Ever since the Monetary Authority of Singapore (MAS) announced the Covid-19 home relief measures to help homeowners defer their existing home loan repayments, banks have received over 17,000 applicants to defer their home loans.
But how do know whether you're qualified to apply? How can you apply? Will TDSR rules apply if you defer your home loans?
To help you understand the Covid-19 relief measures better, below is a list of things you need to know.
What sort of home loan deferment options do I have?
As part of the home loan deferment measures, MAS says that you can choose to defer your home loans in two ways:
1. Either choose to defer on the principal portion of the monthly repayment while still paying the interest, or;
2. Choose to defer both the principal repayment with interest (i.e. the full monthly instalment)
But here's the catch: interest will only be charged on your principal loan amount. You will NOT incur any charge on the deferred interest payment.
At the same time, if you are applying for a home loan deferment, you can also choose to extend the tenure of your mortgage by the period of deferment (i.e. up to 6 months). This will help you to lower the monthly instalment amount after the deferment period ends.
How do I know if I'm eligible to defer my home loan repayments?
To avoid having everyone applying for this home loan deferment, MAS has placed some eligibility criterion to ensure that it's only for those who really need it. You'll be eligible for a deferment if your monthly instalments are not more than 90 days past due as at 6 April 2020.
How long can I defer my mortgage repayments?
You can defer your mortgage repayment till 31st December 2020, according to MAS. This means that you can defer your home repayments for a maximum of 6 months.
What if I decide to defer my home loan?
As mentioned, if you choose to defer your home loan repayments, interest on your principal loan amount will continue to accrue. This means that the longer you defer your repayment, the more interest you'll be paying.
Luckily, MAS has already prepped the banks to give you that warning. When you apply for a home loan deferment with a financial institution (DBS, OCBC, UOB, etc), your bank or finance company will provide you with an illustration of the instalments during and after the home loan deferment period. The illustration will also show you the estimated increase in total interest cost so that you can make a better decision of whether you need the deferment.
Is it a good idea to defer my home loan?
The truth is that while a home loan deferment allows you more breathing space for your own finances, especially if you are being asked to take unpaid leave during this period. However, you should only treat this home loan deferment option as a last resort. If you can still afford to pay for your mortgage repayment, then continue to do so because you don’t want to be paying extra interest for no good reason.
How can I apply to defer my home loans?
Application for deferment of mortgage repayment will be done through your bank. The good news is that each bank has set up their own home loan repayment relief pages:
Does Total Debt Servicing Ratio limit apply if I choose to defer my home loan repayments?
Nope, it won't. According to MAS, the Total Debt Servicing Ratio (TDSR) won't apply to you if you choose to defer either your principal payment or both your principal payment with interests. You also won't be subject to TDSR and loan-to-value (LTV) limits if you choose to refinance your home loan.
Is a home loan deferment the right move for you? Get in touch with a PropertyGuru Home Finance Advisor (it's free!) to explore the options you have besides making a home loan deferment. Or use our easy-to-use TDSR calculator to find out how much of your gross income can be put into servicing your mortgage.
How to reduce your mortgage and financial burden
Besides deferring your home loan repayments, is there anything else you can do? After all, deferring your repayment is just pushing back your repayment and having to pay more interest in the long run.
Well, one thing you can consider doing is to do reduce your mortgage repayment by switching over to a cheaper loan package. As the economy takes a dip and central banks adopt a less stringent monetary policy, interest rates on home loans could go down. This will be a good opportunity for you to switch into a home loan with a lower interest rate and reduce your monthly mortgage repayment.
Need expert advice to reduce your home loans?
According to PropertyGuru's 1H 2020 Consumer Sentiment Survey, 40% of respondents still don't know that they can refinance their home loans to reduce their monthly mortgage repayments.
With the challenging times we're currently at, why not let us help you plan your finances better?
Get help from our panel of experts on PropertyGuru Finance now. With over 100 years of experience collectively, our advisors are independent from financial institutions and can offer you unbiased and personalised views during and after bank working hours. Click here to speak to our advisors now!