A Very Strong, Truly Unbiased article on why you should never DIY your mortgage

Updated: Oct 11

Not a lot of people know this, but I went to Poly and my background was not in Finance.


It was in Creative Writing for TV and New Media (Singapore Polytechnic) and…I basically forgot everything. They taught me website design, how to write well on a new media medium (still not quite there yet) …


But most of all, they taught me how to do objective writing.


If you’ve been on Money Maverick long enough, you know that I promptly took 3 years of learning this and tossed it out the window.


I promote myself and what I sell every appropriate, and occasionally inappropriate, chance I get.



For example, this 24.2% fund that I offer net of expense ratio.

In my course, you quickly learn that objectivity, or unbiasedness, is a total lie.


I went into a course thinking I’d learn to be objective, and it took 3 years to learn that proclaiming ‘unbiased’ is for idealistic children.


It’s why I love money and the study of money – Money teaches you where your heart really lies.


And ‘Unbiased’, is a lie.


…Or so I thought.


Mortgage


A person’s mortgage is one of the largest purchases, if not the largest, that they will make in their lifetime.


Close to 80% of the population own the HDB that they live in, or over 96% of people who live in HDBs are paying a mortgage on it. The statistics are likely similar for private properties.


Like insurance, what happens with a purchase that seems inevitable is that many people will try to figure out how to maximize their value for dollar.


Typically for something like interior design, for purchasing property, for buying insurance – most people would consider a licensed professional for advice and recommendations.


Others would consider DIY – in order to save costs.


So we break it down into two primary options:

Consultant vs DIY. Ish.

I’m sure there will be some debate on this, but DIY advantages basically boil down to a potentially higher objectivity (since you tend to know what you want better) and a lower cost.


But what if had a licensed professional which provided both the objectivity AND the lower cost?


What if someone were truly unbiased because the most incentives were provided for them to be as much?


A Truly Unbiased Professional


A Mortgage Specialist is an intermediary between a lender and a borrower who needs a mortgage loan. To operate in Singapore, they are licensed under MAS (Monetary Authority of Singapore).


Basically, they do for you what you were going to do anyway – source out the best private loan for you (unless you were going to do HDB loan already) to help you lower the cost of interest over that loan.


For a huge purchase like a home, a favorable interest rate is extremely important.


Take a typically scenario for the average Singaporean - A $500,000 loan over 25 years at a 2.6% interest rate (your CPF loan rate) will result in you paying a grand total of $180,505 in interest.



By dropping your interest rate down by a mere 0.4% (2.2%), your total interest over 25 years is reduced to $150,487 – or over $30,000 in savings.



If you invest that amount with me across the same period – about $1200 a year for 25 years – at a 7% annualized rate, you could have over $81,000 instead.



We haven’t even looked at larger loans, or interest rates that are lower than that – which are certainly difficult, no doubt, but not impossible.


For context, the benchmark interest rate was last recorded at 1.88%, and even lower at 1.66% across the last 30 years.*


After all, that is why you’re reading this article – you’re at least a LITTLE interested in figuring out how to save that money.


I don’t know about you, but I would love to have that $30,000.


Here’s why you should use a Mortgage Broker instead of DIY.


1) Truly Objective


Unlike yours truly or a banker, a Mortgage Specialist gets paid according to the size of the loan.


This means that the broker has no incentive to offer you any particular bank from the 16 banks that offer mortgage loans.


In fact, because they want your business again when you have your inevitable refinancing, they would be truly incentivized to offer you the best deals they have available.


They are also unable to take incentives from banks or bank representatives.


2) No (Additional) Cost


Your next concern might be the fact that you’re utilizing a licensed professional, it would cost you extra – not unlike if you were paying my fee or a real estate agent’s.


This is subverted by the fact that a Mortgage Specialist’s cut is from the bank that you have selected.


In other words, it literally costs you nothing more to utilize their service than what you were prepared to pay anyway if you decided to DIY.


3) Higher Quality Service and Advice


This is my favorite part – because as a generalist in this area, I can see how a specialist operates.


Let’s look at this particular case study.


Mr Lim has a $450,000 outstanding loan, and he wants to refinance with a bank instead of continuing his CPF loan (2.6%).


He does a DIY comparison online for what kind of ‘fixed’ refinancing rate he can get. Immediately, this pops up on the screen:


1) Bank C: 2.13%

2) Bank H: 2.18%

3) Bank S: 2.23%


I have marked the lowest interest rate to the highest interest rate in order.


A DIY person might take the interest rates at face value. Since Bank C is clearly competitive, I’d thank the software and snatch up the loan.


However, a Mortgage Specialist is trained and licensed to dish out professional advice on these matters, such as other considerations you might have missed out. Let’s look at what happens when he does a holistic comparison:


Bank C:


Difference in Interest: 2.6% – 2.13% = 0.47% (difference in interest)


Gross Savings Per Year: 0.47% x $450,000 = $2115


Total Gross Savings: $2115 x 2 = $4230 (Gross Savings for 2 years, based on 2 years as loan package has a lock in period of 2 years)


Total Net Savings: $4,230 – $2,000 (Legal fee without subsidy) - $500 (Valuation Fee) = $1,730 (Nett Savings for 2 years, $865 per year)


Bank H:


Difference in Interest: 2.6% - 2.18% = 0.42%


Gross Savings Per Year: 0.42% x $450,000 = $1890


Total Gross Savings: $1890 x 2 = $3780 (Gross Savings for 2 years, based on 2 years as loan package has a lock in period of 2 years)


Total Net Savings: $3,780 - $1,000 (Legal fee with subsidy) - $500 (Valuation fee)= $2,280


Bank S:


Difference in Interest: 2.6% - 2.23% = 0.37%


Gross Savings Per Year: 0.37% x $450,000 = $1665


Total Gross Savings: $1665 x 2 = $3330


Total Net Savings: $3,330 - $200 (Legal fee with subsidy) - $500 (Valuation fee) = $2,630


The end result? The highest interest rates on paper have the highest net savings, while the lowest interest rates on paper had the lowest net savings. [This line is NOT advice or trend]

1) Bank S (2.23%): $2630

2) Bank H (2.1%): $2280

3) Bank C (2.13%): $1730


Factors like legal fees and valuation fees can be easily missed, along with other factors such as the refinancing packages available after.


But let’s say you’re really, really good and you catch them all – there’s still my favorite reason for engaging their service.


4) Even Lower Costs


Other sites have not been shy about this, but because Mortgage Specialists help to streamline and make the loan process more efficient, they are in a good position to negotiate loans.


This means that through a Mortgage Specialist, you potentially have access to a loan that is even more favorable or discounted than the most favorable rate you can find trying to DIY.


That cheapest loan that you found online? You could get an even lower rate through a specialist.


And as you now know, every 0.1% amounts to literally thousands of dollars.


Conclusion


A mortgage specialist is an amazing value proposition because it costs you nothing to have tons of potential upside.


I haven’t even gone into all the time that they will save you from their analyses and recommendations prior and after the loan, or the faster speed of completion from starting your loan process to putting it in place.


The highest risk to you is if the specialist is incompetent, of which there are limits.


That’s why for writing this article, I enlisted the help of a professional who I admire and respect very much – Cameron Wang Liang from VOY.



…I’m not sure how I feel about the name of the company, but as a broker, Cameron stands head and shoulders above others that I’ve spoken to.


This post is not sponsored, and I get absolutely no referral fees of any kind.

As you know, every article that I write here is simply for the benefit of my current clients, my would-be clients and for people to utilize my services for their financial gain.


The following is strictly opinion. If you would like details or formal advice on your mortgage, I will be happy to refer you to Cameron - someone who I trust and whose abilities I respect.


He will in turn, help you save more so that it frees up your cash flow for me to help you with further wealth solutions, so that you can do things like attain Financial Freedom sooner.



Money Maverick

As one of the Top Financial Bloggers in Singapore (Feedspot, Withcontent.co), I would be happy to answer any emails and questions you may have, as I have been doing for my readers over the past few years - especially about Insurance and Investing, as it is my forte of personal and professional knowledge.


If you have any such questions about the articles and how it may apply to your finances, you can feel free to leave a comment, or drop a message through any preferred medium (if you prefer privacy).


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Money Maverick is a Licensed Financial Consultant with MAS, who specializes in Investments and Critical Illness Insurance.


The views on his blog are strictly of his own opinion and have no affiliation to any of the companies he works with.


Here are some of my resources on:


1) Investing: Why you should invest aggressively NOW (and how you still can have peace of mind)


2) Insurance: The Newest, Rising Critical Illnesses in Singapore (2019)


3) Retirement and Leverage: Leveraging a Private Annuity, Pros and Cons (ft. Jamus Lim)


4) Spending and Saving: The Biggest Spending Mistakes You DIDNT Even Know you were Making (and how to avoid them)


5) Job Assessment: A Case Study on How a $6k/mth GIrl makes MUCH more money than a $10k/mth Guy


6) Financial Optimisation: How I Avoid the Largest 'Fees' of All


For Cameron:


+65 9172 7859 cameron@voy.sg

6 Raffles Boulevard, Marina Square, #03-308 S039594



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Sources

1) https://tradingeconomics.com/singapore/interest-rate*


2) Mortgage Guru - 2.6%, 2.2% interest rates



The views, opinion and information in all articles are those of the author. These materials do not represent or reflect the views of Manulife Financial Advisors nor is endorsed by them. Manulife Financial Advisors shall not be liable or responsible for the materials of the author.

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