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Demystifying LTV: Understanding How Much You Can Borrow For Your Home Loan in Singapore

Shelwyn @ SGPD — Thu, 17 Aug 2023 11:51:29 +0000

Purchasing a property is a significant financial decision that often requires the support of a housing loan.

In Singapore, the Loan-to-Value (LTV) ratio plays a crucial role in determining the amount of financing you can secure for your property purchase.

Understanding LTV limits is essential for prospective homebuyers and investors to make informed decisions and manage their financial commitments responsibly.

What is Loan-to-Value (LTV) Ratio?

The Loan-to-Value ratio represents the proportion of your property’s value that a bank is willing to lend you.

It reflects the amount of financing you can obtain relative to the property’s purchase price or valuation, depending on which is lower.

For example, an LTV ratio of 80% means you can borrow up to 80% of your property purchase price or valuation, whichever is lower.

LTV is factored in on top, of TDSR and MSR criteria, which we have discussed here.

LTV for HDB Loan

If you are buying a HDB flat, you may opt to take a HDB loan and the LTV is 80% for a HDB housing loan.

If eligible to borrow to the maximum 80%, the remaining 20% downpayment can be paid with your CPF OA, cash or a mixture of both.

There is no minimum cash downpayment.

LTV for Bank Loan

If you are purchasing an EC or a private property, you can only choose to take up a bank loan. You can choose a bank loan for HDB flats as well.

The LTV limits depends on whether you are currently servicing one or more home loans.

For the first property: Up to 75% LTV
For the second property: Up to 45% LTV
For the third and subsequent properties: Up to 35% LTV

The remaining 25% downpayment for your first property, 5% must be paid in cash. The remaining 20% can be paid using CPF OA, cash or a mixture of both.

Other factors that affect the LTV are remaining lease of a property, loan tenure and the borrower’s age.

Low remaining lease, longer loan tenures and older borrowers may result in lower LTV ratios.

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The post Demystifying LTV: Understanding How Much You Can Borrow For Your Home Loan in Singapore first appeared on SGPD.

Demystifying TDSR and MSR: Understanding the Technical Terms That Affect Your Home Loan Eligibility in Singapore

Shelwyn @ SGPD — Thu, 17 Aug 2023 11:43:26 +0000

Most of us take up a home loan prior to buying properties in Singapore but there are some rather technical terms we may see from time-to-time, such as TDSR and MSR, which play a significant role in determining your eligibility for a home loan.

Both TDSR (Total Debt Servicing Ratio) and MSR (Mortgage Servicing Ratio) are crucial benchmarks used by banks to assess your ability to manage mortgage payments.

In this blog post, we’ll delve into the intricacies of TDSR and MSR, exploring their definitions, calculations, and implications on your property purchase journey.

Total Debt Servicing Ratio (TDSR)

TDSR is used to assess the proportion of your monthly income that goes towards servicing all your debts.

These obligations include not only your mortgage payments but also other debts like car loans, personal loans, and credit card debts.

The Monetary Authority of Singapore (MAS) introduced TDSR as a safeguard to ensure that borrowers do not overextend themselves financially.

Formula to calculate TDSR: (Borrower’s total monthly debt obligations / Borrower’s gross monthly income*) x 100%

*Use 70% of your gross monthly income to compute you earn a variable income.

Key Points about TDSR:

Threshold Limit: The current TDSR limit is set at 55%. This means that your total monthly debt obligations, including the prospective mortgage, should not exceed 55% of your gross monthly income.
Inclusions and Exclusions: TDSR includes all your existing debts and future potential debts, such as the new mortgage you’re applying for. However, it excludes certain obligations like rent, and it also considers an average interest rate for your mortgage to account for potential interest rate fluctuations.

TDSR applies to home loans for both HDB and private properties.

Mortgage Servicing Ratio (MSR)

MSR, focuses specifically on your mortgage payment. It calculates the percentage of your monthly income that goes toward servicing your mortgage loan.

MSR is used for home loans when purchasing HDB (Housing and Development Board) flats and new executive condominiums (ECs).

MSR Calculation Formula: (Monthly Mortgage Payment / Gross Monthly Income*) x 100%

*Use 70% of your gross monthly income to compute you earn a variable income.

Key Points about MSR:

Threshold Limit: The MSR limit is currently set at 30%. This means that your monthly mortgage payment should not exceed 30% of your gross monthly income.
Applicability: MSR is mainly applicable to HDB flat purchases, resale flats with remaining lease of less than 30 years, and newly launched ECs.

When will TDSR and MSR apply to me?

If you purchasing a HDB flat or a new EC with a home loan, you will need to look at MSR, followed by TDSR.

For home loans on private properties and resale ECs, you will only need to look at TDSR.

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The post Demystifying TDSR and MSR: Understanding the Technical Terms That Affect Your Home Loan Eligibility in Singapore first appeared on SGPD.

Understanding SORA vs. SIBOR: What You Need to Know Before Your Home Loan Conversion in 2024

Shelwyn @ SGPD — Tue, 15 Aug 2023 23:37:50 +0000

In recent years, you may have seen articles talking about SORA but you are still not entirely sure what it means for you and your home loan. Perhaps the articles were too long or that the terms could be rather technical or confusing. If this rings true for you, continue reading as I summarise what is important for you to know if you are still servicing a SIBOR mortgage loan.

What is SORA?

SORA is the volume-weighted average borrowing rate in Singapore’s unsecured overnight interbank cash market.

SIBOR is what a bank estimates it will have to pay another bank to borrow Singapore dollars. It is calculated based on daily submissions by a panel of contributor banks and may not be always fully backed by transactions.

In another words, SORA is based on transaction data and SIBOR is based on Singapore banks’ estimates.

SORA is based on backward-looking overnight transactions which is less volatile and less risky than SIBOR that is based on forward-looking future transactions.

From June 2024, for bank customers who are servicing SIBOR loans that has not opted to switch to SORA, will automatically converted to SORA. This includes both mortgage and personal loans.

Can I just let my existing SIBOR loan automatically convert to SORA when June 2024 comes?

Yes, you can but you may be subjected to what will be offered to you by your bank, along with potential fees and new terms.

What are the benefits if I choose to switch to SORA before vs. the automatic conversion on June 2024?

There will no need to re-compute your Mortgage Servicing Ratio (MSR) and Total Debt Servicing Ratio (TDSR) if you switch to SORA with the same bank.
There will be no conversion fee to switch early with the same bank.
Explore options to re-finance and/or to choose a loan package of your choice before the imminent conversion.

What are the points to consider when making the switch?

Compare the SORA floating rates with your existing rates, and calculate if it makes financial sense for the next following 10 months if you convert early.
Look at the loan package as a whole, factoring lock-in periods, restrictions, fees and charges.
Explore fixed rate with a shorter lock-in period as an alternative.
Ensure you speak to a trusted mortgage broker.

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The post Understanding SORA vs. SIBOR: What You Need to Know Before Your Home Loan Conversion in 2024 first appeared on SGPD.