ZERO DOWN Investment Strategy 2 : Power of the Bank
After seeing the power of leverage of credit card, let’s turn our attention to a conventional lending mechanism, the bank as financial institution. Ironically, a normal person will put our hard earning money, savings in the bank which in return for a small amount of interest gain. And, we then go to the same bank, to borrow money to buy our house, and the bank charge us interest rate, in the form of Base Lending Rate(BLR) which is much higher than the savings rate, and resulting to this, many people slaving themselves paying their loan installments to the bank for the next 20-30 years in exchange for a place called home.
On the other hand, a typical investor will view their relationship with bank very much differently. Bank is their financial sources to increase their wealth by borrowing and through refinancing. How does this work ? This strategy require you to own a house either under your name or joint name, irregardless whether the property is already fully paid up or still under mortgage.
On the other hand, a typical investor will view their relationship with bank very much differently. Bank is their financial sources to increase their wealth by borrowing and through refinancing. How does this work ? This strategy require you to own a house either under your name or joint name, irregardless whether the property is already fully paid up or still under mortgage.
For example,
- Let say you bought a house in 2008, and is worth 350K, with 90% margin of finance, you will have a mortgage loan of 315K.
- Due to the property price hike, the same house would have appreciated to around 450k in 2011.
- If you refinance the property, with 90% margin, your new mortgage loan is 405k.
Now, there is a new , tax free investment capital of 80k* generated through the refinancing process.
* The 80k cash is derived from 405k(new loan)-315k(existing loan)-10k(misc fees)
With this, a new property could be purchased with the 80k cash available, without taking out a single capital from your pocket !
