How Do You Calculate Your Housing Loan?
More buyers and investors are considering purchasing their next property due to increased global uncertainty and the chance that interest rates may rise.
But before choosing which home loans are best, it’s crucial to comprehend the three fundamentals:
- How much mortgage you can afford
- The loan amount you can get
- How to calculate housing loan
- How to figure out your monthly payment
To assist first-time homebuyers in starting the process of financing their residence, this article will discuss the types of housing loans in Singapore.
What Is A Housing Loan?
In Singapore, a loan from the bank or the Housing & Development Board (HDB) for a specific sum of money to help you finance a home is known as a housing loan. In their marketing, banks occasionally call housing loans “home loans”.
When you obtain a housing loan in Singapore, your property serves as security for the loan. Depending on the extent that you fulfil the criteria, you are only eligible for a particular amount of credit.
After making a legally required downpayment, the loan is transferred to the seller per the applicant’s payment instructions. You pay the seller the remaining balance of the purchase price. From the first loan disbursement onward, interest is charged.
Different Housing Loans In Singapore
After you’ve chosen the property you’d like to buy, the next stage is to determine how to finance it. You can take out a bank loan or a HDB Concessionary Housing Loan if you’re purchasing a HDB flat.
A bank loan is only available if you’re purchasing an executive condominium or private property.
HDB Housing Loan
HDB offers a housing loan with a reduced interest rate set at 0.1% over the current CPF interest rate. The interest rate for HDB at the moment is 2.6% per annum.
Alternatively, you might consider getting a mortgage loan from a bank or other financial organisation.
The biggest benefit of getting a bank loan is the low interest rate right now. This means you may pay less than if you had a HDB concessionary loan.
You should be able to pay the 25% downpayment to secure a bank loan.
Calculating A Housing Loan
You will undoubtedly come across a housing loan calculator, often known as a mortgage calculator while buying or refinancing a home.
Mortgage bankers frequently utilise it to help you grasp the complexities of a housing loan by providing illustrations.
You can budget your savings effectively and repay the mortgage easily using a reliable CPF housing loan calculator in Singapore. It shows how much you need to pay with a breakdown of the amortised plan.
You should be able to enter your loan amount, period or tenure, and home loan interest rates for at least the first five years in a proper home loan calculator in Singapore.
The information is then compiled in a table for easy reference.
Loan Amount And Tenure
A loan tenure refers to the time it takes for the principal and interest to be repaid by the borrower. It is, in essence, the loan repayment period.
While loan terms vary from one financial institution to another, they typically range from one month to 25 years. After taking into account several parameters, the bank determines the tenure after considering the:
- Loan amount
- Borrower’s age
- Expenditures and income
- Loan’s intended use
How Much Mortgage Can You Afford?
This depends on a lot of variables. It’s critical to understand HDB’s and banks’ lending policies. When determining how much to loan, these lenders consider several variables. The LTV, TDSR, and MSR are the three important ratios for lenders.
We’ll explain them below:
Mortgage Servicing Ratio (MSR): This gauges how much of your gross monthly income goes toward servicing your mortgage. The mortgage loan calculator divides your monthly mortgage payment by your gross monthly income to derive the MSR. For the bank HDB loan calculator, the maximum permitted MSR is 30%.
Total Loan Servicing Ratio (TDSR): As opposed to the MSR, which only considers mortgage payments, the TDSR accounts for all your monthly debt obligations. The TDSR limit is currently 55%.
Loan-to-value ratio: This metric evaluates the loan’s size in relation to the house’s worth. Your LTV is determined using a mortgage calculator in Singapore by dividing your preferred loan principal by the cost of the property.
Calculating The Value Of Your Property
Qualified surveyors and valuers base their evaluation of your home on several quantifiable factors for actual valuations. Some of these include:
- Number of rooms
- Age and condition of property
- Interior furnishings
- Vehicle accessibility
- Urban redevelopment authority zoning
- Built-up area, orientation, and location in the block
- Location, land size, and building structure (number of floors)
The projected gross annual rent that a homeowner can receive if renting out the property is the definition of the Annual Value (AV) of a residential property. This excludes furniture, maintenance costs, and furnishings.
In addition, IRAS, which establishes the AV of properties in Singapore, makes it clear that the AV is calculated using expected market rentals of comparable or related properties rather than the actual revenue received.
Every year, IRAS modifies the AV of properties to reflect developments in the property market. According to IRAS, a property’s Annual Value may be impacted by physical modifications, such as a significant improvement to a HDB block.
Let’s look at an example of how the value of your property is calculated.
You have a three-bedroom 1,200 sq ft condo in Tanah Merah. You used to be an owner-occupier, but now you rent the entire furnished unit for $3,800 per month.
IRAS uses the market rentals of similar homes in your development to determine your property’s Annual Value (AV). This includes units of the same type and nearly the same floor space in the same complex.
Suppose there are five equivalent rentals, each costing between $3,400 and $3,700. IRAS deducts the furnishings, furniture, and maintenance costs after considering these rental transactions (not yours).
Due to this, the monthly value drops to around $2,000, granting your property an annual worth of $24,000 ($2,000 x 12 month) overall.
The AV is the same whether you are an owner-occupier or a landlord. The only difference is that if it is owner-occupied as opposed to being leased out or left vacant, taxes would be lower.
How To Calculate Your Mortgage Payment
You could assume that your remaining loan balance decreases monthly when you make monthly mortgage payments. However, it isn’t always the case.
The benchmark rate and the rest period, such as daily or monthly rest, may affect how frequently your repayments are computed.
Owners of homes often make monthly mortgage payments for the loan duration.
For instance, if you take out a loan with a 25-year term, you could pay monthly installments for the entire 25 years or until the amount is fully repaid. Your monthly mortgage payments will mostly depend on:
- Loan term
- Building status
- Type of property
- Type of loan
- Yearly interest rate
- Amount you borrow
- Frequency of payments (monthly or semi-annually)
The percentage of a borrower’s gross monthly income, which goes to paying off all mortgages on their properties, including the loan they are applying for, is known as the MSR.
This regulation states that you may only spend up to 30% of your gross monthly revenue to pay back monthly loans. The following formula can be used to determine the MSR: Monthly repayment installments for all property loans over gross monthly income multiplied by 100%
Only housing loans for HDB flats or ECs while the EC’s minimum occupation period (MOP) is still in effect are subject to the MSR.
A rule of thumb is to keep this ratio between 25% and 30% of your gross monthly income to prevent taking on too much debt.
By spending less of your savings – cash or CPF – on real estate, you’ll also have more room for other debts and more room to put money down for the future.
What Is The Maximum Loan You Can Get?
A private bank loan or HDB Concessionary Loan will determine how much money you can borrow for your home.
For HDB Concessionary Loans, you can borrow up to 80% of the selling price or the value of the apartment, whichever is lesser, as of 30 Sep 2022.
You may borrow up to 75% of the property’s value or the selling price from private banks, whichever is lower. To pay for the purchase of a HDB unit, private property, or EC, you can use private bank loans.
Let’s say you are purchasing a $550,000 five-room resale apartment. The owner of the apartment is asking $600,000 for it. The $50,000 above valuation is known as the Cash Over Valuation (COV).
For the apartment, you might borrow up to $440,000 via a HDB Concessionary Loan. The remaining $110,000 can be paid in cash, with money from your CPF account, or both. However, the COV of $50,000 must be paid in cash.
This is why keeping a record of your COV is crucial, as that sum will always need to be paid in cash.
You can only borrow up to $412,500 for the apartment if you choose a private bank loan as an alternative. At least 5% of the property valuation should be paid in cash, and the remaining 20% may be paid using cash, CPF funds, or a mix of the two.
Get An Affordable Home Loan And Calculate Your Repayments
For the majority of Singaporeans, housing loans are relatively easy to obtain.
Unlike any other nation around the globe, Singapore’s government has taken steps to make housing loans prevalent, which has made it simpler for the populace to purchase one.
Thus, if you want to buy a home in Singapore but are unsure of how to calculate housing loan, you have come to the right place.
At BST Credit, we don’t just assist you in locating the most affordable home loan options.
We are a licensed money lender that also offers a thorough consultation to determine whether it’s the perfect time to refinance. We’ll also guide you through the tedious paperwork.