Mortgage refinancing has its problem. In fact, it is the people who uses this financial tool indiscriminately that creates the problem.
The housing debt to equity ratio (also called loan to value) increases when homeowners refinance and tap into their home equity through a second mortgage or home equity loan.
As of 2006, several areas of the world such as US are considered by some to be in a housing bubble state. Major causes of the bubble include overvaluation and excessive borrowing based on those overvaluations, which increased the debt to equity ratio of most houses rapidly.
Eventually when the bubble bursts, and house value drops, the debt to equity ratio of most houses become negative. This triggered a dramatic rise in mortgage delinquencies and foreclosures in the United States, and then the well-known subprime mortgage crisis, with major adverse consequences for banks and financial markets around the globe.
The crisis became apparent in 2007 and has exposed pervasive weaknesses in financial industry regulation and the global financial system.
Cheers
OngKL
· 10 months ago
Thank you, Jacques, for your comment on the article "How to buy additional properties with mortgage refinancing?" and for further sharing with us The Problem with Mortgage Refinancing.
Cheers
Jacques
· 10 months ago
Thanks Ong Glad to discuss this with you. My post is exactly to warn people who may use this financial tool indiscriminately, and too aggressively.
Fauzi
· 10 months ago
Hi Jacques, great discussion here. For diversification matter, yes, I do 100% agreed with you. Do not put all investment in one bucket. In fact, I would encourage people out there to stash their cash into safe heaven deposit likes FD, ASW, ASB. On top of insurance, I myself put 40% into guaranteed (liquid) savings instruments, 30% allocation for property and the rest in unit trusts, stocks and coop instrument. Some points that I missed out was perhaps, we should be extra careful when we opt for refinancing to grow our asset for instance, not simply buying because of sentiment, totally understand the market needs (rental return and potential capital appreciation in future) of the property that we buy, affordability base on our nett take home income etc.. And certainly, avoid greediness.. :-) Maybe you can share your practice wrt your investment allocation.. Cheers..
Jacques
· 10 months ago
Hi Fauzi. Good idea to share our portfolio break down here. For now we keep things quite simple. We focus with my wife is on topping up our mortgage reimbursement. The mortgage reimbursement surplus represent roughly 20% of what we would pay for rent. Another 30% goes into overseas FD and ASB. The remaining is invested in an offshore ILP with diversified funds, mostly index and trackers. Here you are :-)
OngKL
· 10 months ago
Yes, it's nice to share our portfolio here. Here is my latest personal investment portfolio since last quarter of 2008:
Real estate - 50% Precious metal - 20% Cash (FD, ASW, high yield savings) - 20% Stock & unit trust - 10%
I totally agree with Fauzi that one should avoid greediness when come to real estate investment. Affordability should be the first priority at this juncture, not excessive leveraging.
There are always opportunities out there and it is our responsiblity to equip ourselves with the right attitude, knowledge and options available to us.
Jacques, don't mind we link your blog from reijb.com? Thanks.
All Comments
The housing debt to equity ratio (also called loan to value) increases when homeowners refinance and tap into their home equity through a second mortgage or home equity loan.
As of 2006, several areas of the world such as US are considered by some to be in a housing bubble state. Major causes of the bubble include overvaluation and excessive borrowing based on those overvaluations, which increased the debt to equity ratio of most houses rapidly.
Eventually when the bubble bursts, and house value drops, the debt to equity ratio of most houses become negative. This triggered a dramatic rise in mortgage delinquencies and foreclosures in the United States, and then the well-known subprime mortgage crisis, with major adverse consequences for banks and financial markets around the globe.
The crisis became apparent in 2007 and has exposed pervasive weaknesses in financial industry regulation and the global financial system.
Cheers
Cheers
Glad to discuss this with you.
My post is exactly to warn people who may use this financial tool indiscriminately, and too aggressively.
For now we keep things quite simple. We focus with my wife is on topping up our mortgage reimbursement. The mortgage reimbursement surplus represent roughly 20% of what we would pay for rent. Another 30% goes into overseas FD and ASB. The remaining is invested in an offshore ILP with diversified funds, mostly index and trackers. Here you are :-)
Real estate - 50%
Precious metal - 20%
Cash (FD, ASW, high yield savings) - 20%
Stock & unit trust - 10%
I totally agree with Fauzi that one should avoid greediness when come to real estate investment. Affordability should be the first priority at this juncture, not excessive leveraging.
There are always opportunities out there and it is our responsiblity to equip ourselves with the right attitude, knowledge and options available to us.
Jacques, don't mind we link your blog from reijb.com? Thanks.
Cheers