Interest only Loan

[kohbheng]

Hi Dennis,

Thank you for the wonderful enlightening talk during the recent Graduate Meeting. During the discussion, you mentioned that Interest only Loan is popular in UK. What is your opinion on the Interest only Loan? Why is it that not many banks in Singapore is offering this scheme? What are the potential risks and advantages of Interest only Loan over the current market practice?

Thank you,

kohbheng.

[Dennis Ng]

Hi Dennis,

Thank you for the wonderful enlightening talk during the recent Graduate Meeting. During the discussion, you mentioned that Interest only Loan is popular in UK. What is your opinion on the Interest only Loan? Why is it that not many banks in Singapore is offering this scheme? What are the potential risks and advantages of Interest only Loan over the current market practice?

Thank you,

kohbheng.

Hi Kohbheng,
Interest Only Loan as mentioned is popular in UK becos of property investors want to cut tax since income tax in UK is high.

The risk of Interest Only Loan for Banks (Lenders) is very high, which is why in Singapore, most banks only agree to 1 years to max 3 years of Interest Only, and you cannot get 20 to 30 years Interest Only Loan.

Anyway, Mah Bow Tan has disallowed interest only Loan since Sep 2009.

The risk to borrower is if the person does NOT know how to plan his finances properly and did not set aside money to pay for the "principal loan amount" which will be due "Ultimately", then he might end up in financial trouble.

This is why in UK, banks "make it compulsory" for borrowers who take interest only loan to have a "forced Savings Plan" by getting them to Buy (save) through UK Endowment plans.

When a UK property investor sells his property and paid off his property loan, thus, he holds UK Endowment plans which he no longer needs, this is why there is a Supply of UK "Traded" Endowment Policies (Secondary market Endowment Policies) in UK, to the tune of about 1 billion pounds per year.

[Balim05]

Hi Dennis,
What are the potential risks and advantages of Interest only Loan over the current market practice?
You missed this question.

[Dennis Ng]

Hi Dennis,
What are the potential risks and advantages of Interest only Loan over the current market practice?
You missed this question.

it's already covered, the main advantage is it can be used tax planning; it also minimises the Cash outlay for the investor, and thereby increasing Returns on Investments.

The risks also covered in my above posting. Please re-read.