Calculating car depreciation

When is a good time to change your car (in the Singapore context)? That is a question that begs understanding for all cost conscious car owners. The short answer is: when the depreciation rate of your car starts to plateau, and the next car does not impose a high depreciation rate.

You say, wait a minute, isn’t the depreciation of a car a fixed value – car price at point of buying minus car price at point of selling divided by number of years? This simple formula may be good enough if you paid for the car in full with cash. However, most people finance the car purchase with a loan, and the loan interest as well as redemption penalty becomes a significant factor which adds to the cost of ownership or depreciation of the car.

Here is how i work out the depreciation of my car. First, a listing of all the relevant parameters:

  • Car price – 57000
  • Loan amount – 55000
  • Interest rate – 2.35%
  • Loan period – 96 months
  • OMV – 19038
  • COE – 13801

Next, some estimated parameters:

  • Beginning body value – 16000
  • Body value at 10 years – 3000
  • Cost of maintenance (see table below)

With these parameters, i derive the following table showing the car depreciation which accounts for the loan interest, loan redemption penalty as well as maintenance cost (running costs such as insurance and petrol are excluded):

Yr COE Rebate PARF Rebate Paper Value Body Value Total Value Interest Paid + Redemption Penalty Mainte- nance Depreciation (Loss/Year)
1 12,420.90 14,278.50 26,699.40 14700 41,399.40 3,997.42 600 20,198.02
2 11,040.80 14,278.50 25,319.30 13400 38,719.30 5,671.01 300 12,125.86
3 9,660.70 14,278.50 23,939.20 12100 36,039.20 7,088.76 400 9,483.19
4 8,280.60 14,278.50 22,559.10 10800 33,359.10 8,250.68 500 8,097.90
5 6,900.50 14,278.50 21,179.00 9500 30,679.00 9,156.76 400 7,175.55
6 5,520.40 13,326.60 18,847.00 8200 27,047.00 9,807.01 400 6,693.34
7 4,140.30 12,374.70 16,515.00 6900 23,415.00 10,201.42 400 6,312.35
8 2,760.20 11,422.80 14,183.00 5600 19,783.00 10,340.00 400 5,994.63
9 1,380.10 10,470.90 11,851.00 4300 16,151.00 10,340.00 300 5,721.00
10 0 9,519.00 9,519.00 3000 12,519.00 10,340.00 300 5,512.10

Plotting the depreciation in a chart:

As you can see, the rate of depreciation is the highest in the first few years, meaning you lose the most money when you sell you car within the first few years. When you get to the third or fourth year, the loss from selling the car becomes more acceptable.

Of course, whether it makes sense to get the next car also depends on the cost of COE at that time, or even the car technology which may help you save fuel costs.

Are you interested in calculating your car depreciation? The spreadsheet for calculating car depreciation will be put up as soon as it is ready.

Update: the spreadsheet is now ready!

Update 14 Mar 2015: the spreadsheet is no longer maintained

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Singapore SOR and Sibor takes a dip


With the onslaught of massive rate cuts by central banks worldwide, interest rates are heading south. The Singapore Swap Offer Rate (SOR) responded by falling from 1.4% to the 1% level, despite USD moving up against SGD. The gain in USD/SGD exchange rates were moderate, though. Perhaps we were just moving out of the forward rates window where the USD is forecasted to advance.

In similar fashion, Sibor has been falling through the week, guided by the global decline in rates and possibly a falling demand for money as well. The Straits Times reports that people are waiting for further drop in prices of properties even though it has already fallen by 25 percent in some places. I suppose this sounds like a mixed bag of good and bad news for mortgagers – savings from lower interest rates but deflated housing price.

Now the flip side of the story. There could be a bubble that is building up in the bonds market. There is a boom in the bonds market due to flight to safety. At the same time, governments around the world are selling bonds to raise cash to fund their stimulus plans. “When bond markets are saturated, investors cherry pick the strongest issues, obliging weaker countries to offer higher rates that increase their financing costs.” And “if governments pay higher and higher rates to secure the money needed to fund their stimulus plans, they inevitably push up wider interest rates”. Rate increase may be a good thing in view of another problem that could be worse: inflation.

Indeed, “central banks may even buy up existing bonds”, doing so by printing money. “The bottom line is that the only way to get out of this recession is to spend a lot of money on stimulus and dump a lot of money into the economic system. That means there will be inflation for a long period of time”.

So which of the two is the worse evil – depression or inflation? Perhaps depression is, judging by the images associated with it (vs inflation). Here is a quotation worth pondering about: “The love of money is the root of all evil“.

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Honda Jazz 2009 Review


I’ve had my Honda Jazz 2009 1.3A for a month now. Here’s my verdict of the car:

The good

  • Spacious interior
  • Excellent field of view
  • Good fuel economy
  • Paddle shift allows for manual override
  • Agile handling
  • Effective air conditioning

The bad

  • Underpowered
  • Poor noise insulation
  • Soft brakes
  • Slightly bouncy ride

The ugly

  • None actually, this is a pretty stylish car

I had high expectations in terms of fuel economy for this car, something to the tune of 15km/l, but so far i managed to get only 12 – 14km/l (depends a lot on how much distance is travelled on expressways vs roads laden with traffic lights). I think it takes a while to know the car enough to know how much pressure to apply on the accelerator so as not to waste fuel unnecessarily. I am confident that in the near future i will achieve 14km/l or more consistently.

The car pickup is dismal and it struggles up slopes. Stepping harder on the accelerator makes the engine roar seemingly in protest, burning lots of fuel without really delivering. The screeching sound of worn out brakes of surrounding vehicles can be heard loud and clear, not to mention the rumble of buses. These are the main gripes i have of the car, but i can’t fault the car too much on these since my priority is to have a safe, comfortable and cost effective means of transport.

The expansive field of view gives you good visibility, as do the large mirrors, so you can drive safer. The legroom and headroom available seats 5 adults comfortably enough. The ride is a tad on the firm side, but i think the suspension was designed this way to achieve better contact with the road to give a more secure feeling. I definitely prefer this to cars that seem to float.

All in all, i am pleased with this car. It does the narrow lanes, narrow parking lots and 90km/h speed limit we have around here just fine.

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Difference between SIBOR and SOR

Quoting from the SIBOR wikipedia entry,

SIBOR stands for Singapore Interbank Offered Rate and is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the Singapore wholesale money market (or interbank market).

On the other hand

The Swap Offer Rate (SOR) represents the effective cost of borrowing SGD synthetically through borrowing USD for 3 months and swap out the USD in return for SGD for the same maturity.

The fixing authority for both rates is the Association of Banks in Singapore. To summarize some of the differences between the two:

  • Sibor is influenced by the supply and demand for funds in the Singapore interbank market, whereas SOR is more exposed to factors external to Singapore such as USD interest and exchange rates.
  • SOR is more volatile because exchange rates as well as USD money market rates tend to fluctuate more

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2009 Outlook


It’s been a busy 2008 year end for me, leaving me little time to catch up with reading and writing. Before you know it, we are in 2009 already. I thought i had better get a sense of what to expect in the coming months.

SIBOR inched up to 1% while SOR swung up to 1.5% over the past few weeks. Given that the 3 month Libor rate has been slowly declining and SIBOR is hovering around 1%, the volatility in the SOR could be attributed to fluctuations in the USD/SGD exchange rate, where USD is forecasted to gain over SGD in the coming weeks or months. MAS is expected to “flood the local money market with liquidity as it prepares to let the currency weaken when it reviews policy in April”. Meanwhile, the Fed’s impending purchase of up to $600B of mortgage securities is likely to bring mortgage rates in the US even lower. These developments – lower USD borrowing cost and higher USD/SGD exchange rate – might just nullify each other and keep interest rates in Singapore at current levels.

Deflation vs Inflation: The Fed is said to be confronting a “two-headed dragon” of deflation and a return of 1970s-style inflation”. We have seen deflation happening over the past few months with prices of assets and commodity coming down, but a reversal could be on the way as OPEC cuts oil production. Perhaps far more worrying than that is the soaring money supply which inevitably leads to inflation.

Here’s wishing every reader good foresight for the year ahead, and a happy new year!

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Fed cuts rate to virtually zero

The Feds cut the federal funds rate from 1.0 percent to a range of zero to 0.25 percent. In addition to that, they continue to apply “quantitative easing” which “effectively means printing money”. The effect of money printing is already being felt with the US dollar easing against other currencies.

The rate cutting measure seems to be getting some traction as the mortgage rate in the US hits 37-year low, spurring mortgage refinancing in the US. Meanwhile, economists said Asian central banks have room for more interest rate cuts, “a trend that will continue into 2009″. Mortgagers can probably expect lower rates to come.

SOR moved higher this week to 1.4%, seemingly against the flow whereby the cost of borrowing in USD is supposedly coming down. Sibor holds still at 0.94%. We can reasonably assume that the Feds will keep their taps open until people start buying houses, so rates should remain low for some time. But there is also danger to watch out for in the form of the Treasury market bubble. Investors have been buying Treasuries “to ride out the storm”, driving US Treasury yields to near zero. Should there be a bursting of a bubble, there would be a rush out of Treasuries, and there could be a “huge switch in interest rates very quickly”.

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SOR repricing date


A slight disappointment this week, my 3 month SOR pegged home loan repricing kicked in on 2nd Dec rather than 1st Dec as i thought was going to be the case. That meant the SOR rate was 0.98% instead of 0.8% that i had hoped for. Nevertheless, my SOR pegged home loan rate was slashed from 1.86% to 1.63%.

Lesson learned: the repricing date for SOR or Sibor pegged loans is always exactly 3 months after the previous repricing date. Since the previous round of repricing took place on 2nd Sep, the date for the current round has to be 2nd Dec, unless 2nd Dec falls on a weekend (which it doesn’t) in which case the repricing date will fall on the next working day. So if your SOR or Sibor pegged home loan began on the 1st of the month, you may see subsequent repricing date pushed to later days in the month as time goes by.

In the past week, SOR and Sibor have been steadily rising, and one wonders, how does this correlate with the interest rate cuts implemented by central banks worldwide? Going by the two determinant factors of SOR – USD interest rate and USD/SGD exchange rate, and given that USD interest rate is generally trending lower, this could be pointing to current expectations of higher USD/SGD forward exchange rates.

There is another huge trend that is taking place now – the flight to treasuries. More on this later..

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SOR home loan rate – how it works

Frequently asked question: what is SOR (Swap Offer Rate) and how it works. The concept of a swap is not quite easy to grasp. The best description available on how the SOR, in particular, works is this discourse by SGX on the SOR pricing model. Here are some excerpts:

The SOR represents the effective cost of borrowing SGD synthetically through borrowing USD for 3 months and swap out the USD in return for SGD for the same maturity.

In simple terms, SOR is the projected interest rate it costs you if you borrowed the same amount of money in USD instead.

The Association of Banks in Singapore (ABS) determines the fixing of the 3-month SOR. The ABS models the administration of its fixing rates after the well-established procedures of the British Bankers Association (BBA) in their London Inter-bank Offered Rate (LIBOR) fixing. In this regard, the ABS selects a panel of contributor banks and determines the fixing procedures, on the basis of full transparency and accepted market convention. The SGD SIBOR, USD SIBOR and SOR are fixed daily at 11.00 am Singapore time. The value date for the interest rate fixings is two business days after the fixing date. Telerate, a division of Bridge, is appointed the Calculating Agent and Distributor, and the daily Fixing Rates will be concurrently available to all other information services vendors.

An adaptation of the pictorial presented in the discourse on how SOR works:



SGDF1 = USD/SGD Foreign Exchange forward
SGDF2 = USD/SGD Foreign Exchange forward
USDIRF = Forward USD Interest Rate for the underlying SOR tenor

At the beginning of the 3 month period (note that these ‘actions’ are synthetic), borrow USD at USDIRF and immediately convert it to SGD at SGDF1 and invest the proceeds. At the end of the 3 month, convert the proceeds from SGD investment to USD at SGDF2 and settle the USD borrowing. This gives rise to the following formula for deriving SOR:


whereby Act = Actual number of days in the 3 months

Based on this formula we can deduce the following 2 general principles

  • SOR is higher when USD interest rate is higher
  • SOR is higher when USD is expected to rise against SGD

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Sibor and SOR hits new low


At the closing of this week, the 3 month and 6 month SOR fell to an eye-popping 0.68% and 0.74% respectively, the lowest levels since i started tracking, while the 3 month Sibor tumbled to 0.81%. The fall in the 6 month SOR is especially noteworthy, as it convincingly fell below 1%. This could possibly be taken as a signal that SOR will remain subdued for the next 6 months.

These development could be a direct result of deliberate effort on the part of central banks around the world, especially the Federal Reserve, to lower rates, to make available more money in the hands of people for spending. It was announced earlier this week, Fed, Treasury offer US$800b more to credit markets and in similar fashion, EU launches US$259b stimulus package. Quoting from the news article: “The initiatives call for up to 600 billion dollars in Federal Reserve purchases of mortgage securities, and a separate 200 billion dollars for asset-backed securities to help get credit to consumers”. What this really sounds to me is writing off bad debt and giving people money to spend without having to work for it. The German Chancellor, Angela Merkel, holds a more cautionary stance and warned “against a ‘race’ between European states over the size of their stimulus measures”. Europe demonstrates that they are more conservative as “the EU package remains dwarfed by similar measures taken in the United States”. So far, U.S. Pledges Top $7.7 Trillion to Ease Frozen Credit.

The price to pay for increasing money supply is of course inflation and devaluation of the currency. Here is a prediction chart (take with a pinch of salt) suggesting that the SGD/USD exchange rate will peak in Jan 2009 and fall back to previous lows by Jun 2009. Coming back to home loans, what all these means is, do take advantage of the low interest rates now if you can, while at the same time, keep a close watch of economic trends, such as exchange rates whereby interest rates (relative to elsewhere) *usually* move in tandem with the currency value. Remember to plan at least 2 months in advance if you wish to do refinancing or re-pricing.

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Novice Barista with Krups XP4020


A belated post this is, an update since my last post on making coffee with frothy milk, and i must say i have gotten better at making better coffee, especially better froth. My conclusion is that it does not really demand a lot of skill (unless you are really particular about your coffee), so take heart those of you just getting started.

On making froth, the most important factor seems to be the choice of milk. So far the one from Magnolia works for me and i have been able to consistently get decent froth from it. To make a cup of coffee, i use half a glass of freezer cooled milk (~120ml) and dip the steam wand two thirds deep into the milk. When it is working well, there will be a deep sounding whirr (in contrast to a high pitch sound which usually ends up not producing good froth). As for the espresso, it makes a difference when the coffee powder is tamped down hard, resulting in stronger and richer coffee. I get a decent enough cafe latte, but i must say it can never beat those from Spinelli, which is still my favourite. Next idea to try, a coffee bean grinder..

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