To remortgage or not

[traineeinvestor]

The last payment on a small investment property is due to be paid in early June and I am considering whether I should keep the property mortgage free or remortgage it and invest the money elsewhere.

One of the reasons I am considering this is that Hong Kong uses an antiquated land title system that relies on a series of deeds to establish title. If you lose the documents they cannot be replaced and it becomes very difficult to prove title - in which event not only will I never be able to get a mortgage but I would take a significant haircut on sale (if I could find a buyer at all). It is next to impossible to get another safe deposit box in HK which means that if I have to keep the title deeds, the best storage I can arrange is a filing cabinet in my home.

One solution is to remortgage which means the bank keeps the title deeds. The mortgage lending environment is intensely competitive and I can get a new mortgage on 20 year P+I terms at about 2.3% pa which is a floating rate linked to HIBOR and reset monthly. (Fixed rate loans in HK are not readily available on attractive terms.) There is also a 1% cash back on drawdown which will cover my legal fees at least twice over. I don't need the money but could invest the loan proceeds in some short term bonds (3-5 years) where I am comfortable with the credit risk and can earn a positive carry even if there are a few interest rate hikes (and the loan would be serviced from the rental receipts anyway).

Tax is a non-issue in HK.

DW's endorsement will be sought before any action is taken.

Are there any other things I should consider?

 

[DrRoy]

I would not remortgage over a paperwork issue. I would just protect the documents. What if they got lost sending them to the bank?

 

[traineeinvestor]

I would not remortgage over a paperwork issue. I would just protect the documents. What if they got lost sending them to the bank?

Thanks for that. I will concede that the opportunity to make a few dollars is as much a consideration as finding the best way to safeguard the title documents.

It's a good point but there's no risk of the documents being lost sending them to the bank because if I remortgage it would be with the same bank, so the documents would never leave them.

 

[pb4uski]

In the situation you describe I would remortgage. If you store the documents and have a fire or theft then you are screwed.

 

[bobandsherry]

How much would it cost to have attorney hold documents?

 

[traineeinvestor]

In the situation you describe I would remortgage. If you store the documents and have a fire or theft then you are screwed.

Exactly - although there is the proposal that HK moves to a Torrens type registration system which will remove the problem. Since the HK Govt has been working on this for a couple of decades so I'm not holding my breath.

 

[traineeinvestor]

How much would it cost to have attorney hold documents?

Good suggestion but I don't know any who would because of the liability if they lose the documents. The law firms I worked for flatly refused to hold title documents for that reason.

 

[Scuba]

You could store the docs in a bank safe deposit box, but actually it sounds like you can make some money with the mortgage.

 

[splitwdw]

... It is next to impossible to get another safe deposit box in HK which means that if I have to keep the title deeds, the best storage I can arrange is a filing cabinet in my home. ...

You could store the docs in a bank safe deposit box, but actually it sounds like you can make some money with the mortgage.

 

[traineeinvestor]

You could store the docs in a bank safe deposit box, but actually it sounds like you can make some money with the mortgage.

Thanks for the suggestion, but most banks in HK are withdrawing from that business line. While we did manage to get a small box several years ago, it is already full and the chances of getting another one (or a larger one) are negligible.

 

[splitwdw]

traineeinvestor, I know you said that safe deposit boxes are in short supply at banks. I'm surprised that there are no businesses that offer a fire proof box. Maybe you should start one.

 

[traineeinvestor]

traineeinvestor, I know you said that safe deposit boxes are in short supply at banks. I'm surprised that there are no businesses that offer a fire proof box. Maybe you should start one.

I'm sure there's an opportunity there somewhere ... but that sounds suspiciously like w#$k.

Actually, there are at least a couple of non-banks which provide this service but I'm not sure I trust them.

 

[HarveyS]

The deed(s) are so large that they won't fit in the already full small safe deposit box? Sounds like Jell-O to me....there's always room for Jell-O. I have a hard time imagining a box so full that several sheets of paper wouldn't fit. If you want to re-mortgage, go ahead. Don't blame it on not being able to find a home for the deed.

 

[splitwdw]

HarveyS, Do you know what the size of the paperwork for deeds are in Hong Kong? I don't but I know my deeds are more than several sheets. You also don't know what other paperwork that Traineeinvestor keeps in his/her safe deposit box. I started with a small box and had to move up to a larger box to store our wills, deeds, vehicle titles, stock certificates, marriage & birth certificates, passports and jewelry. My safe deposit box is full and we've been thinking about renting another box. I also have a large fire safe at home for copies of original paperwork and other valuables.

 

[HI Bill]

I would probably get a fire safe, bolt it to the floor, and be done with it. But it depends on how long you plan to live in the house. If you never plan to sell, it shouldn't be an issue. If you plan to sell before you die, it might be (captain obvious).

 

[UnrealizedPotential]

You are really between a rock and a hard place on this issue. i don't know what is best to do. It's tough. Maybe like has been suggested before, invest in a very , very good safe to keep those documents and hide the safe in the wall.

 

[flintnational]

While I was working I kept a mortgage and that allowed me to keep more funds invested. Prior to FIRE I wanted to reduce risk and I paid off the mortgage. It is a risk vs. return question. I was comfortable with more risk when I had an income and my investments. Less so now that I have only the investments.

 

[Mark24609]

The last payment on a small investment property is due to be paid in early June and I am considering whether I should keep the property mortgage free or remortgage it and invest the money elsewhere.



One of the reasons I am considering this is that Hong Kong uses an antiquated land title system that relies on a series of deeds to establish title. If you lose the documents they cannot be replaced and it becomes very difficult to prove title - in which event not only will I never be able to get a mortgage but I would take a significant haircut on sale (if I could find a buyer at all). It is next to impossible to get another safe deposit box in HK which means that if I have to keep the title deeds, the best storage I can arrange is a filing cabinet in my home.



One solution is to remortgage which means the bank keeps the title deeds. The mortgage lending environment is intensely competitive and I can get a new mortgage on 20 year P+I terms at about 2.3% pa which is a floating rate linked to HIBOR and reset monthly. (Fixed rate loans in HK are not readily available on attractive terms.) There is also a 1% cash back on drawdown which will cover my legal fees at least twice over. I don't need the money but could invest the loan proceeds in some short term bonds (3-5 years) where I am comfortable with the credit risk and can earn a positive carry even if there are a few interest rate hikes (and the loan would be serviced from the rental receipts anyway).



Tax is a non-issue in HK.



DW's endorsement will be sought before any action is taken.



Are there any other things I should consider?

I hate the idea of a mortgage for piece of mind after retirement. Well I hate it before too. No debt but you are right how to deal with regulations of other countries

 

[traineeinvestor]

The deed(s) are so large that they won't fit in the already full small safe deposit box? Sounds like Jell-O to me....there's always room for Jell-O. I have a hard time imagining a box so full that several sheets of paper wouldn't fit. If you want to re-mortgage, go ahead. Don't blame it on not being able to find a home for the deed.

Unfortunately, the stack of deeds for each property is a few inches thick. We already have three sets of deeds in our safe deposit box and no amount of compression will get a fourth set in the box. We asked about a larger box or a second box and was told the ban won't even add additional names to the waiting list.

 

[traineeinvestor]

HarveyS, Do you know what the size of the paperwork for deeds are in Hong Kong? I don't but I know my deeds are more than several sheets. You also don't know what other paperwork that Traineeinvestor keeps in his/her safe deposit box. I started with a small box and had to move up to a larger box to store our wills, deeds, vehicle titles, stock certificates, marriage & birth certificates, passports and jewelry. My safe deposit box is full and we've been thinking about renting another box. I also have a large fire safe at home for copies of original paperwork and other valuables.

That's pretty much where we are now - the box is full and no amount of stuffing will get another set of title deeds in it.

I would probably get a fire safe, bolt it to the floor, and be done with it. But it depends on how long you plan to live in the house. If you never plan to sell, it shouldn't be an issue. If you plan to sell before you die, it might be (captain obvious).

No plans to leave, but either a fire proof fling cabinet or safe is something we should consider.

You are really between a rock and a hard place on this issue. i don't know what is best to do. It's tough. Maybe like has been suggested before, invest in a very , very good safe to keep those documents and hide the safe in the wall.

Yep - that's looking like the best solution.

While I was working I kept a mortgage and that allowed me to keep more funds invested. Prior to FIRE I wanted to reduce risk and I paid off the mortgage. It is a risk vs. return question. I was comfortable with more risk when I had an income and my investments. Less so now that I have only the investments.

Agree that it is a risk v return issue. I also consider it an exchange of risks - if I take out the mortgage I am giving myself some additional protection against inflation + increasing liquidity while taking on credit default + interest rate risk.
I'm also comfortable carrying a modest amount of debt in retirement - even if I proceed with this re-mortgage, total debt (without netting cash balances) will still be less than 10% of total household assets.

 

[pb4uski]

In your OP you said if you remortgage that it would be positive carry.

Keep it simple. Remortgage and let the bank take care of safekeeping of the deed. Invest the proceeds and set up the mortgage payments on autopay.

My 3.375% mortgage and 1.9% car loan are on autopay and I frequently forget about them.

 

[traineeinvestor]

In your OP you said if you remortgage that it would be positive carry.

Keep it simple. Remortgage and let the bank take care of safekeeping of the deed. Invest the proceeds and set up the mortgage payments on autopay.

My 3.375% mortgage and 1.9% car loan are on autopay and I frequently forget about them.

Yep - the positive carry is enough to be meaningful even without the cash back. I've more or less decided to float it past higher authority (aka DW).

The banks in HK will insist on autopay for a mortgage.

 

[traineeinvestor]

Thanks for all the replies.

I took DW out to dinner for our anniversary last night, waited until she was on her second glass of champagne and told her we were celebrating the occasion by getting another mortgage. Since I wasn't locked out of the apartment, I'm proceeding on the basis that she is supportive.

This will be the first time I have applied for a mortgage without any employment based income to support the application.

 

[traineeinvestor]

The bank I use has finally approved the new loan. Without employment income, they asked for a lot of information and limited the advance to 30% of the bank's valuation of the property in question (which is fine because I didn't want a larger advance anyway).

The other good news – the original mortgage was an all obligations mortgage which means I do not need to engage lawyers to prepare new mortgage documentation. All I have to do is go into the bank branch to sign the loan documents which means that the 1% cash back is all mine to keep.

Next stage: where to invest the new money.