Private Property Loan Tenure
The Monetary of Singapore has tightened the Loan-to-Value (LTV) limits on 6 July 2018. The revised LTV limit for first mortgage loan is 75% of the property price, the longest loan tenure granted is 30 years or 65 years minus age of borrowers, whichever is shorter. If the tenure is stretched to 35 years, or when the sum of the tenure and age of the borrower exceeds 65 years old, the loan quantum will be reduced to 55% or lower.
The initial deposit can be paid with cash and Central Provident Fund (CPF). However, a minimum 5% must be paid in cash while the rest can be funded by CPF.
|1st Mortgage Loan||2nd Mortgage Loan||3rd or More Mortgage Loan|
|Loan Quantum||75%; 55% if loan tenure>30 yrs or age of borrower+loan tenure>65 years||45%; 25% if loan tenure>30 yrs or age of borrower+loan tenure>65 years||35%; 15% if loan tenure>30 yrs or age of borrower+loan tenure>65 years|
|Min Cash Required||5% (75% loan)|
10% (55% loan)
2 or More Borrowers
If there are 2 or more borrowers for the mortgage loan, we have need to use income weighted method in the calculation.
Borrower A, 40 years old, earns a monthly income of $15,000; Borrower B, 30 years old, earns a monthly income of $5,000. Therefore the calculation is as follows: (40×15000/20000) + (30×5000)/20000) = 37.5 = 38 (rounded up).
There the maximum loan tenure is 65 – 38 = 27 years
TDSR & MSR
The Monetary Authority of Singapore (MAS) has mandated all banks and financial institutions to apply Total Debt Servicing Ratio (TDSR) to all private property loans. Mortgage Servicing Ratio (MSR), on the other hand, applies to HDB & Executive Condominium (EC) property loans. Both frameworks are measures to encourage prudent borrowing.
TDSR is capped at a maximum of 60%, while MSR is capped at 30%.
- What is MSR? The ratio of your monthly installment to your monthly income.
For example, if the monthly installment for the housing loan is $2,000. The income of the borrower is $10,000. The MSR is 20%.
- What is TDSR? The ratio of your total debt commitments (credit card, car loan, mortgage loan, etc.) to your monthly income.
For example, if the monthly credit card installment is $500, car loan is $1,000, housing loan is $1,500. The income of the borrower is $10,000. The TDSR is 35%.
The Singapore Government has also specified banks and financial institutions to apply a medium-term interest rate of 3.5% instead of the prevailing interest rate (around 2%). This is to ensure that the borrower is able to service the loan in the event if the interest rate rises to 3.5%.
For instance for a loan of $100,000, 30 years tenure, interest rate at 3.5%. The monthly installment is $450. To fulfill TDSR, the income of the borrower must be at least 450 / 60% = $750. This means with an income of $750, a maximum loan of $100,000 can be granted.
If the age of the borrower is 40 years old, the maximum tenure would be 45 years. As such the monthly installment will work out to be $500. Hence the corresponding income required would be 500 / 60% = $833.
International buyers can generally borrow up to 70% of the purchase price, depending on the credit assessment by the bank or financial institution. The loan will be in Singapore dollars and the loan tenure varies from a minimum of five years to a maximum of thirty-five years.
Property Loan Application
The housing loan packages varies for completed and uncompleted projects. Today, the mortgage interest rate in Singapore is relatively low, ranging from around 1.5%.
Broadly, there are two basic types of housing loan packages:
- Fixed interest rate housing loan offers a fixed interest rate for a set period. This will protect the borrower from interest rates increases, but when the interest rate falls, the borrower will pay a higher rate.
- A floating interest rate, on the other hand, follows the rise and fall of interest rate in the market.
Depending on the lender, there are different packages of home loans that can be tailored to a borrower’s needs.
The monthly installment for a housing loan or mortgage will depend in the loan amount, loan tenure and loan package.
A buyer can obtain in-principal approval for a housing loan from a bank before he commits to purchase a property. The credit assessment he will be subjected to upon a request for a housing loan are as follows:
- Proof of regular income e.g. Income Tax Notice of Assessment
- Credit Bureau checks e.g. good payment records for credit cards or previous loans
To process a housing loan, banks or financial institutions usually require the following documents:
- Original and duplicate copies of Identity Card or passport.
- Income documentation – pay slips or bank book/statements for the previous three to six months showing salary entries.
- For non-regular salaried employee or the self-employed, bank books/ statements showing salary/ income entries for the past six months are required.
- Latest income tax assessment
- Option to Purchase.
- Sale & Purchase Agreement.
- Housing loan application form duly completed and signed.
- Other supporting documents may be required in certain cases.
A buyer needs to appoint a lawyer to perform the following functions:
- Purchase of the property (acting on your behalf).
- Financing of the property (acting on your behalf if you are taking up a housing loan).
Loan application process:
- A buyer submits a housing loan application and relevant documents to the bank.
- The bank values the property.
- After the housing loan application is approved by the bank, the bank instructs a solicitor to prepare related contracts.
- The buyer signs mortgage loan agreement.
- The solicitor registers the loan agreement.
- The buyer arranges for insurance, pays related fees and any outstanding amount to the developer.
- Loan is disbursed.
- The buyer starts paying monthly installments in accordance with the amount of loan disbursed and at the interest rate agreed upon.