Honda Jazz 2009 Review @ 10000 km

Here’s my next and probably final review of the Honda Jazz 2009, after the 10000 km servicing, plus a long distance trip.

The Good:

  • Slight improvement of engine smoothness with engine oil change
  • Hit 500km on approximately 33L of petrol top up, which translates to about 15km/L. This comes from about 85% of highway driving on a long distance trip.
  • Relatively low 1.8k rpm to attain 80km/h, and 2.5k rpm to attain 120 km/h, on a mere 1.3L engine
  • Awarded 5 star Euro NCAP rating

The Bad:

  • Car developed rattle on probably the headliner in less than 6 months
  • Slow first to second gear change. Choose between going easy on the accelerator and allowing a drop to 1.5k rpm after the gear change before building up power (more natural but risk getting stares when the car behind overtakes), or step hard on the accelerator to keep the car moving, with the engine stuck at 2.2k rpm from the first through the fourth gear. Have to get used to being overtaken by vans and lorries
  • When ferrying 3 or more people, the car starts to feel like it is pulling a heavy cart attached using a rubberband. The car moves off reluctantly. Braking becomes much harder as well. The 1.3L engine seems to be designed to carry just 2 persons most of the time.

The Ugly:

  • Currently priced at about $68k, much higher than typical PI pricing at around $55k
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Another day, another record

SOR hits yet another low, at 0.59%. And this happens on my SOR-pegged home loan re-pricing date, bringing the interest rate down to 1.35% for the next 3 months. This is simply amazing. Previously i had been very tempted to switch over to the home loan package pegged to the 1-month SIBOR rate which, at 0.44%, plus the 0.85% margin the bank charges (for 1 year lock-in), stands at 1.29% overall. Compared to that, the interest rate i am getting, at 1.35% fixed for 3 months (3-month SOR) isn’t too bad at all. This translates to a whopping $210 savings in interest per month, wow..

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SOR at new low of 0.67%

SOR just broke through the previous recorded low of 0.68% set on 27 Nov 2008 to hit 0.67% on 27 May 2008, exactly half a year later. One of the driving factors for this is of course is the diving Libor, which happens to be hovering at a range (0.66-0.68%) similar to SOR. The fall in Libor itself may be attributed to cash infusion from the Fed and overall reduced risk aversion.

Meanwhile, the ten year treasury yield continues on an upward trend due to the US borrowing spree, though this is expected to be kept in check by a protracted exit from the recession and falling inflation. The treasury yield and Libor are somewhat linked, with the treasury yield leading, though this is not a strong correlation.

Here is what an analyst has to say about the dollar, treasuries and US government credit rating. Basically, the US dollar is already falling, and we have already seen that treasuries are also on the decline, sending yields higher. Lower confidence in the US government’s ability to repay debt will send interest rates higher as people seek higher returns for taking up more risk. Iceland is the classic example.

Coming back to interest rates in Singapore, it’s interesting to note that SOR has once again fallen to the same level as SIBOR, which is relatively rare. At this level, my home loan rate would be 1.45%, just slightly higher than those who took up the home loan that is pegged to the one month SIBOR, at 1.3%.

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US mortgage rate falls to record low

Quite a bit has happened in the past few weeks. The Federal Reserve took the unconventional step of buying treasuries in a bid to lower interest rates. It seems to have worked, as mortgage rates in the US to fell to a record low. Analysts expect Bernanke to continue buying treasuries and keep rates low. Nevertheless, there is always the possibility of the treasury bubble bursting. Bernanke himself came forth with a statement on the need to unwind the quantitative easing measures applied currently and combat inflation once the financial crisis is over.

SOR continued climbing this week, touching 1.37% on 31 March before receding back to 1.18% on 3 April. It is likely to come down in accordance with generally lower rates in the US. Sibor (3 months) on the other hand continues to hold steady at 0.69%. This proves to be a boon for mortgagees who have taken on the Sibor-pegged home loan. One bank even offers home loan pegged to the 1-month Sibor which is currently at 0.44%. With the 0.8% margin that the bank charges on top of the Sibor, the overall interest rate is only 1.24%. Sounds like a pretty good deal indeed. The deciding factor i will have to weigh before doing a refinancing is whether overall, taking into consideration the difference in interest rate and the legal fees incurred for the new loan, i will reap much more savings over my current loan. Based on the current SOR (3 months) and Sibor (1 month or even 3 months), the answer is a resounding YES. Looks like I should decide on this matter soon.

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SOR rising steadily

SOR has been on the rise, probably in tandem with Libor as well as USD/SGD exchange rates, while SIBOR continues to hold still at 0.69%. This highlights the difference between market vs. policy driven interest rates. In the past few days however, money market rates have fallen ahead of the US Fed meeting as they anticipate moves to keep borrowing costs low and spur lending.

Meanwhile, in the midst of supposed signs of rebound, the level-headed Jim Rogers gave warnings on impending inflation as “governments worldwide are printing money to prop up economies at a time when commodities supply is under pressure”.

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My Home Loan Report Card

My 4th and last SOR pegged Home Loan repricing for the year has just come to past. The re-priced interest rate moved up by 0.16% compared to the previous rate, which is a pity, but on the whole it is still not too bad. The chart above shows my home loan interest rates over the past year.

When the next re-pricing comes, my contract stipulates that the margin the bank charges will increase from 0.65% to 0.75%, which is quite significant. Nevertheless, it seems like it is still a better than what banks currently offer. Having completed the one year lock-in period, I will be free to consider refinancing again. Time for some legwork..

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Home loan rates on the rise

Having done the latest round of online survey, i noticed that generally home loan rates are on the rise. Given that SIBOR is quite low now, banks may be making up for it by charging a higher margin. Even though many loans are tied to SIBOR, I suspect that the funds made available for home loans are not necessarily obtained from SIBOR linked sources and may come with a higher cost, which banks will have to recover by charging higher interest.

A round-up of official policy rates show that the policy rates are generally low. The 3 months LIBOR is at 1.25%. SOR ended the week slightly higher. Meanwhile the bond market bubble seems to be bursting. With government bonds not doing well, it is little wonder that people would shun mortgage-backed securities altogether, which in turn is “threatening to hinder America’s efforts to hold down home loan rates”.

Gold became the latest safe haven, rising above USD1000 for the second time in history and showing signs that it remains bullish.

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Honda Jazz 2009 Update Review

Time for a report card after 2 months of driving the Jazz. The mileage did not improve very much, sad to say, averaging 13.5 km/l, and this is with rather careful driving and deliberate effort not to rev up the engine too much. I still think this will improve over time, hopefully hitting 14 km/l within the next few months.

Some tips on mileage improvement – use the paddle shift. In the first and second gear, i found it appropriate to shift up to the next gear when the engine hits 2.2k rpm. From first to second gear, apply pressure on the accelerator to maintain 1.8k rpm and above to avoid losing a lot of power.

One thing i found annoying was when going up a long slope, the auto transmission shifts up from third to fourth gear too early, resulting in loss of power before the slope is overcome. Might have to experiment with down shifting the gear.

For more tips on improving mileage, check out this article. Know your car, know your route.

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Car Loan Redemption Penalty

When signing up a car loan, typically you are subjected to a redemption penalty if you choose to redeem the loan before maturity. The redemption penalty is calculated based on the method of Rule of 78.

If you are interested in just getting a quick feel of how much redemption penalty you will have to pay on your car loan, skip to paragraph 5. Read on if you are interested in more background information.

According to the wikipedia entry on Rule of 78, apparently the number 78 might have come from the sum of numbers 1 to 12 (i.e. 1 + 2 + “¦ + 11 + 12 = 78). This method of calculating interest came about to simplify the calculation of the unearned portion of a loan’s interest in the pre-computer era, and continues to be used today for precomputed loans whereby the total interest chargeable on a loan is calculated and fixed before the loan is made, which is how car loans are made.

Here is how the rule of 78 works in a car loan. The rebate on unearned interest is calculated as:

RuleOf78

where n is the remaining number of months for the loan and N is the total number of months the loan period spans. The total interest is the interest rate multiplied by number of years of loan multiplied by loan amount.

This means that the loan redemption penalty is calculated as the remaining interest to be paid minus the rebate on unearned interest, which is as follows:

RedemptionPenalty

Applying this formula, the following tables are derived showing the percentage of the total interest that will be charged as redemption penalty at the end of each year for 10, 7 and 5 years loan respectively.

Yr 1 25.1%
Yr 2 28.7%
Yr 3 30.6%
Yr 4 31.0%
Yr 5 29.8%
Yr 6 27.0%
Yr 7 22.6%
Yr 8 16.7%
Yr 9 9.1%
Yr 10 0%

Yr 1 26.8%
Yr 2 30.4%
Yr 3 30.8%
Yr 4 27.9%
Yr 5 21.8%
Yr 6 12.5%
Yr 7 0%

Yr 1 28.6%
Yr 2 30.9%
Yr 3 26.9%
Yr 4 16.6%
Yr 5 0%

As you can see, the redemption penalty is steep. Worse still, it doesn’t reward you for staying on longer with the loan. The bank and car sales agent is guaranteed to earn a commission of close to 30% of the total loan interest the moment you sign on the dotted line. Go figure.

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