In The News
Home Loan
October 19, 2011 by thesingaporepropertybook · Leave a Comment
Most home buyers will be obtaining a loan from a bank or use Central Provident Fund (CPF) monies to fund a purchase of their home.
In deciding whether to grant you a loan, banks may be concerned with your ability to repay the loan and whether the banks will have adequate security to rely on in the event that you cannot repay. You may therefore be required to provide the bank certain information to enable the bank to make an assessment of whether you are eligible for the loan:
Financial Commitment-to-income Ratio
To determine your ability to repay the loan given by the bank, the bank compares your total debts to your total income:
Financial Commitment-to-income = Total monthly debt obligations / total monthly gross income.
As a rule of thumb, your total financial commitment for loans per month should not exceed 40% of your household income.
Loan-to-value (LTV) ratio
The bank will also be concerned as to whether it has sufficient security in case it needs to recoup its loan from you via a forced sale.
LTV = The amount of loan on a property / value of the home.
The maximum LTV at which banks in Singapore may finance your first property is 80% of the purchase price or property’s current market value whichever is lower. However, if you have any existing home loan(s), based on recent government rulings, you are only eligible for financing up to a 70% LTV.
What to Ask Your Banker
In addition to the above, the Association of Banks of Singapore and Consumer Association of Singapore have put together a brochure with suggestions of the kind of questions you ought to ask your banker before taking out a home loan. You need to know the kind of obligations you are taking on when signing up for a home loan, and questions you should consider include whether your interest rate is a fixed or floating rate, whether you can prepay the loan ahead of the scheduled time, and whether there are any penalties for refinancing the loan. You can find the brochure done by ABS and CASE here.
