Personal Loan Eligibility for Singaporeans & Foreigners

Eligibility Criteria for Personal Loans in Singapore

Most of us are already aware of many of the benefits that have made personal loans so popular – no collateral requirements, flexibility of use, lower documentary requirements when compared to other collateralize loan products, faster processing and disbursal etc. What conditions / criteria do you need to fulfill before you can get a personal loan? We will try and give you pointers that will answer most of your questions related to personal loan eligibility:

Eligibility Norms

We will look at the main eligibility criteria along with real-time, real-life examples:

Age – HSBC’s Personal Loan is available for applicants falling within the age range of 21 to 65 years. Although the lower age limit of 21 tends to be fairly constant across banks, the upper age limit may vary. For instance, UOB’s Personal Loan is available for applicants in the range of 21 to 60 years.

Nationality / Residence – Many banks provide personal loans only to Singapore citizens and permanent residents. Some banks provide personal loans for foreigners as well.

Take the example of the CashOne personal loan from Standard Chartered bank. This loan is available for foreigners provided they hold a P1, P2 or Q type Singapore Employment Pass. And, Q Pass holders must have a minimum 1-year validity remaining on their passes. The income requirement for foreigners with an employment pass is S$60,000 while the income requirement for Singapore citizens and permanent residents is S$20,000.

Income – Income requirements tend to vary from bank to bank and as we have seen above, income requirements may vary for Singaporeans/permanent residents vis-à-vis foreigners with valid employment passes. Take the case of the Personal Loan from Citibank: the minimum annual income requirement for Singaporeans and permanent residents is S$30,000 while for foreigners it is S$42,000.

Existing customer – A few banks require personal loan applicants to be existing customers. For instance, UOB Personal Loan applicants need to be UOB Cards or CashPlus customers.

Documentary Requirements

The required documents may vary from bank to bank but the core set of documents remains fairly constant and relates to income, residence and identification proof. We will look at the documentary requirements for Citibank’s Personal Loan:

Singaporeans and Permanent Residents

 Salaried Employees

 ▪ Photocopy of the front and back of your NRIC

 ▪ Past 12 month’s CPF statement submitted via Citibank’s CPF web-link

(or)

▪ Latest Income Tax Notice of Assessment and latest original computerised payslip.

 Self-Employed

 ▪ Photocopy of the front and back of your NRIC

 ▪ Last 2 years’ Income Tax Notice of Assessment and last 3 months’ bank statements.

 Foreigners

 ▪ Photocopies of the front and back of the Passport / Employment Pass.

 ▪ Latest Income Tax Notice of Assessment and latest original computerized payslip.

Top banks in Singapore such as Citibank offers instant personal loans for all Singaporeans and Foreigners(whether they could be new or existing customers) with affordable interest rates. Check Your Personal Loan Eligibility, Document Required, Interest Rates & Fees at Citibank Singapore Official Website.

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Awareness of Applying Loan Online

Here, we will take a look at some of the main types of loan products available in Singapore and a few important points that you should keep in mind while going in for these loans:

Personal Loans

These are multi-purpose, non-collateralize borrowings. They are usually high-interest loans, higher than home or car loans but not as high as credit card borrowings.

A personal loan, used well and repaid on time, can actually help you build credit. If you are finding it difficult to get a personal loan from a mainstream bank, you may approach a moneylender. If borrowing from a moneylender check the Ministry of Law’s Registry of Moneylenders to see if your moneylender is authorized and also the Ministry’s informative “Guide to borrowing from moneylenders”.

Car Loans

Buying a car in Singapore can be an expensive affair; next only to a home loan. Consider this: in addition to the Open Market Value (OMV) of the car, you will have to pay a tiered Additional Registration Fee that may go up to 180% of the OMV. Of course, there is the all-important Certificate of Entitlement (CoE). And, the Goods and Services Tax, Excise Duty, Road Tax and Parking Fees add the icing to the cake!

Remember, also that loans for vehicles with an OMV of up to S$20,000 will be limited to 60% while loans for vehicles with an OMV of more than S$20,000 will be capped at 50%.

Given all the above, a second-hand car may remain a good option for you. They are cheaper, have lesser waiting time, no CoE bidding and small transfer fees. PARF (Preferential Additional Registration Fee) second-hand cars that are eligible for both PARF and CoE rebates are preferable to CoE cars which are eligible only for the CoE rebate.

Of course, you must do the basic checks: test drives, getting a mechanic to go over the car and even getting the car over to a trusted third party workshop for inspection.

Home Loans

The questions uppermost on a would-be home loan borrower’s mind usually are:

How much can I afford? This will depend upon two variables:

The Total Debt Servicing Ratio (TDSR) – This is the ratio of your income and liabilities. The Monetary Authority of Singapore (MAS) has capped TDSR on property loans to 60% to encourage prudent borrowing.

Loan-to-Value (LTV) ratio – This is the ratio of the amount of loan taken against the value of the property expressed in percentage terms. Since the introduction of the TDSR framework for property loans by the MAS, which came into effect from the 29th of June 2013, the maximum Loan to Value (LTV) that can be borrowed is 90% depending upon the type of property.

Most banks have eligibility / repayment calculators on their websites. Use them to get an idea of how much you can afford and what your repayments will be like.

Check Your Home Loan Repayment Calculator in Citibank Singapore Website.

Do I go in for a new or an existing home?

This will depend upon the following points:

  • Maximum tenor – The maximum tenor of home loans is restricted to: 30 years for HDB flats and ▪ 35 years for private properties
  • Type of property / type of loan (if you are a first-time buyer with no outstanding home loan)

HDB Flat with a HDB loan – You can borrow up to 90% of the value of the home and use your CPF savings to pay off the 10% down payment provided the loan tenor is capped at 25 years.

HDB Flat with a bank loan – You can borrow up to 80% of the value of your home and use your CPF to pay 15% of the remaining and pay the other 5% in cash; loan tenors are longer at 30 years.

Furthermore, buyers of resale HDB flats have to fork out an additional COV (cash over value), which can amount to as much as $50,000, and has to be paid out to the seller in cash.

Private properties – Loans are available from banks; if the tenor does not exceed 30 years and the loan does not extend beyond 65 years, an LTV of up to 80% can be obtained; 5% of the remaining to be paid in cash and the remaining can be paid with CPF savings. If the loan tenor exceeds 30 years or if the loan extends beyond 65 years, only 60% LTV can be obtained.

What kind of a home loan should I take? There are two main types of home loans available:

Fixed Rate Home Loans – A fixed rate of interest is applied for the first few years (period may vary from bank to bank); thereafter the loan is converted to a floating rate. You may also be “locked” to the loan for the duration that it is fixed. Refinancing or making partial/full prepayments during the lock-in period could result in hefty penalties, of the total amount refinanced or prepaid.

A fixed rate will protect you from volatility but will also prevent you from taking advantage of rate drops.

Floating Rate Home Loans – These are usually tied to a reference interest rate (usually SIBOR or the Singapore Interbank Offered Rate, SOR or the Singapore Swap Offer Rate or the IBR or the Internal Board Rate which is fixed by your bank). Your monthly repayments may vary depending upon movements to the reference rate. There are floating rate products that come with / without lock-in periods.

Ideally you should choose between SIBOR-based and SOR-based loans, which are more transparent and not subject to the banks’ discretion.

Floating rate loans will always involve interest rate volatility. A way to mitigate this is to opt for a longer tenor SIBOR or SOR. For example, a 12-month SIBOR or SOR rates is revised every 12 months, so you get to enjoy fixed rate for a year!

We’ve already discussed briefly about overview of Home Loan.

Business Loans

There are various types of business loans available for you, if you have a business. These loans could help you to expand and improve, meet cash-flow requirements and purchase necessary equipment / supplies. These include Working Capital Loans, Factoring Loans, Short-term Loans, Overdraft and Hire Purchase Loans.

Other avenues for raising funds include Equity Financing and Collateralize Loans. If you have a start-up business, you may need to rely on your own personal credit sources. There are also a few micro finance options available in Singapore:

A collaboration between POSB Social Enterprise Hub Ltd (SE Hub Ltd, a social enterprise that seeks to invest in and incubate social enterprises) and the Singapore Totalisator Board (“Tote Board”), the MicroCredit Business Scheme (MCBS) is designed to provide those earning less than $30,000 a year the chance to take unsecured loans to start or expand their small businesses including food stalls, retail shops or hair salons. The loans can be from $3,000 to $50,000 with interest rates as low as 8 percent a year. MCBS officials will guide the loan applicants on business skills.

SPRING Singapore, an agency under the Ministry of Trade and Industry, offers a Micro Loan Programme of up to S$100,000 for daily operations or for automating and upgrading factory and equipment. These are available to companies registered and operating in Singapore with at least 30% local shareholding and with less than or equal to 10 employees or annual sales of less than or equal to S$1million. Interest rate is generally a minimum of 5.5% for loan tenors of 4 years and below.

A brief Overview of Mortgage Loans in Singapore

Home Loan

A home loan or a mortgage loan may be one of the biggest financial commitments you may undertake during your lifetime. Here are some things that you should know that will help you manage it better:

Budgeting and Affordability

The amount of money you can borrow through a home loan depends upon two main measures:

Total Debt Servicing Ratio (TDSR)

The TDSR is the ratio of your income and liabilities. The Monetary Authority of Singapore (MAS) has capped TDSR on property loans to 60% to encourage prudent borrowing. Your consolidated debt repayments including your home loan repayment, car loans, renovation loans, study loans, credit card loans and other secured or unsecured loans cannot exceed 60%. And, incomes that include variable components are subject to prescribed haircuts before TDSR is applied.

Loan-to-Value (LTV) ratio

This is the amount of loan taken out on a property in relation to its value expressed as a percentage. Since the introduction of the TDSR framework for property loans by the MAS, which came into effect from the 29th of June 2013, the maximum Loan to Value (LTV) that can be borrowed is 90%. LTV will vary based on different scenarios.

home loans
get 100% mortgage loan in singaopre

Financing Your First Home

Examine your sources of funding: you can fund your home loan repayments through mortgage loans from banks, through HDB loans, with accumulated savings or with CPF savings. And, while on the subject of funding, we would also recommend that you check out what you can afford given your current income and liabilities and what your monthly payments work out to through using eligibility and repayment calculators that are available on most banks’ websites.

A wide range of home loan tenors or the length of time for which you are borrowing, are available. However, the maximum tenor of home loans is restricted to:

  • 30 years for HDB flats
  • 35 years for private properties

Fixed-rate home loans – A fixed rate of interest is applied for the first few years (period may vary from bank to bank), thereafter following by a floating rate.

Floating or variable rate home loans – These are usually tied to a reference interest rate (usually SIBOR or Singapore Interbank Offered Rate). Your monthly repayments may vary depending upon movements to the reference rate.

There are a number of other terms that you will need to investigate and understand: these relate to the reference rate used, how often it is reset, under what circumstances it may change, how interest is computed, lock-in period, promotional rates and their applicability, prepayment penalties etc.

There are other more complex home loan packages available. Take the time to understand how these work before you apply. Also, remember that starting from March 2012, your bank should also provide you with a residential property loan fact sheet to help you understand the terms of the loan.

Approval-in-Principle – This is an approved loan amount given by a bank based on your credit report and your affordability (read, TDSR). An Approval-in-Principle (AIP) will help you understand the quantum of home loan you can expect to borrow. Having an AIP in place will also help you get a home loan faster. But, an AIP is not a binding document and is subject to property valuation and other checks during the application process.

How to find the right mortgage loan

Finding the right home loan to suit your needs and requirements may not be rocket science. It, however requires a little application and investigation from your side. We hope that the following tips will help you get off to a flyer when it comes to selecting the right mortgage loan for you:

Learn – Home loans is a topic with many different angles, different ramifications and involving various technical terms. These could include (but are not limited to):

Various upfront payments like initial deposit / down payment, Stamp duty on purchase, legal costs, including stamp fees, agent or salesperson’s commission and fees and other miscellaneous costs.

Types of loans including fixed rate loans and floating rate loans and the various types of home loan products especially interest-offset loans.

Mortgage Loan
Mortgage Loan

Home loan terminology like TDSR or Total Debt Servicing Framework (the ratio of your income and liabilities), LTV or Loan to Value (the amount a bank or financial institution will offer as a percentage to the valuation of the property in question), loan tenor (maximum is 30 years for HDB flats and 35 years for private properties), MRTA / MLTA, partial prepayments, lock-in or claw-back period, refinancing, repricing etc.

Funding – Examine your sources of funding: you can fund your home loan repayments through mortgage loans from banks, through HDB loans, with accumulated savings or with CPF savings. And, while on the subject of funding, we would also recommend that you check out what you can afford given your current income and liabilities and what your monthly payments work out to through using eligibility and repayment calculators that are available on most banks’ websites.

Approval-in-Principle (AIP) – An AIP is an approval given by a bank that indicates the home loan amount that you are eligible for. It is advisable to have an AIP in place before you commit to a property. If you do not have an AIP and book a property and are not able to get a loan approved within 14-30 days your booking fee which may amount to thousands of dollars is forfeit.

But, remember that AIPs are merely indicative and do not constitute final approval. You must still submit a home loan application and final approval is subject to property valuation and other checks.

Calculating your AIP amount will help you shortlist suitable residential properties. Only a few banks like Citibank provide an AIP Calculator step followed by a Repayment Calculator step. You will thus get a great idea of both your eligibility and your repayment capability.

An important component of the AIP is your credit score. You can check your credit score either with the Credit Bureau (Singapore) Pte Ltd or the DP Credit Bureau Pte Ltd (the two bureaus gazetted by the Monetary Authority of Singapore) by applying for it along with the relevant fee. The higher your score the better the chances of your getting that loan.

Overview of home loans in Singapore

Taking a home loan is one of the biggest financial commitments that we make during our lifetimes. However, many people are put off especially by the legalese that is used to describe home loans and their workings. For all such people, we’ve put together a nifty little primer on home loans and home loan borrowings in Singapore. Hopefully, this will encourage you to dig a little deeper and learn a little more.

What is a home loan?

A home loan, or a mortgage loan, as it may be called, is a loan to buy property. Home loans are usually repayable in monthly installments.

What can you buy with a home loan?

You can use your home loan proceeds to buy HDB flats (either direct purchase or resale), private properties which are already built and private properties under construcion.

How much can you borrow?

The amount of money you can borrow through a home loan depends upon two main measures:

Total Debt Servicing Ratio (TDSR)

The TDSR is the ratio of your income and liabilities. The Monetary Authority of Singapore (MAS) has capped TDSR on property loans to 60% to encourage prudent borrowing. Your consolidated debt repayments including your home loan repayment, car loans, renovation loans, study loans, credit card loans and other secured or unsecured loans cannot exceed 60%. And, incomes that include variable components are subject to prescribed haircuts before TDSR is applied.

Loan-to-Value (LTV) ratio

This is the amount of loan taken out on a property in relation to its value expressed as a percentage. Since the introduction of the TDSR framework for property loans by the MAS, which came into effect from the 29th of June 2013, the maximum Loan to Value (LTV) that can be borrowed is 90%. LTV will vary based on different scenarios.

What home loan tenors are available?

A wide range of home loan tenors or the length of time for which you are borrowing, are available. However, the maximum tenor of home loans is restricted to:

  • 30 years for HDB flats
  • 35 years for private propertieshome loans

Fixed-rate home loans – A fixed rate of interest is applied for the first few years (period may vary from bank to bank), thereafter following by a floating rate.

Floating or variable rate home loans – These are usually tied to a reference interest rate (usually SIBOR or Singapore Interbank Offered Rate). Your monthly repayments may vary depending upon movements to the reference rate.

There are a number of other terms that you will need to investigate and understand: these relate to the reference rate used, how often it is reset, under what circumstances it may change, how interest is computed, lock-in period, promotional rates and their applicability, prepayment penalties etc.

There are other more complex home loan packages available. Take the time to understand how these work before you apply. Also, remember that starting from March 2012, your bank should also provide you with a residential property loan fact sheet to help you understand the terms of the loan.

What are the upfront costs involved with home loans?

  • Option fee
  • Initial deposit / down-payment
  • Stamp duty
  • Legal costs, including stamp fees
  • Commission / fees for intermediaries like agents
  • Other miscellaneous costs

What are the monthly payments involved in servicing home loans?

  • Home loan repayments
  • Fire insurance
  • Term insurance tied to mortgage (MRTA or Mortgage Reducing Term Assurance / MLTA or Mortgage Level Term Assurance)
  • Conservancy charges and management fees
  • Property taxes
  • Utility bills

What is Approval-in-Principle?

This is an approved loan amount given by a bank based on your credit report and your affordability (read, TDSR). An Approval-in-Principle (AIP) will help you understand the quantum of home loan you can expect to borrow. Having an AIP in place will also help you get a home loan faster. But, an AIP is not a binding document and is subject to property valuation and other checks during the application process.

What are the eligibility norms for personal loans in Singapore?

Personal loans are a popular financial product primarily because they do not require any collateral and the loan amount disbursed can be used by the borrower for a variety of purposes; this is unlike home loans / mortgages or auto loans that can only be used for purchasing a home or a car. In fact, a borrower can use personal loan for whatever purpose they wish – no restrictions! Here, we will take a look at the eligibility norms and submissions required for personal loans in Singapore:

personal-loans-singapore

Personal Loan Eligibility Norms

Age – The borrower should usually be between the ages of 21 and 65 though some banks may require the borrower to be between 21 and 60 years of age.

Nationality / Residence – Annual income requirements may vary for salaried Singaporeans and PRs. Foreigners with an employment pass with a validity of at least one year may also be eligible though the income norms may be higher for them.

For instance, Standard Chartered Bank’s personal loan product, CashOne is available for foreigners; foreigners, must however be holders of P1, P2 or Q type Employment Passes and must have minimum 1 year validity remaining on their passes. While the minimum annual income for Singapore citizens and permanent residents applying for CashOne is required to be $20,000 for foreigners it is $60,000.

Income – Income requirements may range from $20,000 and go up to $120,000. The amount of personal loan a borrower is eligible for depends upon his/her income and is disbursed in terms of monthly income; for instance, 2x monthly income, meaning 2 times the monthly income or 4x or four times the monthly income etc.

For example, HSBC offers a personal loan amount of up to 8 times the borrower’s monthly income while POSB offers personal loans of up to $200,000.

Banking Customer – Some banks may require that a borrower should already be a customer with them. For instance, to apply for UOB’s Personal Loan a borrower needs to be a UOB Cards or CashPlus account holder.

Required Submissions

Salaried employees may need to submit the following documents:

NRIC photocopy (front and back) ▪ Latest 12 months’ CPF Contribution History Statement

▪ Latest Income Tax Notice of Assessment ▪ Latest 3-6 months computerised salary slips

Self-employed borrowers may need to submit the following documents:

▪ NRIC photocopy (front and back) ▪ Latest 2 years’ Income Tax Notice of Assessment

Foreigners may, in addition to the above, also have to submit photocopies of their Employment Pass, Passport and proof of residence.

Smart tips on home loans

A home loan is probably one of the biggest financial commitments that you would undertake during your lifetime. So, it is always wise to keep yourself prepared and to understand the intricacies involved in going for a home loan. We’ve tried to summarize some of the main points to keep in mind during your home loan shopping purpose:

Learn – Try and get to know as much about home loans and the terms involved. A website like Money Sense (moneysense.gov.sg) which is part of a continuing national financial educational program launched by the Monetary Authority of Singapore (MAS) in 2003, is a great place to start out.

Eligible properties – Properties that you can purchase using a home loan include HDB flats (either direct purchase or resale), private properties which are already built and private properties under construction.

Types of home loans – There are two types of home loans (and a wide range of home loan products based on these two types) available:

Fixed-rate home loans – A fixed rate of interest is applied for the first few years (period may vary from bank to bank), thereafter following by a floating rate.

Floating or variable rate home loans – These are usually tied to a reference interest rate (usually SIBOR or Singapore Interbank Offered Rate). Your monthly repayments may vary depending upon movements to the reference rate.

Regulatory changes in relation to home loans – Keep yourself updated with regard to the latest changes in home loan regulations and how they impact your home loan plans. Here, we will look at some of the changes introduced by the MAS which came into effect from the 29th of June 2013:

A Total Debt Servicing Ratio (TDSR) framework was introduced. It is the ratio of your income and liabilities. The MAS has capped TDSR on property loans to 60% to encourage prudent borrowing. Your consolidated debt repayments including your home loan repayment, car loans, renovation loans, study loans, credit card loans and other secured or unsecured loans cannot exceed 60%. And, incomes that include variable components are subject to prescribed haircuts before TDSR is applied.

home loans

The maximum Loan to Value (LTV) that can be borrowed is 90%. LTV is a term that describes the housing loan quantum a bank or financial institution will offer as a percentage to the valuation of the property in question.

The MAS has also put in place curbs on the tenor of home loans – 30 years for HDB flats and 35 years for private properties.

Get an Approval in Principle – These are approvals given by the bank that indicate the home loan amount that you are eligible for based on your credit report and affordability. This is merely indicative and is not a binding agreement. You must still submit a home loan application and final approval is subject to property valuation and other checks.

It is advisable to have an AIP in place before you commit to a property. If you do not have an AIP and book a property and are not able to get a loan approved within 14-30 days your booking fee which may amount to thousands of dollars is forfeit.

Refinancing – Refinancing refers to switching your existing home loan to a different financial institution usually to benefit from lower interest rates. But before you refinance check out Notice 632 penalties; these can be levied if you are still in the lock-in or claw-back period. Try and refinance only if you get a rate that is low enough to offset the penalties imposed or sit tight and wait out your lock-in period.

Consult an expert – Going in for a home loan that may stretch up to 35 years means that you should be familiar with all the angles before you make such a huge investment of your time and money. Getting an expert to help you understand the financial ramifications of your goals and planning towards achieving them is highly recommended. Just make sure that the financial adviser you are approaching is a qualified financial adviser under the Financial Advisers Act.

Loan – Redesign Your Current Home

Whether you just wish to renovate, refurbish or redesign your home or give it a complete makeover, renovation loans will help you out. You can also make modifications to your home to accommodate the needs of the elderly or the disabled.

Here, we will take a look at some of the main features of renovation loans (this will provide you with a ready guide to renovation loans; however, for exact features and terms/conditions please refer to your bank):

loans

Eligibility

  • You must be a Singapore citizen or Permanent Resident
  • Between 21 – 65 years as on date of application
  • The owner of the property
  • Should be earning more than $20,000 per annum
  • Joint applicants may need to earn at least $12,000 per annum
  • Applications by non-owner(s) who are either a spouse, child, parent or sibling of the property owner may be considered with consent from the property owner

Tenor

Renovation loan tenors range from 1 to 5 years

Interest rates and charges

  • Processing and handling fees may range from 1% to 2%
  • Renovation loan rates may range between 2% to 4%. However, what you must watch out for (and what is actually applicable) is the effective interest rate. This can range between 5% and 11%.
  • Many renovation loans also include premium charges for comprehensive life and total permanent disability insurance
  • Also check for cancellation fees and prepayment charges

Document requirements

  • Completed and signed loan application form
  • NRIC photocopies (front and back) for all the applicants
  • Income documents:
    • Salaried Employees
      • Latest computerised pay slip
      • Latest 12 months CPF contribution history statement
      • Last 2 years Notice of Assessment
    • Self-employed
      • Last 2 years Notice of Assessment
    • Original invoice or quotation from the contractor duly signed by contractor and applicant
    • Proof of ownership of property to be renovated

Loan amount and disbursement

  • The maximum loan amount you can obtain could be up to 6x your monthly income or $30,000, whichever is lower.
  • Loan proceeds minus applicable charges will be disbursed directly to the contractors.

Other points to keep in mind

  • If you are renovating a HDB property, you can only use HDB Licensed Renovation Contractors for carrying out renovation works in HDB flats.
  • You will need to check out what your renovation loan will pay for and what it will not (it cannot be used for furnishings or other purposes). Your bank may conduct site audits to ensure that the loan proceeds are used for renovation purposes only.
  • Some banks allow you to go in for a renovation loan even if you have an existing home loan with them.
  • You can also go in for refinancing of your existing renovation loan. In addition to the standard documents you may also have to provide the existing bank’s original Letter of Offer / Approval Letter and the Renovation Loan Statement of Account.

How to refinance your mortgage

Refinance your MortgageYour home loan repayment is usually the biggest part of your monthly outgo. And, it can stay that way for anywhere up to 30-35 years. In such cases, you must be constantly on the lookout for ways to reduce your outgo; if you can pay off your mortgage faster you will not only get complete ownership of your property faster you can also free up funds for other investment avenues like planning for your retirement. Here, we will take a look at refinancing your mortgage and how it can help you:

What is refinancing?

Refinancing means the process of ending your home loan package with your current lender and shifting your home loan repayments to another lender.

When should you refinance?

Ideally, you should refinance when:

▪ The lock-in period for your current mortgage has expired.
▪ The claw-back period for your current mortgage has expired.
▪ Prevailing market rates are lower than your current financing rate.

In the above instances, you are basically refinancing to take advantage of lower financing charges. However, you may wish to refinance for other reasons as well, like:

▪ If you want to extend or reduce your loan tenor.
▪ For cashing out. Here, you take an additional loan amount from the new lender. You can resort to this method when you need some cash on an urgent basis and have no other avenue to raise cash. Or, if your property’s market value has risen significantly, you may cash out on the increased value and use the loan proceeds for other investments.

What are the costs of refinancing?

▪ Mortgages in Singapore usually have a lock-in period of 2 to 5 years. And, if you are on a fixed rate loan, the lock-in period will apply for the years of the fixed rates. If you refinance your loan during the lock-in period you may incur penalties ranging from 1 to 1.5%.

▪ Before October 2012 (and before Notice 632 from the MAS put a stop to it), banks used to subsidise certain costs for buyers. These could include legal fees, valuation costs and fire insurance premiums. For these subsidies the banks retained a period of clawback, usually three years. These fees could total between $2-3k. If you had taken a loan prior to October 2012 and if your clawback period is still live you may have to bear the clawback costs when you go in for refinancing.

▪ In addition, legal, valuation and other fees may again be applicable (with the new lender).

Can I refinance despite the costs?

Certainly provided that you’ve got your calculations right. Lets say you’ve had to bear costs of $4,000 and your refinanced package saves you $400 per month when compared to your previous financing package. You will need 10 months (4000 ÷ 400) to “break-even” with respect to these costs. Consider whether you can afford to wait for 10 months before you start to see real savings in comparison to your previous loan package.

Should we consider repricing?

Repricing is the process of switching between loan packages from the same bank as opposed to refinancing where you move to another lender. Banks usually allow this because they do not want to lose customers; just check whether any charges are applicable. If they are, compare the cost of repricing and refinancing and go for the better of the two.

How does the refinance process work?

The process is fairly simple:

▪ You submit an application along with relevant documents.
▪ You get a loan approval letter/document which you will need to sign.
▪ You will need to meet up with a lawyer to execute mortgage and other documents. Legal and valuation fees become applicable at this stage.
▪ Your new bank will redeem your previous loan and you will notified about making payments to your new bank.

Eligibility criteria for bank loans

Loans

Banks in Singapore today issue a wide variety of loans covering a broad range of purposes. Home loans, car loans, renovation loans, bridging loans, unsecured overdraft, credit cards (yes, they are also a type of loan product), generic, all-purpose personal loans, lines of credit, education loans, HDB loans – the list keeps going. Each type of loan, every loan product issued by each bank has a set of eligibility criteria. Here, we will try and summarize the eligibility criteria for different types of loans in a single nutshell:

Nationality – Singaporeans and Permanent Residents (PR) are generally eligibile for all types of loans (subject to meeting other eligibility criteria); foreigners, on the other hand, may not enjoy automatic eligibility for all loans. There are various loan products for which they are not eligible; even when eligible, their income requirements are higher / much higher than for Singaporeans. For instance, the POSB Loan Assist specifies a minimum annual gross income of S$20,000 and above for Singaporeans / Prs while foreigners need to meet a minimum standard of S$45,000 and above.

Age – To be eligible for a loan, an applicant must be between the ages of 21 to 65. However, this may change for specific loan products. Loan terms may also get affected by the borrower’s age. If a borrower applies for a HDB loan of more than 25 years which extends beyond the borrower’s 65th year, then the loan ceiling will be capped to 60% of the purchase price or valuation price (whichever is lower). Such age caps may also not apply to student loans; here, however the loan guarantor may need to be within the standard age range.

Income – For most loans, the quantum of loan that may be sanctioned depends upon your monthly income. For personal loans or credit lines, an applicant may expect to get “X” times their monthly income depending upon their gross annual income. Those in the lower annual income bracket may get a lower “X” while those in higher annual income brackets may get a higher “X”. The definition of what constitutes monthly income may also vary across loan products and banks. Interest rates may also vary depending upon gross annual income and loan quantum; an applicant may, expect to get a lower interest rate provided the quantum of loan is not large and they fall in the higher gross annual income bracket.

Home loan borrowers will have to refer to the TDSR (Total Debt Servicing Ratio) framework introduced by the Monetary Authority of Singapore that came into effect on the 28th of June 2013. In short, TDSR limits the amount of money a bank can lend you to 60% of your gross monthly income minus your monthly debt obligations.

Documentary requirements – The documents that an applicant may need to submit would generally include ID and income proof documents.

Here is an illustrative example of the documents required while applying for a loan:
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