Doing Your Home Finance Calculations on Your Own?

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Are you aware of Singapore’s residential properties taxes, namely the Buyer’s Stamp Duty, Additional Buyer’s Stamp Duty and Seller’s Stamp Duty now? If you haven’t read that post, it’s right here! 👈

What else do you need to take note of when you are doing your financial plannings for your new purchase?

1. Outstanding Loan

Check your remaining loan amount with HDB if you took up HLE, or from the bank you took up the home loan with.

2. CPF Accrued Interest

This is accumulated in your CPF over the years. Yes, you need to return what the principle amount plus the accumulated interests back to your own CPF account before moving on to the next purchase. This is because your CPF account’s main objective is for your retirement, so when you use any amount in there, you are technically taking a loan from it and therefore you will need to return the amount. Since it is a ‘loan’, it will come with a compounded annual interest of 2.5%. However, before you get all work up and flip the table, the amount that you return into your CPF can be used on your next property purchase. So no losses on your end as this means that you might not have to fork out much cash for the next purchase.

P.S this is why some HDB owners get to upgrade to buy condominiums without forking out cash for their down payment. I will write a more detailed post on how CPF Accrued Interests work, and how it will affect your decisions for your new property purchase

3. Resale Levy

Information taken from: https://www.hdb.gov.sg/cs/infoweb/residential/selling-a-flat/financing/computing-your-estimated-sale-proceeds/selling-a-flat—resale-levy

Resale levy is payable to ensure that there will be a fair distribution of subsidies allocated to first-timers and second-timers HDB home owners. This is to allow first-time homeowners and those in need to be able to get more subsidies and have a home of their own.

4. Loan Tenure and Loan-to-Value Limits

Singapore’s home loan amount will depend on the borrower’s age, loan duration, property type and if they have any other existing housing loans. The maximum loan tenure for HDB flats are capped at 30 years, and 35 years for non-HDB residential properties.

If you are purchasing your new home with your spouse / family member / friend, it is important to obtain first your average age. This is also known as Income-Weighted Average Age (IWAA).

IWAA = (Gross monthly income of Borrower A * Age of Borrower A/ (Total of Borrower A and B’s gross monthly incomes)) + (Age of Borrower B * Gross Monthly income of Borrower B / (Total of Borrower A and B’s gross monthly incomes))

For example,

Mr. Lee is 45 years old and has a gross monthly income of $8,000. Mrs Lee is 42 years old with a gross monthly income of $7,000.

Their income weighted average age is:

($8,000*45 / ($8,000 + $7,000)) + ($7,000*42/($8,000 + $7,000)) = 24 + 19.6

= 43.6 (round up)

IWAA = 44years

As of 6th July 2018, the govt has tightened the Loan-to-Value limit by 5% as long as you take up a loan with any financial institute. In the past, the LTV limit was 80% of the 30 years or less loan tenure, currently, the LTV is at 75% for a loan tenure of 30 years of less, and 55% LTV limit for loan tenure of more than 30 years, or if the loan extends past 65 years of age.

It will also be good if you can calculate your estimated loan amount based on the percentage of your monthly income, depending on the type of residential house you are purchasing.

There are 2 types of Housing Loans:

Total Debt Servicing Ratio (TDSR)

TDSR is important so as to prevent people from borrowing more than they can handle. If you want to avoid the headaches and risks of miscalculations, speak to your preferred banker as they will be able to calculate your eligible amount of home loan based on your monthly income, expenses and debt obligations. At present, financial institutes are only allowed to loan up to 60% of the borrower’s gross monthly income.

When we do an estimate calculation for our clients, we take into consideration a 3.5% interest rate according to the MAS rule, but in reality interest rates currently is less than 2%. In a way, we can also calculate if our clients are able to continue paying their monthly mortgage in worst case scenerios.

TDSR is also calculated differently for fixed and variable income. Variable income applies to the self-employed individuals, commisions, annual bonuses, rental income etc. These numbers will go through a haircut of 30%, so if a businessman earning a $5000 monthly income (not taking into considerations any other debts whatsoever), his income used when calculating his TDSR will only be $3500, which will reduced the loan amount significantly.

There are actually a number of other factors to include when doing a financial calculation for a property, which if I were to list them all down, I’m pretty sure you’ll end up reading an essay instead.

4. Mortgage Service Ratio (MSR)

While TDSR is applied to home loans regarding private residential properties, housing loans for the purchase of a HDB flat or an Executive Condominium is based on the MSR that is capped at 30% of the borrower’s gross monthly income.

You can easily obtain an In Principle Approval (IPA) from your personal banker to find out the loan amount you are eligible to while you look for your new residential home. The IPA is valid for 60 days, and will usually take about 3,4 days to be granted after submission of the required documents. This way it will be clearer for you to work around your comfortable budget.

If you require more assistance or have any inquiries regarding the sale of your home, feel free to leave a comment at the bottom or drop me an email at propnexjuliana@gmail.com and I will get back to your as soon as possible!

Your. Exclusive. Agent
Juliana (9654-9643)

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