By: Wayne Quek, CFA
July 9, 2013
MAS Announces 8th Round of Cooling Measures!
Demystified, Dissected and Discussed
MAS imposes yet another round of property cooling measures effective 29th June 2013.
How does it affect you?
Here are the main changes
Medium-term interest rate of 3.5% for residential properties will be used for calculating the TDSR and 4.5% will be used for non residential.
[Minimal impact as some FI’s are already using 3.5% to calculate]
Borrower’s Income calculation method. Only 70% of variable and rental incomes can be considered. [Impact for this is minimal as some FI’s are already practicing this]
All borrowers must be mortgagors. After the last few cooling measures, some purchases have been purchasing houses in another family members name and supporting the loan as a non-mortgagor borrower. This loophole has been plugged and it is no longer possible. Guarantors must also be considered as borrowers. [Moderate impact, especially for buyers who wanted to park the property under their spouse or children’s name to circumvent the ABSD and LTV rules]
Income Weighted average age. Assuming 2 joint borrowers. Borrower 1 is 50 years old and earns $20,000 a month. Borrower 2 is 30 years old and earning $5,000 a month. Previously, in certain banks, you are able to utilize the age of the younger earner and borrow for a longer tenure. Right now, with the weighted average, the bank will count the age of these 2 borrowers as 50 – (50 – 30) x ($5,000/$25,000*) = 46 ($25,000* is total income) This means that the maximum loan tenure to still obtain 80% Loan to Value will be 65-46 = 19 years [Moderate impact, especially for parents looking to support their children who have just started working]
For Refinancing, existing borrowers who are seeking to refinance their housing loans will be exempted, if they meet certain conditions by MAS
In Summary, MAS seeks to standardize the loan approval process throughout all the Financial Institutions, taking a more prudent approach to close up some loop holes of the previous cooling measures. This new cooling measures also seeks to prevent purchasers from over leveraging as interest rates are set to go up in the near future. If you are out of your loan lock in period, please contact our consultants for a free refinancing evaluation to capitalize on our current low interest rates environment.
Wayne Quek is a consultant at www.homeloanwhiz.com.sg and he is a CFA Charterholder, specialising in breaking down the complexities of mortgages so that it is easy for all to understand. He is passionate about assisting clients enhance their wealth through smart financial decision making.
Email: info@homeloanwhiz.com.sg
Tel: 6631 8980
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Maximum Total Debt Servicing ratio (TDSR) of 60%. This means that the total outflow of your monthly liabilities will be capped at 60% of your monthly income.
How is this calculated?
Consider a borrower John, who is earning $10,000 a month. Max TDSR will be $6,000. He pays $1,000 a month for his car loan, another $1,000 monthly for his son’s study loan; a total of $2,000 a month outflow. He has no other liabilities.
This leaves John being take a mortgage that has a maximum monthly repayment of $4,000. ($6,000 - $2,000 of liabilities). The maximum loan amount that can be borrowed depends on other factors like the loan tenure, which will affect the monthly repayments
[60% TDSR is actually very generous and there will be a minimal impact on the market for this ruling]
