Property Loan – Planning to buy commercial property as an individual? Or if your business is looking for commercial or residential property in Singapore, you may need a commercial property loan.
Banks must ensure that your company’s finances are sufficient to repay the loan. Banks usually calculate your company’s total debt service ratio (TDSR), which is your company’s annual net operating income divided by its total annual debt burden. If your company is in the red, or has insufficient cash flow to pay for services, TDSR will also apply to the income of individual directors. In general, the stronger your company’s financial situation, the better your chances of obtaining a commercial real estate loan.
Since SMEs are usually run by one or more partners, banks will usually check the personal credit rating and history of your company’s partners as part of the SME loan approval process. A clean history of no defaults, foreclosures, court judgments and the like can give your company a better chance of securing a commercial real estate financing loan.
How Much Can You Borrow For A Home Loan / Mortgage?
The property you want to finance with the loan serves as security which the bank can seize if you do not repay your loan on time. During the application process, banks are likely to look at several factors, such as what the property will be used for; Estimated returns on assets; location; property size and type; as well as prevailing market conditions. Before taking out a loan, you should check each of these areas carefully, and choose a loan that meets your needs.
Refinancing is an opportunity for your company to pay less in mortgage payments each month, or to borrow more money against your property. However, it is important to carefully consider several factors before refinancing. For example, how has the value of your property changed since you took out the previous loan? Has your company’s credit status changed, and does your existing loan have repayment or lock-in conditions that could make refinancing impossible?
Keep up to date with the latest market trends and industry insights, connect with a network of entrepreneurs and gain access to exclusive event invitations. Join Asia’s fastest growing business community – get your free membership here. Dealing with financial matters can be nerve wracking, especially if you are unfamiliar with jargon and jargon. But rest assured, you’re not alone—even those who are fluent and intuitive sometimes struggle to grasp certain concepts. To make it that much easier for future homeowners like you, we’ve created this handy guide to help you navigate your mortgage purchase with ease. Here are 6 common home loan terms that you will often come across when applying for a home loan in Singapore.
SIBOR stands for Singapore Interbank Offered Rate. Banks in Singapore use SIBOR as the interest rate when they lend money to each other. This interest rate is determined by the interaction of banks.
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Banks usually price their mortgage loans based on the SIBOR rate. However, there is more to it than that. For one, mortgage loans can be offered at 1-month SIBOR + 0.80%. This 0.80% spread is the bank’s margin, and different banks can offer consumers the best SIBOR home loan rates by adjusting their spreads.
A fixed rate is an interest rate that remains the same for a set period of time. For example, a fixed rate mortgage means you can expect an unchanged interest rate on your monthly payments during a certain period of time.
Since fixed rates are more stable and predictable, you can easily budget your monthly mortgage repayments and manage your finances.
However, note that floating or variable rates will kick in once your fixed rate loan term ends.
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The rate varies and is usually linked to a reference rate, for example the fixed deposit rate, SIBOR, SOR, SORA, or the internal rate set by the bank.
If you want to continue with a fixed loan, you must specify this when you refinance your loan.
A lock-in period is a period where your loan is “locked”. The time period varies depending on the home loan package you choose. It can last anywhere between one to five years, and it usually starts when the bank disburses the loan.
If you terminate your home loan within the closing period, there is usually an exit penalty. Many banks set their exit penalty at 1.5% of the outstanding loan amount.
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People usually get variable loan packages with a lock-in clause because they are cheaper. If you don’t want to refinance within a short period of time, the lock-in clause is usually unimportant.
One important thing to note is that if you are on a fixed rate loan, you are almost always locked into a fixed loan term. For example, if your fixed rate is a 3-year loan term, you will be in a 3-year lock-in period.
TDSR refers to Total Debt Service Ratio. It is recommended by the Monetary Authority of Singapore (MAS) that you do not borrow more than you can afford. In 2013, about 5% to 10% of mortgage holders in Singapore overcharged themselves by borrowing more than they could manage.
The TDSR, which applies to both private and HDB properties for refinancing and new property purchases, is determined by calculating the percentage of your gross monthly income that can go towards servicing your home loan.
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From 2020, the TDSR limit has been set at a maximum of 60%. This means that all your debt obligations from car loans, personal loans, student loans should not exceed 60% of your gross monthly income.
To calculate your TDSR, divide your total monthly debt obligations by your gross monthly income. For example, if your monthly salary is $5,000 per month, your TDSR threshold is $3,000 (60% of $5,000). If you have a monthly debt obligation of $1,500 and you want to apply for a home equity loan, the maximum monthly payment you can afford on a home loan is $1,500 ($3,000 – $1,500).
The Mortgage Servicing Ratio, or MSR, is a limit imposed by MAS on how much you can borrow to buy an HDB or new EC. It serves the same purpose as the TDSR, in that it helps you figure out your creditworthiness and ensures you don’t borrow more than you can manage.
The only difference between TDSR and MSR is that MSR only applies to HDB property buyers and ECS buyers, while TDSR applies to all property loans, whether public or private.
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Under MSR, you can use a maximum of 30% of your gross monthly income to pay off your home loan. Note that your monthly employee contribution deposited into your CPF account counts towards your gross monthly income. On the other hand, your employer’s CPF contribution does not.
To calculate your MSR, multiply your gross monthly income by 30%. Let’s say your gross monthly income is $5,000. 30% x $5,000 = $1,500. This amount is the maximum you can spend on your monthly mortgage payments.
If you can’t pay your home loan, mortgage insurance can give you the financial coverage you need. You can make a claim against your insurance, and your insurer can help you pay off your home loan.
Getting mortgage insurance in Singapore is definitely a worthwhile idea as your home loan is likely to be your biggest liability. This insurance policy protects your property and your family against unforeseen events.
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Note that if you buy an HDB property using your GPF savings, you must automatically subscribe to mortgage insurance in the form of a Home Protection Scheme (HPS). If not, you can still apply to join HPS, although it is not mandatory. Alternatively, you can look for your own mortgage insurance policy from private insurance companies.
If you acquire a private property and EC, you will not have mortgage insurance unless you subscribe to a private policy.
A house is probably one of the biggest purchases you will make in your lifetime. A large part of your wealth will be spent on paying off your home loan. So when you decide to buy a property, it is important to get all the help you need.
A strong foundation of financial literacy can help you achieve your goals at different stages of life. For example, save for education or retirement, manage your finances for a wedding, or get the best home loan in Singapore. We break down the banking jargon for offer letters here.
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Here we try to help you better prepare for your finances and the upcoming milestones in your life. Get a non-binding evaluation and recommendations for loan products here.
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