(29-06-2013, 08:32 AM)CY09 Wrote: My initial reaction to the policy release: Are there a significant number of people out there who are servicing their repayments with 60% of their gross monthly income? Because if such MAS puts in place this policy, it means MAS has noticed enough no of ppl who are in this situation hence drafting the paper and submiting a policy discussion (this usually takes a few working days at least and civil servant's man-hours).
Also kelv, is it possible to shed light on what the bank's computation of the gross monthly income are? Thanks
To compute affordability
1)
Compute the maximum cash instalment per month that you can afford. Banks generally require that this amount not exceed 40% of your gross income but this figure may vary across different lenders.
2)
Computer the maximum amount of CPF funds you can use each month to service the loan. Take into account only sums paid into the Ordinary Account (check CPF website for the latest contribution rates; usually, 23%)
3)
Add the 2 components (cash + CPF) to determine the maximum monthly instalment that you can afford
4)
Calculate the maximum loan that you can obtain based on the monthly instalment derived. This should be based on prevailing interest rates and over the loan period that you desire and are eligible for. (where 3.5% interest comes in)
5)
Compute the maximum affordable purchase price. Banks are allowed to finance up to 90% of purchase price or valuation, whichever is lower.
To verify client's income, notice of assessment, payslip or CPF contributions are needed.
Let's say for payslip, there's components like basic, variable, bonuses, allowances, travel allowances etc. We will just take the basic component as the gross income UNLESS the other components have been consistent for 3 months consecutively to be considered 'fixed'. Because we can't be sure that the variable component may fluctuate dramatically and it would be imprudent to include that in. However, clients working for govt sector, a 13th month bonus is always included. Now, if we include that in, we will need to include a 30% haircut to those components.
For notice of assessment, we will just take the annual salary figure from the income header. If the person is self-employed, we will request for CPF contributions to verify the figure is indeed real.
For CPF contributions, we just work backwards using the contributions rates that apply to the age of our client accordingly.