Are you preparing to take a home loan in Singapore? Whether you’re buying your first home or upgrading your flat, one of the major things to consider is how much it’ll cost you.
While a new place sounds like a great idea, properties aren’t exactly cheap in Singapore.
And since you don’t want to bite more than you can chew, it’s important to use a mortgage calculator in Singapore to find out how much your new home costs.
In this article, you’ll learn how to calculate housing loan in Singapore.
The loan tenure is the time it takes to pay back your loan and its interest. Maximum loan tenures for private properties and HDB flats are 35 and 30 years respectively.
A long loan tenure gives you the chance to spread out payments. It allows you to make smaller payments, which makes the housing loan more affordable.
However, the longer your loan tenure, the more interest you have to pay overall. Also, it’s worth noting that accepting a loan tenure that’s longer than 25 years for HDB loans will reduce your loan-to-value (LTV) ratio.
The LTV ratio refers to the maximum amount you can borrow for a property. Since you obviously want a loan to be as close to the price of the property as possible, it’s important to avoid exceeding the 25-year loan tenure mark.
Two major factors affect your loan amount and tenure when buying a new home in Singapore. They are your age and income.
The minimum age requirement to qualify for a home loan is 21 years old while the maximum age is 65 years old.
Younger home buyers have longer maximum loan tenures. The idea here is that younger people have more years in active service to work and pay back their housing loans.
Meanwhile, people above 50 years old don’t have a lot of time until retirement. Hence, lenders are wary of offering overly long loan tenures to older people.
Your income plays a huge role when you’re taking a housing loan and trying to figure out how to calculate housing loan.
Before granting a housing loan, banks will calculate your Total Debt Servicing Ratio (TDSR). The TDSR refers to the ratio of your debt to your income.
This takes into account all your current loans, including the housing loan you’re applying for.
Due to bank regulations in Singapore, your TDSR cannot exceed 55% of your income. Let’s say your monthly income is $5,000. This means that 55% of $5,000 = $2,750.This means your monthly repayment for a housing loan cannot exceed $2,750.
If you’re applying for an HDB loan, another thing to take into account is your Mortgage Servicing Ratio (MSR.)
The MSR refers to the part of your gross monthly income that you’re allowed to channel into repaying all property loans.
Again, according to bank regulations, the MSR cannot exceed 30% of your gross monthly income. Hence, if your monthly income is $5,000, your monthly repayment for an HDB loan cannot exceed $1,500.
The valuation of your dream home is one of the most important factors to consider when buying a new property. This is due to the loan quantum, which is based on the LTV ratio.
As earlier explained, the LTV ratio is the total amount you can get for a property. For a bank loan, the maximum LTV ratio for a property in Singapore is 75% of the property’s valuation or its asking price, depending on which is lower.
This means if the property costs $1,600,000, the maximum loan amount you can get from a bank is $1,200,000.
However, the lower your property valuation, the lower the maximum loan amount you can get for it. Unfortunately, banks have different valuations and it’s usually less than the property’s asking price.
Hence, if a property’s asking price is $1,600,000, but a bank values it at $1,452,000, the total loan amount it will pay you is 75% of $1,452,000 which is $1,089,000.
A lower property valuation will force you to pay a bigger downpayment. Therefore, your goal would be to secure a loan with a valuation that’s closer to the asking price of the property.
You may want to get an idea of the property’s true valuation using a home loan calculator in Singapore.
That way, you’ll know the valuation to expect when you apply for a housing loan.
When it comes to how to calculate housing loan, it is generally thought that your mortgage should be about 2.5 times your annual income. Hence, if your annual gross income is $200,000, your mortgage should be between $400,000 and $500,000.
However, it’s important to take the TDSR into account. As explained earlier, your TDSR cannot exceed 55%.
So if you earn a monthly income of $5,000, your monthly debt obligation is capped at $2,750. But if you have outstanding loans, they will be factored into your monthly debt obligation as well.
Let’s assume you have an outstanding debt obligation of $1,500 from unpaid student loans and car loans. $2,750 – $1,500 = $1,250. Hence, your monthly repayment for a new property cannot exceed $1,250.
This directly affects the total loan amount you can get by reducing how much mortgage you can afford. Therefore, you’ll need to pay up your outstanding debt to give you the best chance to buy your dream home.
If the numbers are a bit confusing, you can always use a mortgage loan calculator or a housing loan calculator to find out if you can afford your new home.
You can use a mortgage calculator to work out how to calculate housing loan.
Usually, the parameters involved are your loan amount, loan tenure in years, and an annual interest rate, which is usually 2.5%.
Let’s say you’re financing a property with a bank loan of $500,000 with a 2.5% interest over 25 years. You’ll need to pay a monthly payment of $2,243.08.
At the end of 25 years, your total interest paid will be $172,925.10 and the total amount paid will be $672,925.10.
The maximum loan you can get depends on your bank’s valuation of your property.
When you want to buy a new home, the bank will calculate the property’s LTV ratio. If you’re taking an HDB concessionary loan, the maximum LTV is 80%. Meanwhile, a bank loan’s maximum LTV is 75%. This means the bank will pay 75% of the property’s value.
As earlier explained, the bank valuation may be below the property’s asking price. For example, a bank may value a $517,000 home at $500,000. The extra $17,000 is called Cash Over Valuation (COV).
Hence, if you’re buying this property, the bank will pay you a maximum loan amount of $375,000 which is 75% of the property valuation. You can cover 20% ($100,000) of the property value with your CPF Ordinary Account (OA).
Meanwhile, you’ll have to pay the remaining 5% ($25,000) in cash. But if you get a bank that values the same property at $515,000, your COV will be reduced to $15,000.
Hence, it’s important to try and get a bank that offers a valuation of your dream property that’s closer to its asking price. Again, you can work out these numbers easily using a bank or HDB loan calculator.
If you want to know how to calculate housing loan in Singapore with less hassle, simply use the CPF housing loan calculator on the CPF website.
If you want a housing loan and need professional advice, licensed money lender 1AP Capital has some of the best and most experienced loan advisors in Singapore.