Before taking out a car loan, mortgage, reno loan, or personal loan, check the loan curbs to know how much you can borrow.
The Monetary Authority of Singapore (MAS) currently has loan curbs for unsecured loans, which limit how much you can borrow to 18 months of your income. By 1st June 2019, this limit will be reduced to 12 months of your income.
This is to ensure Singaporeans don’t over-borrow and suffer from financial difficulties, which could have negative effects on the overall economy.
Here are some other loan curbs you should know about, so you can determine how much you can borrow and how much you need to pay in cash.
Car Loans: 60% to 70% of the Car’s Open Market Value
Car loans are capped based on the Open Market Value (OMV) of the vehicle. For cars with an OMV of S$20,000 or below, the loan is capped at 70% of the total price of the vehicle (this includes the Certificate of Entitlement (COE), and all other taxes. For cars with OMV above $20,000, the loan is capped at 60%.
For example, say you are buying a Toyota Altis (1.6 litre). The OMV of this car is S$18,900. After adding all the taxes, such as the registration fees and the COE, the total price of the car would be S$87,000.
The loan cap would be 70%, so you could borrow up to S$60,900, and you’d need $26,100 in cash as down payment.
The maximum loan tenure of a car loan is 7 years.
Home Loans: 60% to 890% of the Property Value or Selling Price
The maximum loan you can take for your house depends on whether you’re using an HDB Concessionary Loan, or a private bank loan.
For HDB home loans (only for HDB flats, excluding Executive Condominiums), you can borrow up to 90% of the flat’s value or the selling price, whichever is lower.
For private homes and Executive Condominiums, you will have to use a bank loan. You can borrow up to 80% of the property value or selling price, whichever is lower.
For example, say you are buying a five-room resale flat that is valued at S$550,000. The flat’s owner is selling it at S$600,000. Using an HDB loan, you would be able to borrow up to S$495,000 for the flat (90% of S$550,000). The remaining S$105,000 can be paid with cash, your CPF funds, or a combination of the two.
If you were buying a private property valued at $1.6 million, the bank would be able to loan you a maximum of S$1.28 million. Note that, for bank loans, at least 5% of the total property price must be paid in cash (in this example, S$80,000). The rest of the down payment (S$240,000) can be paid with a combination of cash or your CPF.
In addition to this, property loans have an additional cap: the Total Debt Servicing Ratio (TDSR). Your total monthly repayments, inclusive of other loans, cannot go beyond 60% of your monthly income after taking your home loan.
For example, if you earn S$5,000 a month, your maximum loan repayment can only be S$3,000 per month. If the repayment would be higher than this, you are required to take a smaller loan (this means borrowing less than the usual 80% – 90% limits).
Home loans have a maximum loan tenure of 30 years for HDB flats, and 35 years for private properties. However, note that if you have a loan tenure beyond 25 years (for flats) and 30 years (for private property), then your lending limit may be capped at 60% of the property value or price instead.
Renovation & Furnishing Loans: Up to 6 Times Your Monthly Income
Need some major work done on your house? An easy way to do this is to use a renovation loan. This can provide up to six times your monthly income, or S$30,000, whichever is higher. Be aware that there’s usually a minimum loan amount as well, of S$10,000.
For furnishing loans (e.g. buying new beds, tables, lamps, and so forth), the cap is six months your monthly income. Note that renovation loans and furnishing loans are two separate loans. So yes, you can borrow S$30,000 for the reno loan, and then up to six months of your income for the furnishing loan afterwards. Ask your bank about this.
Loan tenures are usually capped at five years.
Unsecured Loans: Up to 18 Times Your Monthly Income
The term “unsecured loan” refers to any loan for which there is no collateral (i.e. there is nothing for the bank to size or foreclose on if you don’t repay it). Unsecured loans include, but are not limited to:
- Credit card loans
- Credit lines
- Personal loans (whether instalment-based or variable repayment)
- Education loans
- Renovation and furnishing loans
Most individual credit cards and credit lines restrict your loans to either two or four times your monthly income (depending on the policy of the issuing bank).
The total amount of unsecured loans you can have, across all your credit cards, credit lines, personal loans, etc., is capped 18 times your monthly income. Any further attempts to borrow will automatically be declined.
By 1st June 2019, this limit will be reduced to 12 times your monthly income.
This story was first published in Singsaver.