Personal Finance

How To Calculate Your Housing Loan In Singapore

December 8, 2022

What would it take for you to own a home or HDB flat? If a mortgage is your best option, how do you calculate housing loan according to its tenure?

Your age is a significant factor in determining the loan term. It’s common practice for lenders to make loan terms longer for younger borrowers. 

There is a maximum loan length of 30 years for HDB apartments and 35 years for private properties. How then can you find out how much you’ll be paying within this period?

In this article, you’ll find all you need to know about how to calculate housing loan in Singapore. 

What Is The Maximum Loan You Can Get? 

Many factors fall in place in determining how much of a mortgage loan you may be eligible to receive. That includes your ability to repay the loan and amount borrowed. 

However, the amount you can borrow varies depending on the loan you apply for.

The maximum allowable loan-to-value (LTV) ratio in Singapore varies with the mortgage cost and type of property in the market. The highest LTV allowed for bank loans is 75%. 

A 80% LTV cap applies to HDB concessionary loans as of 30 Sep 2022. However, financial institutions don’t always extend loans at the maximum LTV ratio.

Due to the Total Debt Servicing Ratio (TDSR), you won’t qualify for a mortgage if the monthly payment is more than 55% of your gross monthly income. 

Banks and HDB place a cap of 30% on the Mortgage Servicing Ratio (MSR). If your gross monthly income is $5,000, no more than $1,500 should go toward your mortgage. 

The maximum mortgage loan you can get depends on your income, the MSR, your TDSR, and LTV ratio. With these, you and your mortgage lender can agree on a home loan that suits your financial situation.  

Loan Tenure And Amount 

Borrowers below the age of 35 typically qualify for extended loan repayment terms. Another difference is that a mortgage on a private home can have a maximum period of 35 years. A mortgage on an HDB apartment, on the other hand, is capped at 30 years.

For private properties, the maximum loan amount only applies to 55% of the property’s purchase price. This LTV ratio for private properties, which was set from 6 Jul 2018, applies if the loan tenure is more than 30 years or if the term plus your age is more than 65.

To determine your mortgage loan eligibility, banks consider your TDSR. 

When you buy a HDB flat or executive condominium (EC), the bank will calculate your MSR. 

The MSR is calculated by dividing your monthly mortgage repayment by your gross monthly income. It stipulates that the payments you make toward your mortgage should not exceed 30% of your gross monthly income.

A mortgage calculator determines the maximum loan amount you can get for your housing loan based on the TDSR, the MSR (only for HDB), the loan period, and interest rate.

Calculating The Value Of Your Property 

The Inland Revenue Authority of Singapore (IRAS) is where you can find your property’s annual worth. 

You can view your annual property valuation on this site. The yearly values for this year and the previous five years are easily accessible to the public.

You can decide between renting and buying a property by looking at the yearly values. In this way, you’ll get to know where rents range in the neighbourhood.
It is fairly easy to calculate the annual value of your property. 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 example, if you are renting out a five-room HDB flat for $2,000 monthly, you would earn $2,000 x 12 = $24,000 gross rental annually. After subtracting the furnishings, maintenance fees and furniture costs, the AV would be around $16,000. 

There’s no use in comparing your rent with that of your neighbours. IRAS determines the AV of a property by looking at 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. 

It is not known how IRAS estimates the value of your home’s furnishings, fixtures, and upkeep, so it’s advisable to rely on its website’s estimations instead.

Other Factors To Consider 

The principal and interest make up your monthly payment. How much interest you pay and for how long determines the loan amount you pay back.

Here are some points to consider:

  • A longer loan term reduces payments each month but increases interest paid throughout the life of the loan
  • How consistent your income is
  • Keep the maximum LTV ratio you can get in mind – you may not get the maximum LTV
  • Consider if you can afford to buy a home with the money you have at hand. 
  • Think about how much access you have to resources
  • Make sure you have enough savings for upfront payments and to keep up with repayments in case of income loss
  • Proceeds from the sale of your current residence, minus any outstanding mortgage balance, if any

How To Calculate Your Mortgage Payment 

There are several ways to find out how much you can borrow. They include:

MSR

Lenders look at the proportion of your gross monthly income that goes toward servicing property debts, including the loan you want, through the MSR. 

Your monthly debt obligations cannot exceed 30% of your gross monthly income. The MSR only affects housing loans for HDB or EC units. For these, a bank HDB loan calculator would be your best option.

If you want to play it safe, a reasonable rule is to spend no more than a third of your monthly salary on this. 

You can use the MSR to avoid getting overwhelmed with debt. Spending less of your CPF or cash on real estate will free up funds for other expenses and long-term investing. 

A CPF housing loan calculator helps you understand more about your mortgage finances.

TDSR

As mentioned, your TDSR can’t exceed 55% of your monthly gross income. 

While only HDB and EC mortgages are subject to the MSR, the TDSR affects all mortgages, not only those secured by real estate. 

You can calculate the TDSR by dividing your monthly income by your total monthly debt payments. These include your mortgage, automobile, and credit card payments. 

Any amount that exceeds these ratios is too much for your finances. So choose carefully when considering your mortgages. 

The MSR and the TDSR are vital considerations when you apply for a HDB mortgage.

You shouldn’t borrow more than you need or for longer than you need it, even if you can satisfy the MSR and TDSR. 

If you borrow a smaller amount or choose a shorter term, you can save money on interest. That way, it may be easier for you to finance a home 

You’ll also have to prepare to pay recurring expenses such as property tax and mortgage insurance with a probable increase in interest rates. You might also deal with unforeseen events such as income reductions that may affect your repayment plan.

Here are some costs to take into account: 

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

Choose The Right Housing Loan And Lender 

By now, you should have a better idea of how to calculate housing loan. The numbers above are just the beginning of what banks consider when selecting how much money to lend you. Financial institutions will use your outstanding mortgage balances as a gauge. They will also assess your creditworthiness based on your history of meeting prior financial commitments. They will consider the location, the length of the loan, and the property you’ve selected. Your age, term length, and credit history are also important. 

If you need funds urgently for housing-related needs, visit GS Credit. 

We are one of the best licensed money lenders in Singapore, offering some of the most affordable interest rates and flexible terms. Contact us now or apply for a loan today.

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