What is term loan?
Term loan (also known as equity loan, gear up, cash out) is the process of taking cash out from a loan by pledging your property to the bank. Term loan is only available for private property.
Why does homeowners take term loan?
Homeowners take term loan for cash flow purposes.
The benefits of term loan are
- High loan amount: You can take up to 80% of the value of your property
- Low interest rate: The interest rate is same as the home loan interest
- Longer repayment period: Some banks allow you to take up to 30 years to repay
Who should consider term loan?
Homeowners who need cash for personal use and have a property that has a low outstanding loan or fully paid.
What are the costs involved when taking a term loan?
Homeowners need to pay legal, valuation and fire insurance, which is about $3000. Some banks are providing subsidies to these.
What is the formula to calculate term loan?
80% of property valuation – total outstanding loan (if any) – total CPF used and interest (if any) = Total term loan available
Take note that the formula varies from banks.