MAS Broadens Exemption from TSDR Threshold for Refinancing

[pianist]

I just found out under the definitions for TDSR and MSR, assets such as stocks and unit trusts can contribute to the Gross Monthly Income.

e.g.

$1m worth of stocks will add

$1,000,000 x 30% / 48 months = $6,250 per month

to the gross income.

This is interesting. Can you explain the calculation? I don't get it. Also, can you share the link to the source? Thanks!

Look under Gross Monthly Income. http://www.mas.gov.sg/~/media/MAS/Regula..._Final.pdf

Thanks for the info.

but some localbanks/non local banks may just outright ignore or won't ask about yr eligible stock value..is just a bit troublesome ..the rmjust wanna close the deal..plus most pple stock holding quite small it make insignificant impact to the calculation

[chialc88]

Wider mortgage rule exemptions expects to ensure soft landing - by ST Melissa Tan

MAS said on Monday that borrowers who brought homes before TDSR kicked in are now exempt from it if they are refinancing the home they live in, even if they own multiple properties or have other property loans.

Prior to the change, owner occupiers were exempted from TDSR only if they did not own any other property or did not have any other outstanding property mortgages.

MAS also said that borrowers who brought investment homes before TDSR are exempt from it when refinancing those homes until June 30, 2017, but they must commit to reducing their debt.

Analysts said MAS likely widened the TDSR exemption to avoid a spate of forced selling by over stretched households, and was not signaling a reversal of its TDSR policy.

"It's clear that refinancing of homes for such households will be problematic if the TDSR framework is applied," said HSBC senior property analyst Pratik Ray.

"We are now not penalizing consumers retrospectively," said Propnex chief executive Mohamed Ismail.

Love Compassion


A Life not Reflected is a Life not Worth Living.

[kbl]

Good morning every1.

**On 10th February 2014, MAS announced that it will broaden the existing exemption from property loan restrictions for the REFINANCING of residential properties.

Kindly take note that this is only applicable for REFINANCING and NOT for new purchase.

Mainly, it is divided into 2 parts :-


Refinancing of OWNER-OCCUPIED residential property loans


1. Borrower/s who bought an owner-occupied residential property before 29th June 2013 (before the TDSR rules were introduced) will be exempted from the TDSR THRESHOLD. Definition of a borrower who bought the residential property means an option to purchase (OTP) is issued before 29th June 2013. This means that even if a borrower has multiples properties, when it comes to refinancing, banks allow borrowers’ TDSR to be more than 60%. However, this is only applicable for the borrowers’ owner-occupied property. However, this does NOT mean that the documents required for TDSR are waived. Documents such as credit facilities statements (such as credit card statement, car loan statements and etc) and proper income documents are still required.


2. Mortgage Servicing Ratio (MSR) will also not apply to refinancing of loan for HDB and EC, if the OTP was granted before 12th January 2013 (HDB) and 10th December 2013 (EC) respectively. This will be also ONLY applicable for owner-occupied property loans.


3. Loan tenures are allowed to maintain at the remaining tenures of their loans at the point of refinancing, even if it is more than 30 years for HDB or 35 years for private residential properties. This is also ONLY applicable for owner-occupied property loans and if OTP is granted before any changes in the respective rules. It is quite complicated to calculate the loan tenure under this “revised” ruling. Hence kindly check with me should you have any questions.



Documents required to prove that the property is for owner-occupation


· Copy of the OTP

· Written declaration from Borrower/s that the property is for owner occupation of one or more persons which shall include the Borrower/s

· Printout from Borrower/s’ “My Property Portfolio” page un MyTaxPortal at www.iras.gov.sg listing the tax rate levied on the residential property as “owner occupier”

· Front and back copy of NRIC reflecting where the address is the same as the residential property to be refinanced



Refinancing of INVESTMENT residential property loans


1. Borrower/s who bought an investment residential property before 29th June 2013 (before the TDSR rules were introduced) can be exempted from the TDSR THRESHOLD. This means that even if a borrower has multiples properties, when it comes to refinancing ON HIS INVESMENT PROPERTY, banks allow borrowers’ TDSR to be more than 60%. However, there is a transition period until 30th June 2017. Also, provided that the borrowers’ meets the following conditions : -


· OTP of the investment property was granted before 29th June 2013

· the borrower commits to a debt reduction plan with the financial institution (FI) at the point of refinancing; and

· the borrower fulfils the FI’s credit assessment



IMPORTANT NOTE : -


This is only applicable for those borrowers that are unable to meet TDSR with their income.

If the borrowers are able to meet the TDSR, the above ruling does NOT apply to them.**

[cif5000]

I just found out under the definitions for TDSR and MSR, assets such as stocks and unit trusts can contribute to the Gross Monthly Income.

e.g.

$1m worth of stocks will add

$1,000,000 x 30% / 48 months = $6,250 per month

to the gross income.

This is interesting. Can you explain the calculation? I don't get it. Also, can you share the link to the source? Thanks!

Look under Gross Monthly Income. http://www.mas.gov.sg/~/media/MAS/Regula..._Final.pdf

Thanks for the info.

but some localbanks/non local banks may just outright ignore or won't ask about yr eligible stock value..is just a bit troublesome ..the rmjust wanna close the deal..plus most pple stock holding quite small it make insignificant impact to the calculation

Makes sense?

1. If the bank ignored the eligible financial asset, that's because the regular salaried income has already qualified for the loan amount. That saves the trouble for everyone. Bank doesn't have to verify and borrower can reduce his disclosures.

2. RM wants to close the deal. Agree. It is in their interest to do so. If the regular income couldn't qualify for the loan, they can "help" you if you have sufficient eligible financial asset. In fact, the more you borrow the better their commission. Be sure that they will help you.

3. Of course, the RM can't help those with insufficient/insignificant asset.

4. "Most people" can be subjective. I believe "many" in this forum has assets that are substantial enough to make a difference in their Gross Monthly Income. Ask Ben.

[Ben]

This is interesting. Can you explain the calculation? I don't get it. Also, can you share the link to the source? Thanks!

Look under Gross Monthly Income. http://www.mas.gov.sg/~/media/MAS/Regula..._Final.pdf

Thanks for the info.

but some localbanks/non local banks may just outright ignore or won't ask about yr eligible stock value..is just a bit troublesome ..the rmjust wanna close the deal..plus most pple stock holding quite small it make insignificant impact to the calculation

Makes sense?

1. If the bank ignored the eligible financial asset, that's because the regular salaried income has already qualified for the loan amount. That saves the trouble for everyone. Bank doesn't have to verify and borrower can reduce his disclosures.

2. RM wants to close the deal. Agree. It is in their interest to do so. If the regular income couldn't qualify for the loan, they can "help" you if you have sufficient eligible financial asset. In fact, the more you borrow the better their commission. Be sure that they will help you.

3. Of course, the RM can't help those with insufficient/insignificant asset.

4. "Most people" can be subjective. I believe "many" in this forum has assets that are substantial enough to make a difference in their Gross Monthly Income. Ask Ben.

I agree with cif. Banks are eager to have your business, and if they can help you get the loan, they will. Helping you is also helping themselves. I know because I have dealt with RM before and they are very keen to close the deal with me. I am also very keen on the latest exemption because, as mentioned before, my loan is up for refinancing/repricing by end of this year. At the moment, I do not have an employment income but I do have rental income and quite "substantial" (this is subjective and is my own personal opinion) financial assets which definitely will make a difference in the computation of my gross monthly income.

[chialc]

Rental income will be calculated at max 70%.
TA should have at least 6 month of remaining rental period.

[greengiraffe]

Home buyers, clueless about TDSR? Read on

Know what goes into calculating eligibility and common mistakes loan applicants make
Published on May 25, 2014 1:30 AM


Home seekers at the launch of Commonwealth Towers, a condominium development near Queenstown MRT, earlier this month. Many banks have checklists prepared for clients to simplify the home loan application process. -- ST PHOTO: LAU FOOK KONG
Card debts count: Swiping credit cards incurs one of the most common sort of debt, since almost everyone has one. Yet, many home buyers do not understand that credit card spending is accounted for as extra debt when applying for a mortgage. -- ST FILE PHOTO


By Cheryl Ong

If the latest official data is anything to go by, buyers are no longer as nervous about signing up for a new home, despite mortgage lending rules that have tamed a once-buoyant market.

Last month, buyers returned to the market with more vigour, purchasing 745 new homes - up 60 per cent from March's figure.

The sales were also about 54 per cent higher than the 482 units sold last July, the month after the Total Debt Servicing Ratio (TDSR) was introduced.

But 10 months after these measures came in, many still do not have a proper grasp of the new home financing rules.

A survey by United Overseas Bank (UOB) earlier this month showed that one in three home buyers was unclear about - or even unaware of - the TDSR frame-work.

"The term implies that all of a prospective borrower's debt needs to be considered," said Mr Joseph Wong, head of consumer credit risk, OCBC Bank.

It also caps a borrower's total monthly debt repayments at 60 per cent of his gross monthly income.

The respondents, a mix of first-time and seasoned home buyers, said they did not understand how the rules applied to their financial situations.

The Sunday Times looks at what exactly goes into calculating one's eligibility for that home loan, and the common mistakes that borrowers make when they are applying for a loan.

Credit cards

Swiping credit cards incurs one of the most common sort of debt, since almost everyone has a credit card.

Yet, many home buyers do not understand that credit card spending is accounted for as extra debt when applying for a mortgage, said Ms Chia Siew Cheng, head of secured loans and personal financial services at UOB.

"As a result, potential borrowers often do not bring along their credit card statements from all card issuers," she said.

If a borrower has an outstanding credit card bill of $1,000, the minimum monthly payment will be about 3 per cent of the entire amount.

Though this percentage may vary between banks, they typically compare the derived sum with a common benchmark of $50. The higher amount will be the minimum amount due for that month, said Mr Wong.

Using the example above, the borrower would be charged $50 instead of $30 - and this will go towards his total debt obligations.

But because monthly instalments are based on how much is spent on a card - and not the credit limit - it does not matter if a home loan applicant has multiple credit cards with high credit limits as long as he has not used any, said OCBC.

The situation that Ms Flora Wong, 29, who bought a flat recently, found herself in four months ago highlights another common misconception.

Ms Wong said she thought paying off all her credit card bills just before applying for a mortgage would mean that she had no outstanding debts, but that was not the case.

OCBC noted that if the borrower's application for a mortgage was made within the same month of clearing the credit card debt, the latest monthly instalment would still be counted.

"Borrowers who have paid their secured facilities and loans at least two months ahead of the loan application can certainly improve their chances of securing that loan," said Ms Linda Lee, executive director of deposits and secured lending at DBS Bank.

Personal loans

Debts such as cash loans, car loans and study loans are regarded as "personal loans".

Unlike credit cards, monies from these loans are normally disbursed in full at the outset.

So, banks charge a fixed monthly instalment based on the lump sum.

These repayments will be factored into computing the total debt one owes, said Mr Wong, and not the entire loan amount.

Sole proprietors should also note that the monthly instalments for loans taken to fund their businesses will be considered.

Mortgages

Anyone who is not buying his first home is likely to have an existing mortgage.

If that has not been paid off yet, the monthly instalments would, of course, be added to the equation, on top of the expected repayments for the new home loan being applied for.

This also applies to loans from banks in Singapore to finance purchases of overseas properties, said OCBC's Mr Wong.

However, mortgages - as with any loan - taken from foreign banks overseas are not included as the details will not be available in Singapore unless declared by the borrower.

Another exception is made for buyers of executive condominiums - a hybrid of public and private housing - and resale Housing Board flats.

Because these buyers are required to sell any flat that they already own when the executive condominium or resale flat is ready, banks exclude the existing mortgage instalments when deciding how much money such buyers get to borrow.

Secured overdrafts

Overdraft facilities, such as those where property, bank deposits or shares are being used as collateral, are granted an approved credit limit by the credit provider.

Like credit cards, no debt is incurred unless money is withdrawn. The sum that will be included in one's TDSR calculations is the monthly interest on the amount taken out.

Guarantor

Property agent Bernard Ho pointed out that some buyers might forget that being a guarantor means extra debt, even if the loan is not taken out for their own purposes.

"Buyers should note that the bank needs to account for the possibility of a default, which means that the guarantor will have to pay for the loan in the end. That is also debt," he said.

So, 20 per cent of the monthly repayment on the mortgage, car or study loan being guaranteed will be treated as debt relating to the guarantor, said UOB's Ms Chia.

Things to do

Many banks have checklists prepared for clients to simplify the application process.

Besides consulting a mortgage specialist, Ms Lee advises home seekers to first obtain a copy of their credit report from the Credit Bureau.

Risk grades range from AA to HH, with AA having the lowest probability of default, she said, adding that "by having a clear understanding of their credit status, customers can also take action to improve their creditworthiness if needed".

The Credit Bureau's records are updated monthly, so facilities terminated just before a mortgage application could still be active on the report.

In such cases, applicants may ask the bank to issue a letter of confirmation on the terminated card, but that could take time.

"It may be easier to take a loan from a bank where one holds the majority of his banking relationships, as such account statuses are readily available in their internal records," Ms Lee said.

ocheryl@sph.com.sg