Home Loan Tips for the Self-Employed

Are you self-employed? In Singapore? Congratulations; you either have brass genitalia, or the opportunistic instincts of a starved vulture. Self-employment isn’t the easiest route in this city, and if you can make it, you deserve a nice house. But before you take out your loan, I suggest you weigh the state of your finances: Cash-flow and security have to come first, especially in our little den of financial predators:

 

Financial calculations

Just keep saying it: At least I’m no longer a wage slave. At least I’m no longer…

 

Extra Concerns for the Self-Employed

You could have been a corporate drone or government bureaucrat, with a nice steady job. You could have been paid for typing pointless reports, or approving bicycle purchases with zero investigative effort. But no, you had to go and use your brain.

Now you’ll pay the price. When you’re self-employed, there are other factors you need to consider for your home loan:

  • Be Extra Cautious with Cash Out Refinancing
  • Choose a Fixed Rate
  • Consider Mortgage Insurance
  • Meet in Person, Not On the Phone

 

1. Be Extra Cautious with Cash-Out Refinancing

Cash-out refinancing is a way to get money out of your house without selling it. This is basically going up to a bank and saying:

“I borrowed $1 million for my house. It’s grown in value now. Can we say I borrowed $1.2 million for it instead, and then you hand me the difference?”

Then the bank hands you the difference in cash, with a complimentary shovel so you can dig yourself further into that hole.

 

Old chinese man

“And please accept this $10 voucher for reaching your 10,000th loan repayment.”

 

Cash-out refinancing is appealing to self-employed businessmen, who often think that, hey, this cash-out thing sounds way easier than looking for funding. Why look for investors when I can just cash-out my home?

Because by cashing out, you’re staking your house on the outcome of the business. That’s why. It can also mean higher loan repayments, as your loan quantum has grown.

Property investor Charlie Sng says:

“Your house should not be treated as if it is a credit card. Every time you extend your home loan, you are losing money. The capital appreciation of your property is being squandered on the interest payments.

Never forget that money from the cash-out is borrowed money. Investing borrowed money is one of the fastest ways to go broke; especially if you are cashing-out to support a failing business.”

 

2. Choose a Fixed Rate

 

Written budget on palm

I do a lot of strategic wealth allocation.

 

If you’re running a start-up, or your business is less than five years old, consider a fixed rate.

In case you haven’t noticed, banks aren’t paragons of patience. They’re really not interested in how bad the market was this month, how your business is having shipment issues, or how you’re being held hostage in a container ship in Somalia and can’t get to an ATM. They don’t care.

Home loan due, money in. That’s all they’ll accept.

Problem is, most self-run businesses don’t have predictable performances. And I can think of any number of things more regular than a start-up’s revenue; like the toilet schedule of an elderly incontinent cat.

By getting a fixed rate package, you’re eliminating a variable. A fixed rate allows you to plan and set aside several months of repayments.  This will help to weather dry spells, and buy you time if the business heads south.

To get the better fixed rate packages, check the free loan comparison sites, like SmartLoans.sg. Or you can follow us on Facebook; we talk about loans a lot.

 

3. Consider Mortgage Insurance

 

Sprained finger

“I’m a musician, I’ll never be able to work again. Yes, I’m lead singer, but that’s irrelevant.”

 

Private insurers usually have policies that cover loss of income. If you have one of these policies, you might give mortgage insurance a miss. But such policies are expensive, and not available to everyone.

Mortgage insurance is fairly cheap, and easy to qualify for. It’s a form of reducing term insurance; should you lose your income and be unable to work, it will pay the remainder of your home loan. Most mortgage insurances are fully paid before the end of the end of the loan tenure.

For example, if your home loan tenure is 30 years, your mortgage insurance might be paid by the 26th year. After that, you’re covered for free in the last four years.

Mortgage insurance is a priority for the self-employed, because you folks haven’t got company insurance have you? And if you want standard life insurance to cover loss of income, you’d best be swimming in money. Premiums for life insurance are already extortionate, without adding extras.

 

4. Meet in Person, Not on the Phone

 

Foriegner on the phone

“Hi, I’ve just got 3 minutes left on this phone card. Could you loan me $1.5 million real quick?”

 

When stating your income, try to give it more time than a three minute phone conversation. Likewise, don’t assume a banker or broker can figure out your complex accounts.

Bankers aren’t allowed to give advice without clearing corporate communications. And I can’t name the person who told me:

“We also want to help you to get your loan. But a lot of self-employed people resort to a lot of shenanigans. The most common one in Singapore is that they don’t declare their full income. Because they are scared of alerting the tax department.

But if you don’t want to tell us how much you really make, how to give you a loan? Probably you will end being able to borrow a lot less. Sometimes we cannot disburse the loan at all, because something doesn’t tally.

For anyone who is self-employed, I would encourage them to meet their bankers privately and explain things. It might be more inconvenient, but on our side, at least we can understand what’s going on. We can explain to credit officers or our higher-ups.”

Image Credits:
tachyondecay, bureau36, Inha Leex Haleetagwerker, believekevin

Are you self-employed? Comment and tell us how you handle your home loan!

Get more Personal Finance tips and tricks on www.MoneySmart.sg

Click to Compare Singapore Home Loans, Car Insurance and Credit Cards on our other sites.



More From MoneySmart
Loading...

Editor’s note:Yahoo Philippines encourages responsible comments that add dimension to the discussion. No bashing or hate speech, please. You can express your opinion without slamming others or making derogatory remarks.

  • Fight fans sue Pacquiao over injury
    Fight fans sue Pacquiao over injury

    Two Nevada men filed a class-action lawsuit against Manny Pacquiao, seeking millions in damages because they say he fraudulently concealed a shoulder injury before his defeat to Floyd Mayweather. It is just the latest fallout from Mayweather's victory in Las Vegas on Saturday in a unanimous decision, with Pacquiao saying afterwards that the shoulder complaint hampered his performance in the welterweight world title showdown. The plaintiffs argue that by failing to go public with the injury …

  • Noy leaves for US
    Noy leaves for US

    President Aquino leaves today for the United States to begin his three-day North American trip that will culminate in a state visit to Canada. The President departs at 8 a.m. on a chartered Philippines Airlines flight to Chicago for a one-day working visit. From Chicago, the President will proceed to Canada where he and Prime Minister Stephen Harper will witness the signing of bilateral agreements on labor cooperation, development assistance and infrastructure development. Canada is home to …

  • China accuses Phl of violating South China Sea Code
    China accuses Phl of violating South China Sea Code

    China has accused the Philippines of violating a 13-year-old informal code of conduct in the South China Sea with its building work on disputed islets, firing back again after repeated criticism of China’s own construction work. China and the 10-member Association of Southeast Asian Nations (ASEAN) signed an agreement in 2002 to refrain from occupying uninhabited reefs and shoals in the sea, and from building new structures that would complicate disputes. In a statement released just before …

  • Noul to bring stormy weather to central, northern Luzon
    Noul to bring stormy weather to central, northern Luzon

    Tropical storm  Noul  (international name) will bring stormy weather to the eastern section of Central and Northern Luzon this weekend, as it slightly gained strength and moved westward toward the Philippine area of responsibility yesterday. Rene Paciente, Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA) senior weather forecaster, said the eastern section of Central and Northern Luzon, including Aurora, Isabela and Cagayan, may experience rains with gusty …

  • House asked to allocate P500-M legal aid for OFWs
    House asked to allocate P500-M legal aid for OFWs

    The House of Representatives was asked yesterday to appropriate P500 million for legal assistance for distressed overseas Filipino workers (OFWs). Reprieved death convict Mary Jane Veloso mirrors the tragedy of many OFWs in search of better job opportunities abroad “who become victims of human and drug trafficking and other forms of exploitation,” according to Bill 5704 that the seven-member Makabayan bloc of lawmakers had filed. The lawmakers said Veloso’s family claims that they were not …

  • World’s best place to be a mom: Norway is tops; Phl 105th
    World’s best place to be a mom: Norway is tops; Phl 105th

    Norway ranks as the world’s best place to be a mother, well ahead of the United States, which dropped to the 33rd spot in the annual scorecard released by Save the Children on Monday. Somalia is the worst place, just below the Democratic Republic of Congo and the Central African Republic. The Philippines placed 105th out of 179 countries, but the Save the Children report, which profiled Metro Manila among other cities, said that the National Capital Region has done better than most megacities …

  • Philippines' largest telco sees costly, painful fight
    Philippines' largest telco sees costly, painful fight

    Philippine Long Distance Telephone, the country's largest telecommunications firm, said Tuesday it expects to spend nearly $1 billion in a "painful" fight to survive the consumer shift to digital from traditional phone services. The listed company said net profit for the first three months of the year was flat at 9.4 billion pesos ($211 million), and the full-year net profit would likely fall below the 34.1 billion pesos it posted last year. "It's either we pivot or we perish," PLDT chairman …

  • China says Philippines violating South China Sea code

    China has accused the Philippines of violating a 13-year-old informal code of conduct in the South China Sea with its building work on disputed islets, firing back again after repeated criticism of China's own construction work. China and the 10-member Association of South East Asian Nations (ASEAN) signed an agreement in 2002 to refrain from occupying uninhabited reefs and shoals in the sea, and from building new structures that would complicate disputes. In a statement just before midnight …

POLL

Should Aquino be held accountable over the Mamasapano operations?

Loading...
Poll Choice Options