Monday, April 30, 2018

To remortgage or not?

The last payment on one of my mortgages is due to be paid in June this year. The net cost of borrowing is currently around 2.3% which compares favourably with the margin facility currently costing about 2.9% (and compounding monthly), the yield on good quality short term bonds at around 4-5% and there are many equities which offer yields above 4%.

The other factor in favour of taking out a new mortgage is that the only storage space available for the title deeds is a filing cabinet at home – there is no room in my safe deposit box. I understand that lost title deeds cannot be replaced effectively making the property unsellable and unmortgageable. Taking out a new mortgage mitigates that risk.

The negatives are (i) the interest rate is a floating rate and will cost me more as interest rates rise and (ii) it's a P+I mortgage which will have an impact on cash flow. That said, it's a small property and the mortgage will be correspondingly small.

I'm currently inclined to take out a mortgage for a relatively small amount ... assuming the bank will lend to someone with no employment income.

Financial Review – April, 2018

April saw a small rebound in my position with gains in my equities largely offset by weakness in the AUD, NZD and bonds. Silver was more or less flat for the month. The end result was a 0.34 percent increase in net assets.

For the year to date, the portfolio is up 1.09 percent. The adjusted change from when I retired in September 2013 is a 28.19 percent increase. Hong Kong liquidity stands at 48.36 months of estimated outgoings, significantly increased from the start of the year's 26.68 months due to net asset sales.

Here are the details:

1. my Hong Kong equities rose. The only transactions this month were purchasing a small shareholding in ND Paper (HK: 2689) and subscribing for shares in the IPO of Good Doctor (results of application not known);

2. my AU/NZ equities were were up, largely due to gains in New Zealand offsetting declines in Australia. I added some additional shares in Marsden Maritime Holdings (NZX: MMH) to the portfolio; equity ETFs were up (India, Hong Kong and China) in line with the local markets;

4. my position in silver was more or less unchanged;

5. all tenants are paying on time and all properties are let. However, one long standing tenant will move out at the beginning of July so I will have a vacancy and the inevitable repaint/repair/agency expenses then;

6. the AUD and NZD were down against the USD/HKD;

7. my position in bonds remains modest. I added one additional 3 year USD bond to the portfolio – this is intended to be a replacement for a bond that matures in June. Recent interest rate increases have pushed the holding values of some of my bonds to  below par - since I intend holding to maturity (other than a solitary perpetual) this is not a problem. I have a margin facility in place and my carry trade is doing its thing and generating a small amount of additional income. However, the spread between the interest earned and the interest paid has narrowed to about 2.1% and will likely narrow again as interest rates increase further;

8. expenses were low with no major items being incurred this month. In contrast, next month will have high expenses as I will be booking and paying for several travel related expenses;

My HK cash position fell slightly during the month. I currently hold 48.36 months of expenses in HKD cash or equivalents (up from 26.68 months on 1 January). 

Total household gearing ((debt+accruals)/assets) is 9.35% of total assets, with the increase from last month due to borrowing to buy a bond. Property prices are as at 1 January, 2018 and will not be marked-to-market until year end and I do not net off cash. With a mark-to-market of equities, bonds and FX this number will fluctuate even if the amount of debt is being slowly amortised.