What do I need to know regarding bank matters?
Most people needs a bank loan to buy their property, we will spare you the whole theory of time value of money to why you should take a loan to purchase your property vs paying for the property using full cash.
And because we also understand taking a loan is always not so straightforward; with the loan letter of offer longer then your credit card statement, we shortlisted some of the burning questions you have in your mortgage loan.
Click on the FAQ below to find out more
The maximum housing loan borrowers can take depends on their age, loan duration and property type, and whether they have existing housing loans. Joint borrowers are assessed using an income-weighted average age.
The maximum loan tenure for housing loans is capped at:
- 30 years for HDB flats.
- 35 years for non-HDB properties.
Calculating Age for Joint Borrowers
For joint borrowers, use their income-weighted average age as their present age. This formula calculates their average age as it relates to their ability to repay the loan:
(Borrower 1’s Age * Borrower 1’s gross monthly income / (Total of Borrower 1 and 2’s gross monthly incomes)) + (Borrower 2’s Age * Borrower 2’s gross monthly income / (Total of Borrower 1 and 2’s gross monthly incomes))
Mr. Tan is 60 years old and has a gross monthly income of $8,000. His son Alvin is 30 years old with a gross monthly income of $10,000.
Their income weighted average age is:
(60*$8,000 / ($8,000 + $10,000)) + (30*$10,000/($8,000 + $10,000)) = 26.67 + 16.67
The loan-to-value (LTV) limit determines the maximum amount an individual can borrow from a financial institution (FI) for a housing loan.
LTV refers to the loan amount as a percentage of the property’s value. For example, if an individual borrows $800,000 to purchase a property valued at $1,000,000, the LTV is 80%.
LTV Limits and Minimum Downpayment for Individuals
The LTV limits for individuals change depending on the number of outstanding housing loans a borrower has.
For loans on residential properties where the OTP is granted on or after 6 July 2018, the following LTV limits apply:
|Outstanding housing loans||LTV limit||Minimum cash downpayment|
|None||75% or 55%|
|1||45% or 25%||25%|
|2 or more||35% or 15%||25%|
Apply the lower LTV limit if the loan tenure exceeds 30 years (or 25 years for HDB flats), or the loan period extends beyond the borrower’s age of 65 years.
LTV Limits for Shell Companies
If the borrower is a shell company or not an individual, the LTV limit is 15%.
You can read the whole article here.
When extending a housing loan, financial institutions (FIs) should ensure that borrowers are within the thresholds for mortgage servicing ratio and total debt servicing ratio.
Mortgage servicing ratio (MSR) refers to the portion of a borrower’s gross monthly income that goes towards repaying all property loans, including the loan being applied for.
MSR is capped at 30% of a borrower’s gross monthly income.
It applies only to housing loans for the purchase of an HDB flat or an executive condominium bought directly from a developer.
When calculating MSR, FIs are to take into consideration:
- All the borrower’s property loans.
- At least 20% of the monthly debt obligation for any property loan where the borrower is a guarantor.
To calculate a borrower’s MSR, use the following formula:
(Monthly repayment instalments for all property loans / Gross monthly Income) x 100% ≤ 30%
Total debt servicing ratio (TDSR) refers to the portion of a borrower’s gross monthly income that goes towards repaying the monthly debt obligations, including the loan being applied for.
A borrower’s TDSR should be less than or equal to 60%.
You can read the whole article here
Since the Monetary Authority of Singapore’s (MAS) mandate that home loan interest rates should be transparent, Singapore banks started rolling out packages that are pegged directly to the SIBOR (Singapore Interbank Offered Rate) and SOR (Singapore Swap Offer Rate) in early 2007. This is a breathe of fresh air for the local mortgage scene as prior floating rate housing loan packages are all pegged to this “black box” rate, generically known as the bank board rate.
Each bank will have her own term for this, such as Mortgage Financing Rate, Home Mortgage Floating Board Rate, Special Housing Rate et cetera. Even though SIBOR is known to be one of the components that all banks’ board rates are pegged to, SIBOR’s exact influence on the board rate is unclear. Furthermore, many banks confused customers with board rate mumbo jumbo, such as stating that board rates are more stable than SIBOR and SOR. An absolutely true statement at that point in time, except that the bankers failed to mention that SIBOR and SOR had been on the downtrend for months. And also the oh so innocuous fact that when SIBOR and SOR goes up, the board rate tends to go up faster and higher.
SIBOR and SOR, on the other hand, are determined by the Association of Banks in Singapore and are published on financial mediums such as The Business Times, Reuters and Bloomberg. The difference between SIBOR and SOR is essentially that upon maturity of the SOR period, there will be a forex conversion from USD to SGD.
The following key points can be inferred from the existing data:
- SIBOR tends to be more stable than SOR.
- The shorter term SOR is not always lower than the longer term SOR at a particular point in time.
- The shorter term SIBOR tends to be lower than the longer term SIBOR at a particular point in time.
- SOR moves in tandem with the USD vs SGD exchange rate.
- As board rates are not transparent, board rate packages are only considerable when the board interest rate is lower than SIBOR/SOR pegged packages.
It depends if you are using your CPF to pay for the 15%.
If you are, then you should get the bank loan asap, this is because the CPF board needs to see some bank documents which might take some time to generate. Such items are: signed bank letter of offer, letter of instruction, valuation report.
The estimated timeline for each of the item are:
Signed bank letter of offer : 1 week from loan application.
Letter of instruction : 2 weeks from banker batching down your signed letter of offer.
Valuation report : 2 to 3 weeks.
Starting 5th July 2018,
MAS stipulated that when granting a housing loan, financial institutions (FIs) should base the loan amount on the residential property’s adjusted purchase price, which is the price after the deduction of any discounts, rebates or other benefits.
Deducting Discounts, Rebates or Benefits
When arriving at the adjusted purchase price of a residential property, financial institutions (FIs) must:
Discounts, rebates or benefits could include:
- The payment of valuation fees.
- The payment of legal or stamp fees for the purchase.
- Deferred payment schemes for completed private residential properties.
Deferred payment schemes are considered a benefit for the borrower, as the borrower can use the deferred amount for other purposes during the deferral period. For example, they can invest the deferred amount in Singapore Government Securities for a return.
Property Developer XYZ offers to pay legal fees of $20,000 for a $750,000 flat. Even though the borrower’s purchase price is $750,000, the adjusted purchase price is $730,000. The bank needs to know so that they can need to deduct it from the purchase price to derive the ‘actual’ purchase price and then grant a loan to you based on that.
Without telling the bank, these will potentially cause issue, as the bank will grant you the loan first without knowing about the membership/cashback/discount. After finding out, the bank will have to issue a supplementary letter of offer to you again (with the adjusted lower loan amount).
This causes disruption to the law firm too as they might need to redo the documents and get the client to resign, which might result in delays for the loan drawdown/CPF disbursement.
One way to mitigate this is to put in writing that you do not wish to receive these items from the developer.
You can read the whole article here
In the past, non mortgagor are allowed to be mortgagor of the property.
But since 5th July 2018, MAS updated this rule.
A borrower applying for a loan to purchase a residential property is also required to be the mortgagor of that property. Any person assisting a borrower in servicing a loan is considered a co-borrower.
- A borrower named on a residential property loan must also be the mortgagor of that property.
- If a borrower’s TDSR exceeds the threshold, any person standing guarantee for the loan has to be brought in as a co-borrower.
A borrower named on a residential property loan is required to also be the mortgagor of that property. FIs should verify that the borrower is listed as:
- A purchaser on that property’s Option to Purchase form.
- A mortgagor on that property’s Land Titles Act mortgage document.
This requirement applies to any loan for the purchase of residential property in which the OTP was granted on after 29 June 2013, or any re-financing of such a loan.
Note: This requirement does not apply if the housing loan is not secured on the property being financed.
If a borrower is unable to meet the TDSR threshold of 60% on their own, another individual may be brought in to assist them in servicing the loan.
This person will be considered a co-borrower rather than a guarantor, and lower LTV limits will apply to their future housing loan applications.
This requirement applies to:
- Any loan for the purchase of residential property in which the OTP was granted on after 29 June 2013, or any refinancing of such a loan in certain situations.
- Any loan otherwise secured by residential property, if the application date was on or after 29 June 2013, or any refinancing of such a loan in certain situations.
Read the full article here
Some banks like OCBC charged this administrative fee, it its actually the fee for doing the valuation on the unit. It ranges from $80 (desktop valuation for under construction property) to more then $500-$1000 (on site valuation for completed property).
This amount can be found in the letter of instruction.
Some law firm will require you to pay this fee to them, so that they can issue to the bank using the company cheque. This is because, the bank will not accept client’s personal cheque.
It’s ok if your letter of offer is not yet ready before meeting up with the lawyer, sometimes bank need more time to process your loan.
In that case you can still meet the lawyer first, all you have to do is to inform the law firm which bank you will be going with and who are the borrowers so that the law firm can prepare and let you sign the mortgage documents in advance during the meeting, you have to furnish a copy of the signed offer letter to them after you meet the banker.
There’s no requirement from the law firm saying that you need to sign the letter of offer before meeting us.
This is because the law firm need to prepare the correct mortgage documents for the client to sign.