advising homeowners to get their necessary documents in order and create a list of problems facing them with their mortgages. This will help banks and mortgage lenders speed up the loan modification process and help get a better monthly mortgage plan or a better interest rate.

With the news of the latest round of job losses, it is more important than ever to make sure you have your loan modification applications absolutely up to the mark as prescribed by the banks and its absolutely imperative not to lose out on any more time. by Bridget Toomey