By Darren Ong (guest contributor)
In Singapore, before you apply for a housing loan from banks or any financial institution (FI), you have to first determine the maximum housing loan amount you can borrow, which in turn determines how much upfront cash or CPF fund you need to set aside before you commit to any purchase of Singapore property.
On the 5th of July 2018, MND, MAS and MOF jointly announced that the LTV limits will be tightened by 5% for all housing loans granted by financial institutions (FI), as part of a package of measures to cool the property market in Singapore and keep housing price increases in line with economic fundamentals.
In simple terms, the LTV limit simply means the loan amount as a percentage of the property’s value. For example, if your LTV limit is 60%, this means you can only borrow $600,000 from the bank for a property valued at $1,000,000.
So What Are the 4 Factors Affecting Your Property Loan-To-Value (LTV) Limit?
The four key factors that determine the LTV limits are:
- Loan duration (Loan Tenure)
- Borrower(s) age
- Property type (HDB or Private property)
- Whether you have any existing housing loans
1. Loan duration (Loan Tenure)
In Singapore, the maximum loan tenure for a housing loan is capped at:
- 30 years for HDB flats. (If you are applying loan through HDB directly, the maximum loan tenure will be 25 years)
- 35 years for non-HDB properties
Do note the following that will result in lower LTV limit which in turn increases the upfront funds needed to purchase a property in Singapore:
- For HDB flat, if the loan tenure is more than 25 years
- For non-HDB properties, if the loan tenure is more than 30 years
2. Borrower(s) Age
In determining the LTV limit, one of the factors is the borrower(s) age. If the sum of the borrowers’ age and the loan tenure crosses above 65 years, the LTV limit will be lowered resulting in a lower housing loan amount granted which in turn increases the upfront funds needed to purchase a property in Singapore.
For joint borrowers, the income-weighted average age as their present age is used. The example below shows you how you can determine the income-weighted average age as it relates to your ability to repay the loan:
Assuming B1=Borrower 1, B2=Borrower 2
The income-weighted average age = (B1’s Age * B1’s gross monthly income / (B1’s gross monthly income + B2’s gross monthly income)) + (B2’s Age * B2’s gross monthly income / (B1’s gross monthly income + B2’s gross monthly income))
Since borrowers’ age is one of the key factors, older borrowers might have a disadvantage as compared to the younger borrower. This is one of the reasons why we always encourage you to start young when investing in property in Singapore.
Let’s take the above example again. Mr. Lim and his daughter Jenny each bought a condominium. In order to borrow to the maximum LTV of 75%, Mr. Lim only can take up to a 15 years loan tenure which adds up to 65 years (50 years + 15 year loan tenure). This means that Mr. Lim might need to service a higher monthly installment as the loan tenure is shorter.
Since Jenny is 25 years old, she can take up to a 30 years loan tenure yet still able to enjoy the maximum Loan-to-Value of 75%. Which means her monthly housing installment will be lower as compared to Mr. Lim.
3. Property Type
The type of property refers to HDB flat or non-HDB flat (private property).
4. Number of existing housing loan
Lastly, the number of housing loan(s) that you are currently servicing is the biggest factor affecting the LTV limits that you can borrow for your next housing loan.
The LTV limit table shows in more detail a summary for Singapore residential property with effect from 6th of July 2018, how much you can borrow based on your age, loan tenure, type of property purchased and the number of housing loans you are servicing now.
Case Study Example on Loan-to-Value (LTV) Limits
Assuming Mr. and Mrs. Tan are 50 and 45 years old respectively. Mr. Tan earned a gross monthly income of $5,000 while Mrs. Tan earned a gross monthly income of $6,000. This example will show the calculation of their income weighted average age for buying their first HDB or first private property based on loan tenure of 10 years and 20 years. You may refer to the above LTV Limits Summary Table for reference.
Buyers should understand the fundamentals of Loan-to-Value (LTV) and its limits based on the 4 factors so that they are able to determine the maximum loan they can take up and determine how much initial outlay they need to set aside for the property purchase. Always start young in order to enjoy your retirement early!
Darren Ong is a real estate professional who helps his clients achieve financial freedom and grow their wealth through Property Wealth Planning™. He believes that with prudent strategies and a clear investment road map, anyone can enjoy a life of abundance and financial stability.
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