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:


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:


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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Falling bond prices send yield higher

Bond prices fell following the US Treasury announcement to issue more bonds and more frequently, sending the ten-year note yield above 3%. Even the shorter-term 2-year note yield and the Libor 3-month rate have been trending up. These would have immediate impact on home loan rates. A quick check at the local interest rates – 3-month Sibor still remaining at a low of 0.69% and 3-month SOR at 0.91%, looks like low interest rates are still intact for now. Central banks worldwide continue to suppress interest rates in a bid to stimulate the economy and it remains to be seen how these effort will play out in the face of market forces.

What could be more worrisome is that “traders believe a further rise in long-term yields could compel the Federal Reserve to fulfil its recent statement that it is prepared to purchase longer-term Treasury securities if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets”. This is in effect quantitative easing, i.e. printing money, which could lead to inflation in the long run.

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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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