How Much Housing Loan Can I Take?
November 10, 2022
A home is a secure and profitable investment for many in Singapore. That said, one of your biggest concerns may be the question “how much housing loan can I take?” and “how can I finance my downpayment?”
Whether you take a bank loan or HDB loan, one factor that determines your loan affordability is the LTV ratio.
In this blog post, we look at the LTV ratio and other terms related to housing loans to help you make a better decision before borrowing a home loan.
What Is The LTV Ratio In Singapore?
The loan-to-value (LTV) ratio refers to the loan amount you can get to buy a home. An LTV ratio of 60% means you can borrow up to 60% of the total value of your property.
To calculate your LTV ratio, divide the principal amount you want to borrow by the price of the property and multiply this number by 100 to convert it into a percentage.
The formula to remember is: LTV ratio = Loan amount ÷ Asset price
For example, if your loan amount is $350,000 and the house costs $500,000.
The LTV = $350,000 ÷ $500,000 = 0.7
0.7 x 100 = 70%, which means you can borrow up to 70% of the property’s price.
The maximum LTV ratio for bank loans is 75%. You can pay the remaining 20% from your CPF Ordinary Account (OA) or cash, or a combination of both. However, 5% must be paid in cash.
For HDB loans, the maximum LTV ratio is 80% as of 30 Sep 2022. You can pay the remaining 20% in cash, by using your CPF OA, or a combination of both.
Learn how to adjust your CPF for a housing loan from financial experts at Credit Thirty3.
How To Lower Your LTV Ratio
A lower LTV ratio requires you to pay a higher downpayment when purchasing your home, but it’s beneficial in the long term.
Here are some other ways to decrease your LTV ratio.
Make Extra Payments
You can lower your LTV ratio by making extra payments on your principal amount. This will help you repay your loan quickly and reduce your LTV ratio.
Pick A Short Loan Tenure
A short loan term decreases the risk of approving the loan for banks and HDB. If you can afford to pay a higher mortgage for 15 or 20 years, you should lower your LTV ratio.
Choose A Less Expensive Property
You can purchase quality HDB flats or executive condominiums (ECs) at affordable prices and finance them using a bank loan to lower your LTV ratio.
Also, a less expensive home decreases the burden of a higher downpayment.
Borrow From A Licensed Money Lender For Your Downpayment
Licensed money lenders can provide you with fast cash loans at lower interest for a one-time down payment on your housing loan. You can pay a higher downpayment of up to 40% of your loan value to lower your LTV ratio.
You can get a personal loan from licensed money lender Credit Thirty3 to finance your housing loan downpayment.
Why You Should Lower The LTV Ratio
A low LTV ratio means you borrow less and pay more downpayment.
Here are a few benefits of a lower LTV ratio that can help you understand the advantages of lowering the LTV ratio on your home loan:
- It reduces your overall interest rate. A low LTV ratio is a less risky loan to lenders. Thus, you can get a lower interest rate on your loan.
- You can avoid mortgage insurance because of the low risk involved in your housing loan.
- Lenders may ask for less income paperwork, and in a few cases, waive the home appraisal requirement.
- Lenders approve the loan more quickly when the LTV ratio is lower.
- If you want to sell your home after a few years, you will have more equity and receive a larger share in the profit from the amount you receive from the sale.
How Much Mortgage Loan Can You Afford?
The mortgage loan amount you can afford depends on your income, savings, debts, credit score, and LTV ratio.
These are the factors that determine your borrowing capacity:
Mortgage Servicing Ratio (MSR)
The MSR is the proportion of your monthly income that will go towards servicing your loan repayment. Your monthly installment must not exceed 30% of your gross monthly income.
This applies to HDB flats and ECs only.
Total Debt Servicing Ratio (TDSR)
This indicates the proportion of your monthly income that you spend on debt repayments. It includes your credit card payments and other pending loans.
Your total monthly debt repayment cost must not exceed 55% of your gross monthly income.
You can only borrow 75% of your home’s price from banks and 80% for HDB loans. You have to pay the remaining amount from your savings and CPF.
If you can afford your downpayment costs and get an affordable LTV ratio from the lender, consider taking a home loan.
HDB Loan Vs Bank Loan
Usually, borrowers have the option to borrow a housing loan from HDB or banks. Let’s look at the key points to note under these types of home loans.
These loans typically have a few restrictions, and you can only purchase a HDB flat using HDB loans. Take note of the following:
- At least one buyer must be a Singaporean.
- Buyers should not own private property, and their monthly income must not exceed $7,000 for singles, $14,000 for families, and $21,000 for extended families.
- As of 2022, the interest rate is 2.6% throughout the loan duration.
- A HDB loan can offer an LTV ratio of 80%, which means you can borrow 80% of your home’s value.
- There are no penalties for early repayment.
- The late repayment fee is lenient, with only 7.5% charged for the late payment per year.
Banks do not impose quite as many restrictions but require borrowers to have a solid credit rating before approving a loan.
- You can take a bank loan for any kind of property, even for a HDB flat.
- The interest rate is lower than HDB rates at about 1.2%, but fluctuates after two to three years, depending on market conditions.
- There is a penalty of 1.5% on early repayments.
- The LTV ratio for a bank loan is 75%. Out of the remaining 25%, 5% of the downpayment must be paid in cash.
- Borrowers have to pay a $50 late repayment fee per repayment.
In a nutshell, both types of loans have certain advantages and drawbacks depending on the loan terms.
Depending on the state of your finances and loan conditions, you can decide which loan is more suitable for you.
Other Factors To Consider Before Taking A Housing Loan
Here are a few factors that you should consider before taking a housing loan.
This includes your downpayment, stamp duty, commission fee, and other one-time charges you may have to pay when purchasing your property.
This determines your interest rate. A long-term loan incurs lower monthly installments, but you will end up paying more interest in the long run.
In contrast, a short-term loan has higher monthly installments, but can help you save on interest.
One more thing to consider is how old you are. Typically, banks cap the maximum age for housing loans in Singapore at 65. Hence, if you are 45 years old, you can only get a loan term of 20 years.
HDB loans have fixed interest rates, but bank loans come with fixed or floating interest rates. If bank interest rates decrease over time, it’s beneficial for you.
However, market conditions can change and interest rates can fluctuate, so you may have to pay higher interest rates.
You have to set aside some ongoing expenses on top of your loan repayments, which include:
- Property tax
- Mortgage insurance
- Interest rate hikes
- Late repayment charges
Get The Right Housing Loan For Your Needs
In other words, you need extra savings for miscellaneous expenses along with your loan repayments.
Don’t forget to consider your monthly income, job security, and savings before taking a home loan.
It’s wise to obtain a short-term housing loan that may incur a lower interest rate, as it will allow you to repay your loan earlier and enjoy your golden years without worries in your dream home.
If you are worried about how much housing loan can I take, get advice on housing loans and flexible repayment plans with Credit Thirty3.