Case Study: The Tan Family’s Home Equity Journey
When Financial Prudence Meets Speculative Temptation
Executive Summary
This case study examines the Tan family’s experience with home equity loans over a three-year period (2022-2025), illustrating how well-intentioned financial decisions can spiral into crisis when speculative investments are pursued with borrowed funds secured against the family home. Their story serves as a critical lesson in the risks of leveraging home equity for overseas property investments and highlights the importance of financial literacy, risk assessment, and maintaining adequate safety margins.
Part 1: The Foundation (2015-2021)
Family Profile
The Tan Family (2021)
- Mr. Tan Wei Ming, 47, Senior Manager in logistics industry
- Monthly salary: $12,000
- 20 years in same industry, steady employment
- CPF savings: $380,000
- Mrs. Tan Hui Ling, 45, Marketing executive
- Monthly salary: $8,000
- 15 years in marketing, currently at established firm
- CPF savings: $290,000
- Children:
- Daughter (19): University student in Singapore
- Son (15): Secondary school student
Property Holdings (2021)
Primary Residence: Punggol Executive Condominium
- Purchased: 2011 for $720,000
- 2021 Valuation: $1,050,000
- Outstanding mortgage: $180,000 (final 5 years remaining)
- Monthly mortgage payment: $3,200
- Equity: $870,000
The property had just completed its 10-year Minimum Occupation Period (MOP) in 2021, becoming fully privatized and eligible for sale on the open market.
Financial Position (2021)
Assets:
- EC equity: $870,000
- Combined CPF: $670,000
- Savings: $85,000
- Investment portfolio (conservative): $45,000
- Total: $1,670,000
Liabilities:
- EC mortgage: $180,000
- Car loan: $42,000
- Total: $222,000
Net Worth: $1,448,000
Monthly Cash Flow:
- Combined income: $20,000
- Mortgage: $3,200
- Car loan: $680
- Living expenses: $4,500
- Children education: $2,000
- Insurance premiums: $1,200
- Savings/discretionary: $8,420
Financial Health Indicators:
- TDSR: 19.4% (very healthy)
- Emergency fund: 4.7 months (adequate but not robust)
- Debt-to-asset ratio: 13.3% (excellent)
The Achievement
By 2021, the Tan family had achieved what many would consider the Singaporean dream:
- Nearly paid-off home with substantial equity
- Comfortable dual income
- Children in local schools (manageable costs)
- Low debt burden
- Stable employment in established industries
Mr. Tan was particularly proud of their discipline. “We always lived within our means,” he would later reflect. “We didn’t upgrade to a private condo when friends did. We drove a Toyota instead of a European car. Every year, we saved 40% of our income.”
Part 2: The Temptation (2022)
The Property Investment Seminar
In March 2022, Mr. Tan attended a property investment seminar in a five-star hotel ballroom. The event was professionally organized with impressive presentations, successful investor testimonials, and compelling data about overseas property investments.
The Pitch: Johor Bahru New Launch Condominiums
The seminar focused on a new development in Johor Bahru’s Medini district:
- Project: “The Pinnacle Residences” (fictitious name)
- Developer: Reputable Malaysian developer with track record
- Unit price: RM 450,000 – RM 600,000 ($150,000 – $200,000 at RM 3.0 exchange rate)
- Promised rental yield: 6-8%
- Expected capital appreciation: 5-7% annually
- Target tenants: Singapore expatriates, Malaysian professionals working in Singapore
The Compelling Arguments:
- Proximity: 30-minute drive from Singapore
- Development: Part of Iskandar Malaysia master plan with government backing
- Infrastructure: New RTS (Rapid Transit System) link coming in 2026
- Comparative value: One-third the price of Singapore properties
- Currency advantage: Weak ringgit means good entry point
- Rental demand: Limited quality housing for professionals in the area
The Calculations Presented
The seminar showed attractive projections for a RM 600,000 unit:
Investment Scenario (as presented):
- Purchase price: RM 600,000 ($200,000)
- Down payment (20%): RM 120,000 ($40,000)
- Malaysian mortgage: RM 480,000
- Singapore home equity loan: $200,000 (to cover down payment and furnishing)
Projected Returns:
- Monthly rental: RM 3,000 ($1,000)
- Annual rental income: $12,000
- Yield: 6%
- Less Malaysian mortgage and costs: Break-even to slight positive
- Capital appreciation (5% annually): $10,000/year
- Total projected annual return: $10,000-$15,000
The Hook: “You’re sitting on $870,000 of equity doing nothing. Put $200,000 to work, and in 10 years, you could have a property worth $325,000, plus 10 years of rental income. That’s $125,000 profit for using equity that’s just sitting there!”
The Decision Process
Mr. Tan’s Perspective:
Initially, Mr. Tan was skeptical. He discussed it with Mrs. Tan, who was more cautious: “Isn’t Malaysia property risky? What about the exchange rate? What if we can’t find tenants?”
But Mr. Tan found himself increasingly convinced by several factors:
- Social Proof: Two colleagues had bought Malaysia properties and spoke enthusiastically about rental income
- FOMO: Concern that property prices would rise if he waited
- Equity Underutilization: Feeling his home equity was “dead money”
- Retirement Planning: Saw this as building passive income for retirement
- Professional Confidence: His logistics industry experience made him comfortable with cross-border operations
The Rationalization:
“We’re in our late 40s. Our kids will graduate soon. The mortgage will be paid off in 5 years. This is our chance to build wealth before we’re too old. If we don’t take calculated risks now, when will we?”
He calculated that even if rental yield was only 4% instead of 6%, and appreciation only 3% instead of 5%, it would still outperform leaving the equity idle.
Financial Advisor Consultation
To his credit, Mr. Tan did consult a financial advisor before proceeding. The advisor raised several concerns:
Advisor’s Warning Points:
- Currency risk exposure ($200,000 at risk to SGD/MYR fluctuations)
- Emergency fund only 4.7 months—should be 12+ before taking investment loans
- Malaysian property oversupply in Iskandar region well-documented
- Home equity loan would require cash servicing regardless of rental income
- Concentration risk—over 12% of net worth in one speculative asset
The Advisor’s Recommendation: “If you absolutely want property exposure, consider Singapore REITs. Better liquidity, diversification, and no currency risk. Or wait until your mortgage is fully paid and you have a stronger emergency fund.”
Mr. Tan’s Response: “But REITs only yield 4-5%. I can get better returns with direct property ownership. Plus, I can use leverage with home equity—can’t do that with REITs effectively.”
The advisor noted this was precisely the danger—using leverage for a speculative investment—but Mr. Tan had made up his mind.
Part 3: The Transaction (April-August 2022)
Securing the Home Equity Loan
Mr. Tan approached three banks for home equity loans:
Bank Offers:
- Bank A: $787,500 (75% LTV), 3.8% interest (SORA-based)
- Bank B: $735,000 (70% LTV), 3.5% interest (fixed 2 years, then variable)
- Bank C: $787,500 (75% LTV), 4.1% interest (board rate)
He selected Bank A for maximum borrowing capacity and competitive rate, though he only needed $200,000 initially.
Loan Structure:
- Approved amount: $787,500
- Drawn down: $200,000
- Loan term: 25 years
- Interest rate: 3.8% (SORA + 1.5%)
- Monthly payment: $1,040
TDSR Impact:
- Previous TDSR: 19.4%
- New TDSR: 24.6% (still healthy, well below 55% limit)
The Malaysia Property Purchase
Purchase Details:
- Unit: RM 580,000 (eventually negotiated down from RM 600,000)
- Down payment: RM 116,000 ($38,667)
- Stamp duty and legal fees: RM 24,000 ($8,000)
- Furnishing: RM 45,000 ($15,000)
- Total outlay: RM 185,000 ($61,667)
Malaysian Mortgage:
- Loan amount: RM 464,000
- Interest rate: 4.5% (Malaysian rates higher than Singapore)
- Loan term: 30 years
- Monthly payment: RM 2,351 ($784)
Total Initial Outlay from Home Equity Loan: $62,000 Remaining from $200,000 drawdown: $138,000 (kept as “investment buffer”)
Financial Position After Transaction (August 2022)
Updated Assets:
- Punggol EC: $1,050,000
- JB Property: $193,333 (at RM 3.0 exchange rate)
- CPF: $670,000
- Savings: $85,000
- Investment portfolio: $45,000
- Home equity loan buffer: $138,000
- Total: $2,181,333
Updated Liabilities:
- EC mortgage: $175,000 (continued paying down)
- JB property mortgage: $154,667 (RM 464,000)
- Home equity loan: $200,000
- Car loan: $38,000
- Total: $567,667
Net Worth: $1,613,666 (increased $165,666 on paper)
Updated Monthly Obligations:
- EC mortgage: $3,200
- JB mortgage: $784 (RM 2,351)
- Home equity loan: $1,040
- Car loan: $680
- Total debt servicing: $5,704
- New TDSR: 28.5% (still healthy)
Initial Optimism (September 2022 – March 2023)
For the first six months, things seemed to work out:
Rental Success: The property was completed in December 2022. By February 2023, Mr. Tan secured tenants—a Malaysian couple working in Singapore—at RM 2,800 per month ($933).
Monthly Cash Flow on JB Property:
- Rental income: $933
- Mortgage payment: $784
- Management fee (10%): $93
- Maintenance and sinking fund: RM 300 ($100)
- Net monthly: ($44) (slight negative, but manageable)
“See,” Mr. Tan told his wife, “it’s almost covering itself. Once we get RM 3,000 rent after the first lease, we’ll be cash flow positive!”
Perceived Wins:
- Property appreciated on paper to $210,000 in agent valuations
- Tenants were reliable and paid on time
- $138,000 buffer remained intact in savings
- Original financial cushion maintained
Part 4: The Unraveling (April 2023 – December 2024)
Crisis #1: Currency Depreciation (April-September 2023)
In mid-2023, the Malaysian ringgit began depreciating significantly due to various economic pressures:
Exchange Rate Movement:
- April 2023: RM 3.0 = $1 SGD
- September 2023: RM 3.35 = $1 SGD
- December 2023: RM 3.45 = $1 SGD
Impact on Property Value:
- Original value: RM 580,000 at RM 3.0 = $193,333
- December 2023 value: RM 580,000 at RM 3.45 = $168,116
- Paper loss: $25,217 (13% decline in SGD terms)
Impact on Rental Income:
- Original rental SGD: RM 2,800 at RM 3.0 = $933
- December 2023 rental SGD: RM 2,800 at RM 3.45 = $812
- Monthly income reduction: $121
New Monthly Cash Flow:
- Rental income: $812
- Mortgage payment: $784
- Management fee: $81
- Maintenance: $87 (RM 300)
- Net monthly: ($140)
This meant Mr. Tan was subsidizing $140 monthly from his salary—$1,680 annually—just to hold the property, in addition to the $1,040 home equity loan payment.
Combined monthly investment cost: $1,180
Crisis #2: Interest Rate Surge (October 2023 – June 2024)
As global interest rates rose to combat inflation, SORA climbed significantly:
SORA Movement:
- August 2022 (loan inception): 2.3% → Effective rate 3.8%
- June 2024: 3.7% → Effective rate 5.2%
Home Equity Loan Payment Change:
- Original monthly payment: $1,040
- New monthly payment (at 5.2%): $1,180
- Increase: $140/month ($1,680 annually)
Total Monthly Debt Servicing:
- EC mortgage: $3,200
- JB mortgage: $784
- Home equity loan: $1,180 (increased)
- Car loan: $480 (winding down)
- Total: $5,644
Updated TDSR: 28.2% (still manageable, but less comfortable)
Combined subsidy on JB investment:
- JB property negative cash flow: $140
- Home equity loan payment: $1,180
- Total monthly cost: $1,320
- Annual cost: $15,840
Crisis #3: Tenant Departure and Vacancy (July 2024)
In July 2024, the tenant couple gave notice—they had found jobs in Kuala Lumpur and would be leaving. The unit sat vacant for three months.
Three-Month Vacancy Costs:
- Lost rental income: $2,436 (3 × $812)
- Mortgage still due: $2,352 (3 × $784)
- Maintenance and utilities: $261
- Total cost: $5,049
Annual Running Costs (including vacancy):
- 9 months rental income: $7,308
- 12 months mortgage: $9,408
- Management and maintenance: $2,016
- Vacancy period losses: $2,813
- Net annual loss: $6,929
Plus the home equity loan payment of $14,160 annually.
Total annual cost of JB investment: $21,089
Crisis #4: Employment Disruption (August 2024)
In August 2024, Mr. Tan’s logistics company underwent restructuring. As part of cost-cutting measures:
Employment Change:
- Previous role: Senior Manager ($12,000/month)
- New role: “Right-sized” to Manager ($9,500/month)
- Monthly income reduction: $2,500
- Annual reduction: $30,000
Updated Household Income:
- Mr. Tan: $9,500
- Mrs. Tan: $8,000
- Combined: $17,500 (down from $20,000)
Updated TDSR: 32.3% (still below limit but now concerning)
Monthly Budget Pressure:
- Income reduction: $2,500
- Investment property costs: $1,320
- Net monthly shortfall: $3,820
The Tans were forced to dip into their emergency fund and the $138,000 buffer from the home equity loan.
Financial Position (December 2024)
Assets:
- Punggol EC: $1,080,000 (modest appreciation)
- JB Property: $162,319 (RM 580,000 at RM 3.57 exchange rate)
- CPF: $705,000 (growing with contributions)
- Savings: $42,000 (drawn down from $85,000)
- Investment portfolio: $45,000 (untouched)
- Home equity loan buffer: $95,000 (drawn down from $138,000)
- Total: $2,129,319
Liabilities:
- EC mortgage: $158,000 (continuing to pay down)
- JB property mortgage: $151,821 (RM 542,000 at RM 3.57)
- Home equity loan: $200,000 (interest-only payments made, principal unchanged)
- Car loan: $15,000
- Total: $524,821
Net Worth: $1,604,498
Net Worth Change: Started at $1,448,000 in 2021, now $1,604,498 Apparent gain: $156,498
But this masks the reality:
- CPF contributions naturally increased: $35,000
- EC natural appreciation: $30,000
- JB property: Lost $31,014 in value
- Consumed $43,000 of savings and buffer dealing with investment losses
- Facing $1,320 monthly ongoing costs
Part 5: The Crisis Deepens (January – August 2025)
The Difficult Conversation
In January 2025, Mrs. Tan insisted they sit down with a financial counselor. The session was sobering.
Financial Counselor’s Assessment:
“You’ve made several compounding errors:
- Currency risk materialization: Your JB property has lost 16% of its value in SGD terms despite being flat in RM terms
- Negative carry costs: You’re paying $15,840 annually on a home equity loan to fund an investment losing $7,000 annually
- Eroded safety net: Your emergency fund is down to 2.4 months of expenses
- Income vulnerability: You’re one job loss away from TDSR problems
- Illiquidity trap: The JB property would take 6-12 months to sell, with high transaction costs”
The Numbers:
- Total invested in JB property: $200,000 (home equity loan)
- Current JB property value: $162,319
- Unrealized loss: $37,681
- Cumulative negative cash flows: $28,200
- Transaction costs to exit: ~$15,000
- Total cost of experiment: $80,881 and counting
“You’ve effectively spent $80,000+ of your family’s wealth chasing returns that never materialized,” the counselor concluded.
Exploring Options
The family explored several options:
Option 1: Hold and Hope
- Continue subsidizing the property
- Hope for currency recovery and appreciation
- Risk: Continued losses, further income disruption, opportunity cost
Option 2: Sell at Loss
- List the JB property for sale
- Accept $37,681 loss plus selling costs
- Free up monthly cash flow
- Pros: Stop the bleeding, regain flexibility
- Cons: Realize substantial loss, difficult market conditions
Option 3: Partial Solution
- Refinance home equity loan to longer term (reduce monthly payment)
- Reduce JB property price to attract tenants faster
- Hope Mr. Tan’s income recovers
- Risk: Extends pain, accumulates more losses
Option 4: Aggressive Exit
- Sell JB property at any reasonable price
- Use home equity loan buffer to absorb losses
- Rebuild emergency fund
- Focus on debt elimination
The Breaking Point (May 2025)
In May 2025, the situation reached a critical point:
New Tenant Problems: After three months, they found a new tenant, but at a reduced rent of RM 2,400 ($672 at RM 3.57 exchange rate)—significantly below the RM 2,800 they needed for near break-even.
New Monthly Cash Flow:
- Rental income: $672
- Mortgage payment: $784
- Management fee: $67
- Maintenance: $84
- Net monthly loss: $263
Combined with the $1,180 home equity loan payment, the monthly cost rose to $1,443—$17,316 annually.
Mrs. Tan’s Health Scare: In June 2025, Mrs. Tan was diagnosed with a medical condition requiring specialized treatment. While MediShield Life and their insurance covered much of it, out-of-pocket expenses would be approximately $20,000 over the next year.
The Reality Check:
- Monthly investment drain: $1,443
- Medical expenses: $20,000 needed
- Emergency fund: $42,000 (barely sufficient)
- Home equity buffer: $95,000 (needed for medical expenses)
- Retirement looming: Only 12-15 years away
For the first time, Mr. Tan truly understood the danger of having leveraged their home equity. “What if we need to downsize for retirement? We can’t sell our EC until we clear this mess. What if I lose my job entirely? We have no cushion anymore.”
Part 6: The Resolution and Lessons (August 2025)
The Decision
After much agonizing, the Tan family made the difficult decision to cut their losses:
Exit Strategy:
- List JB property for RM 540,000 ($151,261 at RM 3.57)
- Accept the loss and move on
- Use home equity buffer to manage shortfall
- Focus on rebuilding emergency fund
- Prioritize Mrs. Tan’s health and family stability
The Transaction
In August 2025, they found a buyer at RM 525,000 ($147,059 at RM 3.57):
Sale Proceeds Calculation:
- Sale price: $147,059
- Malaysian mortgage payoff: $151,821
- Shortfall: $4,762
- Real estate commission (3%): $4,412
- Legal fees and costs: $2,500
- Total cash needed to exit: $11,674
Total Financial Damage:
- Home equity loan: $200,000 (still owed)
- Cash needed to exit: $11,674
- Cumulative negative cash flows (2022-2025): $35,400
- Interest paid on home equity loan: $22,800
- Total cost of investment: $69,874
Post-Resolution Financial Position (September 2025)
Assets:
- Punggol EC: $1,095,000
- CPF: $720,000
- Savings: $25,000
- Investment portfolio: $45,000
- Home equity loan buffer: $70,000 (used $25,000 for medical and exit costs)
- Total: $1,955,000
Liabilities:
- EC mortgage: $145,000
- Home equity loan: $200,000
- Car loan: $8,000
- Total: $353,000
Net Worth: $1,602,000
Net Worth Journey:
- 2021: $1,448,000
- 2022 (post-purchase): $1,613,666
- 2024 (mid-crisis): $1,604,498
- 2025 (post-exit): $1,602,000
- Four-year gain: $154,000
But breaking it down:
- Natural CPF growth: $50,000
- EC appreciation: $45,000
- Investment portfolio steady: $0
- Organic wealth growth: $95,000
- JB investment cost: $69,874
If they hadn’t done the JB investment, their net worth would be approximately $1,672,000—$70,000 higher.
Key Lessons from the Tan Family Experience
1. Currency Risk Is Real and Significant
The Tan family lost 16% of their investment purely due to currency depreciation, despite the property holding steady in RM terms. This risk is often underestimated in overseas property seminars.
Lesson: Currency risk should be modeled as a worst-case scenario. A 20-30% currency movement is not unprecedented and can occur over 1-3 years.
2. Negative Carry Costs Accumulate Rapidly
The combination of negative rental cash flow and home equity loan payments meant the Tans were spending $15,000-17,000 annually to hold the investment—money that could never be recovered.
Lesson: Any investment financed with a home equity loan must generate positive cash flow from day one, or at minimum, break even. Speculating on appreciation while paying carrying costs is extremely risky.
3. Vacancy Risk Is Understated
The Tans experienced two significant vacancy periods totaling 6 months over 3 years—a 17% vacancy rate. This is typical in oversupplied markets but rarely mentioned in investment pitches.
Lesson: Model vacancy rates of 15-20% annually for overseas properties in competitive markets. This dramatically affects return calculations.
4. Emergency Funds Are Non-Negotiable
When Mrs. Tan’s health issue arose, the family had already depleted their emergency fund managing the investment. This created enormous stress and forced difficult choices.
Lesson: Never take significant home equity loans until you have 12-18 months of expenses in liquid emergency funds, separate from investment buffers.
5. TDSR Comfort Can Evaporate Quickly
The Tans went from a comfortable 19% TDSR to a concerning 32% within two years due to income reduction. Combined with their investment losses, this created real financial vulnerability.
Lesson: Maintain substantial TDSR buffer (stay under 30% if taking investment loans). Job security is never guaranteed, regardless of industry or seniority.
6. Illiquidity Compounds Problems
Property is inherently illiquid. When the Tans needed to exit, it took 3 months to find a buyer and they had to accept a below-market price.
Lesson: Never put a significant portion of net worth into illiquid investments financed with debt. The ability to exit quickly is crucial when circumstances change.
7. Professional Advice Matters—When You Listen
The Tan family’s financial advisor clearly warned against the investment, but they proceeded anyway, swayed by emotional factors and FOMO.
Lesson: If you pay for professional advice, actually follow it. If you disagree, get second and third opinions before overriding professional recommendations.
8. “Dead Equity” Is Actually Safe Equity
Mr. Tan viewed his home equity as “doing nothing.” In reality, it was providing:
- Housing security
- Financial flexibility
- Borrowing capacity for true emergencies
- Peace of mind
Lesson: Equity in your family home isn’t “dead”—it’s your family’s financial foundation and ultimate safety net.
Financial and Emotional Impact
Financial Costs:
- Direct losses: $69,874
- Opportunity cost: $70,000 (could have been in net worth)
- Stress-related costs: Medical expenses, time, mental health
Emotional Costs:
- Marital stress: “We had arguments we’d never had before”
- Anxiety: “I couldn’t sleep knowing we were losing money every month”
- Regret: “I felt like I’d failed my family”
- Lost time: “Hundreds of hours managing this problem that didn’t need to exist”
Mr. Tan’s Reflection:
“I thought I was being smart and proactive about building wealth. In reality, I was gambling with my family’s security. The worst part isn’t the money we lost—it’s knowing that for three years, we lived with unnecessary financial stress. When my wife got sick, instead of focusing entirely on her health, I was worried about property payments and loan obligations.
The property seminar made it sound so simple: unlock your equity, diversify internationally, build passive income. They never talked about the nights I’d wake up checking exchange rates, the stress of vacancy periods, or how it feels to watch your investment lose 16% to currency movements.
If I could go back, I’d tell my 2022 self: ‘You’ve already won. You have a nearly paid-off home, stable jobs, healthy kids, and a comfortable life. Don’t risk it chasing extra returns you don’t need.'”
Mrs. Tan’s Perspective:
“I had reservations from the start, but I trusted my husband’s judgment. He’s always been good with money. What I learned is that even smart people can make emotional decisions. The pressure to ‘do something’ with our equity, the friends bragging about their property investments, the fear of missing out—these things clouded our judgment.
When I got sick, I realized how much our financial stress had been affecting our family. Our kids were worried. We weren’t enjoying life. All for an investment that was supposed to make our lives better but made them worse.”
Part 7: The Path Forward and Recommendations
Rebuilding (September 2025 – 2028)
The Tan family developed a three-year recovery plan:
Phase 1: Stabilization (Sept 2025 – Dec 2025)
- Eliminate remaining car loan ($8,000)
- Rebuild emergency fund to $60,000 (6 months expenses)
- Resume normal savings rate
- Focus on Mrs. Tan’s health recovery
Phase 2: Debt Reduction (2026-2027)
- Pay off remaining EC mortgage ($145,000 over 2.5 years)
- Pay down home equity loan aggressively
- Increase CPF voluntary contributions
- Children complete education (reducing expenses)
Phase 3: Wealth Rebuilding (2028 onwards)
- Fully paid-off primary residence
- Aggressive home equity loan reduction
- Maximal retirement contributions
- Conservative investment portfolio growth
- No speculative investments
What They Wish They’d Known
Before Taking the Home Equity Loan:
- True risk modeling: Run scenarios where everything goes wrong simultaneously
- Honest return expectations: Adjust seminar projections down by 40-50%
- Currency impact understanding: Model 30% currency swings
- Professional advice weight: If advisor says no, really question why you’re proceeding
- Opportunity cost clarity: What else could you do with $70,000?
Alternative Strategies They Could Have Pursued:
Instead of the JB property investment, the Tans could have:
Option A: Eliminate All Debt (Conservative)
- Pay off remaining $180,000 EC mortgage
- Invest $20,000 in portfolio
- Keep rest in emergency fund
- Outcome: Fully paid home by 2022, zero debt stress
Option B: Balanced Growth (Moderate)
- Pay off EC mortgage: $180,000
- Max out CPF Special Account voluntary contributions: $35,000 (guaranteed 4% risk-free)
- Diversified REITs and index funds: $50,000
- Emergency fund boost: $35,000
- Outcome: Diversified, liquid, low-risk wealth building
Option C: Strategic Leverage (If must use equity)
- Small home equity loan: $50,000 only
- Invest in Singapore REITs: $50,000
- Yield: 4-5%, liquid, no currency risk
- Still maintain safety margins
- Outcome: Leverage used judiciously, risks manageable
Each of these would have left them in better financial and emotional position than the path they chose.
Part 8: Broader Implications for Singapore
Policy Considerations
The Tan family’s experience raises questions about financial system safeguards:
Current Protections:
- LTV limits (75%) prevent excessive leverage
- TDSR (55%) prevents over-indebtedness
- Cooling measures reduce property speculation
Potential Gaps:
- No specific restrictions on home equity loan use (can be used for any purpose)
- Limited investor education requirements before accessing home equity
- Overseas property investment risks not adequately disclosed
- Currency risk not factored into affordability assessments
Potential Enhancements:
- Mandatory financial counseling for home equity loans above $100,000
- Risk disclosure forms specifically for overseas property investments
- Cooling-off periods between loan approval and drawdown
- Investor education modules before accessing large home equity amounts
- Stress testing requirements for overseas property purchases
Warning Signs for Regulators
The 15.5% growth in home equity loan amounts could signal:
Positive Interpretations:
- Business capital needs (legitimate use)
- Debt consolidation from high-interest products