Personal Finance

How To Calculate Your Housing Loan In Singapore

December 3, 2022

In most instances, homeowners who borrowed money to purchase a home have to make monthly payments to their mortgage lenders.

Though it’s a monthly mortgage payment, it includes more than the cost of repaying the loan and interest. The monthly payment for most mortgages includes homeowner’s insurance, private mortgage insurance, and property taxes.

You can estimate your monthly payment yourself, but it’s easier to use an online mortgage calculator.

This article will show you how to calculate housing loan in Singapore and everything in between.

Factors That Affect Your Loan Amount And Tenure

Let’s face it. Purchasing a home can be satisfying as it gives you a sense of ownership and pride. But the monthly payments you need to make for years can drain your finances.

For this reason, it’s crucial to think hard about the loan amount and tenure that you should take. There are several key factors to consider before finalising your loan tenure. These include:

Age

Usually, the younger a borrower, the longer the maximum loan tenure possible. Laws in Singapore have also capped the maximum loan tenures for private properties and HDB flats at 35 and 30 years, respectively.

For mortgage tenures that are longer than 25 years for HDB flats or 30 years for private properties, the maximum loan amount can be reduced to 55% of the property price.

Most lenders also tend to be unwilling to lend to elderly people as they are deemed to be close to retirement age. This is unless they can prove they have a reliable and sustainable income source.

Income And Financial Commitment

When calculating your maximum mortgage amount, banks usually factor the ratio of your debt to income. This is known as the Total Debt Servicing Ratio (TDSR), which is capped at 55% of your gross monthly income.

If you are looking to buy a HDB flat, banks usually calculate your Mortgage Servicing Ratio (MSR), which is capped at 30% of your gross monthly income.

The calculation of the MSR is based on your monthly gross income and loan amount. In other words, your maximum mortgage amount is determined by the TDSR, MSR (for HDB flats only), a medium-term 3.5% interest rate, and the loan tenure.

Calculating The Value Of Your Property

Budget 2022 stated that there would be an increase in property taxes. The good news is that this will only affect properties with an annual value of more than $30,000.

However, the bad news is that many Singaporeans are still unaware of their annual property value. This is important for tax purposes.

Let’s look at how easy it is to calculate the annual value of your property. First, the annual value (AV) of a property would be its estimated gross annual rent if it were to be rented out, excluding furnishings, furniture, and maintenance fees.

For instance, if you are renting out a five-room HDB flat for $2,000 monthly, you earn 12 x $2,000 = $24,000 gross rental annually.

However, after deducting costs such as furnishings, maintenance fees and furniture costs, the AV would be around $16,000.

IRAS determines the annual value of a property by assessing the gross annual rent of comparable or similar properties within the same vicinity or development. It then derives the AV based on an average of these amounts.

IRAS is in charge of calculating this value, so you do not have to manually check what your neighbours are charging for rent.

Due to its unpublished method of coming up with the cost of furniture, maintenance fees, and furnishings, it’s advisable to check the AV of your property on the IRAS website.

To do this, log into IRAS MY Tax Portal and navigate to “View Property Portfolio” to check the current AV of your property. IRAS reviews the AV of your property at least once annually to reflect the changes in the market rental values of comparable properties.

The IRAS uses five factors to determine the AV, including:

Property size
Rentals of similar properties in the area
Condition of the property
Property location
Other relevant physical attributes

Why You Should Know Your Property’s Annual Value

There are two primary reasons to know the AV of your property. These are:

Property Tax

The AV of your property determines the property tax. The higher it is, the more you’ll have to pay. At present, the property tax is different for owner-occupied and non-owner-occupied properties such as investment properties.

You will not be required to pay any property tax for owner-occupied properties if your AV is $8,000 or less. This means that most people staying in one- to three-room HDB flats don’t pay any property tax.

GST Voucher

For the MediSave and Cash properties of the annual GST Voucher, you’ll get more if the AV of your property is $13,000 or less. So most HDB dwellers will be eligible for the larger amount.

How Much Mortgage Can You Afford?

To find out how much mortgage you can afford and how much money you require to buy your dream home in Singapore, you can use a simple TDSR calculator.

Before purchasing your dream home, you must ensure you meet all the legal requirements besides being able to afford the upfront costs.

Let’s look at some of the costs you’ll need to pay for the purchase of your property:

5% option fee comprising 1% to obtain the Option to Purchase (OTP) and a remaining 4% upon exercising the OTP
Legal costs
Agent’s fee
Balance downpayment – if you are taking up a bank loan to finance your purchase, the first housing loan will require a 20% downpayment
Buyer’s stamp duty
Extra buyer’s stamp duty, if applicable

Ongoing Expenses

These expenses cannot be paid using your CPF. They include:

Monthly expenses such as property taxes, mortgage insurance, management services fee, and conservancy charges
Hike in the interest rate in future for a floating rate loan
A possible plunge in property value
Exceeding the original LTV ratio

Monthly Loan Installments

Most Singaporeans obtain a housing loan to buy a property. The loan is paid through monthly installments calculated from the:

Loan tenure
Interest rate
Amount borrowed

Remember that when you opt for a longer tenure to repay your loan, your monthly installment payments will be lower, but you’ll pay more interest in the long run.

Basically, the home loan amount you can afford is determined by the loan-to-value (LTV) ratio. The LTV defines the maximum mortgage loan a financial institution can loan you as a percentage of your property’s value or purchase price, whichever is lower.

For the first property, you can borrow 75% of the LTV limit for a loan tenure of 30 years or less up to age 65, a 55% LTV for a loan tenure of over 30 years, or if the loan extends past the age of 65.

How To Calculate Your Mortgage Payment

It’s crucial to calculate your mortgage payments to ensure your payments fit your budget. You can calculate your monthly mortgage payment manually, but it’s advisable to use an online loan calculator.

Here are the factors to consider:

Your principal mortgage amount
Monthly or annual interest rate
Loan term
Homeowner’s insurance
Property taxes
Private mortgage insurance
Mortgage insurance premiums

What Is The Maximum Loan You Can Get?

If you’re like most people in Singapore looking to settle down, “what is the maximum loan I can get?” is probably the first question that comes to mind.

So if you obtain a bank loan, the maximum amount you can get is 75% of the property price. On the other hand, a HDB loan can cover up to 80% of the property price as of 30 Sep 2022. A bank loan will allow you to buy private property too, not just a HDB flat.

Since bank loans use floating interest rates for their home loans, the entire interest charged will be lower, and you’ll be debt-free faster.

It’s advisable to go for a HDB loan if you’re short on cash, as it allows you to use your CPF account for the downpayment. The main downside of a HDB loan is its stricter eligibility criteria based on your finances and income.

The Importance Of The LTV Ratio

The LTV ratio is a monetary term used by lenders to show the loan’s ratio to the value of the purchased property. It’s mostly used in real estate transactions, where the asset is the piece of property being purchased.

The LTV ratio is calculated by dividing the loan amount by the appraised value of the property.

For instance, if you take out a $300,000 loan to buy a property valued at $600,000, the LTV ratio would be 50%. The LTV ratio is essential to lenders as it represents the amount of risk they take on.

A high LTV ratio implies that the loan amount is near the property’s value, so if you default on the loan, the lender might be unable to recover their loss.

On the other hand, a low LTV ratio shows that the lender has a good equity amount in the property, so they are less likely to lose out if you default. As a result, lenders usually prefer loans with low LTV ratios. They might require you to put down a bigger downpayment.

Lenders use this ratio to assess risks. When applying for a home loan, it’s important to understand how the LTV ratio works, and its impact on your application and approval.

Make Sure You Know How To Calculate Housing Loan

Now that you know how to calculate housing loan, you can use an online loan calculator to do your sums.

If you need funds for your downpayment, you’re sure to get an affordable loan for your dream home at Credit Thirty3.

We can disburse your loan in 24 hours once we’ve evaluated your eligibility after you send us your application.