I just got this call from OCBC offering a 0% interest loan (there is only a ~1.x% one-time fee). I’m wondering if REITs are offering >4% dividend rates, does it make sense to take up this loan to get a “jump start” into a REIT? Is there a factor that I’m not taking into consideration (because it sounds too good to be true…)?
Pros:
Buying in one lump sum saves me the per-transaction brokerage charge
I was already looking into getting into a REIT. I just wanted a larger sum to average out the fees
I get started with the >2% dividend earlier.
Risks:
Buying all at once doesn’t give me the safety of dollar cost averaging.
If I need to sell the stocks to pay back the loan, I might not get all my money back
Banks do not make profits by handing out interest free money.
What are the conditions? How long? Is the interest rate free forever? Are you obliged to buy some overpriced life insurance? Does OCBC allow you to use the money to buy stocks? How much are they offering? Can the loan be called in at any time?
But if the loan is only interest free for a short time and then either has to be repaid or OCBC applies the lending rates, you are almost certainly going to make a loss.
The market has a way of predicting when stocks have to be sold and the price drops just at the time you sell…
Ask yourself why the bank is making the offer and where it is planning on making money on the deal. Then you will have your answer.
Meet up with the sale person and find out more. usually the telemarketer job is to get your interest and follow up will be with a different personnel and these telemarketer do not know the product at all. Their job is to get you to follow up. Once I was intro a govt bond with 7.5% yield, I asked if there is min lock in or min amount needed to invest, the telemarketer say no. After meet up with the financial adviser, there is a need of a lump sum lock for 10 years in emerging market bonds. Basically a unit trust invested in bonds. wasted my time.
There is always a limited duration of the “interest free”, it is worthwhile to think what you are going to do when the usual interest rate comes in. My experience is that this duration is about 6 months.
Investing in Reits is no guarantee that you will make money or even protect your capital. Prices of Reits, like equities and bonds, go up and down with or without rationale reasons.Hence, while you may be able to bang on the dividends, the share price is a major uncertainty.
Always invest within your period and if you can, with what you can afford to lose.