Mortgage Joint Borrower Guide: 5 Things To Consider Before Committing
A mortgage joint borrower is someone who helps a principal borrower pay for a housing loan. In Singapore, being a joint borrower is a huge responsibility, and there are certain requirements to be met as well.
If your parent, friend, partner, or relative is asking you to be their joint borrower, we’ve laid out some of the most important things you need to know about this commitment. These include what makes a person eligible to become a joint borrower, and how becoming a joint borrower may also affect you in the future.
Here’s a quick overview:
As a joint borrower…
Can you buy another HDB flat or new EC?
Can you buy another private property?
Yes, but you will have lower borrowing limits (LTV).
Will your TDSR be affected?
Yes, your joint mortgage will be factored into your TDSR.
Will your MSR be affected?
No, MSR is irrelevant. MSR only applies to HDB properties and if you are already a co-owner of a property, you cannot buy another HDB property.
Will your credit rating be affected?
Possibly, the algorithm for credit rating is not published, but it likely takes into account the number of loans you have and how timely you make payments for them.
5 Things To Consider When Becoming A Joint Borrower in Singapore
Now let’s deep-dive into five key areas for consideration.
1. The Age and Income Of The Joint Borrower Matters.
The maximum mortgage tenure in Singapore is 30 years for HDB flats, and 35 years for private properties. Therefore, if the principal borrower’s loan tenure exceeds age 65, he/she may need the help of a younger joint borrower for his mortgage to be approved.
How this works is, the lender would take the average age of all applicants, thereby lowering the borrower age for consideration. However, it isn’t just your age that matters. Your income as a mortgage joint borrower also matters because lenders calculate the Income Weighted Average Age (IWAA) of the principal borrower and the joint borrower by looking at both their ages, and gross monthly incomes.
Income Weighted Average Age (IWAA)
In the IWAA, your age difference can be outweighed by your income, so in an extreme example, a joint borrower who is 30 years younger but has just graduated and is drawing a relatively low starting pay may actually not lower the average age by much.
Lenders consider the IWAA as the borrowers’ present age. They use it to calculate the borrowers’ loan to value (LTV) ratio, and the total amount of loan they can offer. IWAA is also used to gauge the ability of the borrowers to repay the mortgage.
Here’s the formula that lenders use to compute for the IWAA:
[(Principal Borrower’s Age x Principal Borrower’s gross monthly income) ÷ (Total of Principal Borrower and Joint Borrower’s combined gross monthly incomes)] + [(Joint Borrower’s Age x Joint Borrower’s gross monthly income) ÷ (Total of Principal Borrower and Joint Borrower’s combined gross monthly incomes)]
Josh is 59 years old, and his gross monthly income is $9,000. Because of his age, he is no longer eligible for a 25-year loan with 75% LTV for a house he wants to purchase.
His daughter Rissa is 25 years old, and has a gross monthly income of $13,000. He asked her to be his joint borrower to lower the IWAA, and to also help him get his 25-year loan approved. Using the formula above, let’s compute their IWAA below.
IWAA = [(59*$9,000) ÷ ($9,000 + $13,000)] + [(25*$13,000 ÷ ($9,000 + $13,000)] = 38.91 years old
Outcome: Rissa, with her high income and young age, would be able to help her dad, Josh, to get approved for a longer loan tenure and higher LTV because the resultant IWAA is enough to accommodate a 25-year loan before age 65 according to IWAA.
Instead of asking Rissa, Josh decides to ask her twin brother, his son Benji, to be a joint borrower instead. Benji is also 25, but earning only $2,000 a month.
IWAA = [(59*$9,000) ÷ ($9,000 + $2,000)] + [(25*$2,000 ÷ ($9,000 + $2,000)] = 52.82 years
Outcome: Because of Benji’s lower income, the IWAA is higher even though he is the same age as his twin Rissa. With Benji onboard, Josh would still not be able to get 75% LTV and 25 year tenure as it would extend far beyond age 65.
Take note that the lower your IWAA and the shorter your loan tenure, the higher the maximum amount you can borrow from the bank (a.k.a. your LTV ratio). Meanwhile, the longer loan tenure you choose, the more interest you’re about to face also.
If you need advice in your situation, whether it’s about your IWAA, your loan tenure or being a mortgage joint borrower in general, know that our Home Finance Advisors are here to help.
2. You Have to Be A Co-Owner To Be A Joint Borrower.
The Monetary Authority of Singapore (MAS) requires all mortgage borrowers, including a joint borrower, to be listed as owners of the property they’d like to purchase. This means that if you have an HDB flat under your name, you may not be eligible to be a joint borrower for another HDB flat because the rule is that people can only own one HDB flat at a time. Likewise, if you are already a joint borrower, you will not be eligible to get a HDB flat under your name subsequently.
Consider Josh and his daughter Rissa, from the example we gave above. For Josh to bring Rissa into the mortgage as a joint borrower, he must therefore also make her a co-owner of his flat.
Now imagine if Rissa is going to get married, and she and her partner intend to buy a BTO flat or EC to settle down. As Josh’s joint borrower/co-owner, Rissa will not be able to co-own her own HDB flat with her fiance, because to HDB, she already owns one HDB flat—Josh’s.
The only way Rissa can put her name down beside her fiance’s on their new flat is to sell away her share of the property she bought with her dad, or ask Josh to buy it back from her. However, this comes with its own set of caveats.
Firstly, for Rissa to sell off her share of her dad’s HDB flat, she will need to get HDB’s approval first. If Josh’s property was private, then there would be no issue as the transaction would only need to be an agreement between Rissa and Josh, the main owner.
Secondly, once Rissa sells off her share of Josh’s flat, she becomes ineligible to help Josh joint-pay his mortgage. For this transaction to go through, Josh would need to refinance a new mortgage, under his name alone, with a fresh set of rates and terms. However, since Josh got Rissa on board in the first place because he wasn’t eligible for the mortgage he wanted at his current age, and needed her in order to get a more affordable mortgage, this means that Josh would end up facing his original problem—lower LTV as a sole borrower that does not meet the age requirement—in order for Rissa to be able to own her own house.
If you’re the main owner, and you’re looking to refinance because you are in the situation mentioned above, you can speak with PropertyGuru’s Home Finance Advisors for guidance, or to help assess your mortgage situation. Our advisors can also help you compare all the home loan packages from all the major banks in Singapore, and find the most suitable loan package for you. If you’re a potential co-owner, note that getting out of it may be more of a hassle, as mentioned.
3. Joint Borrowers May Be Liable If the Principal Borrower Cannot Pay Up.
In Singapore, the borrower and guarantor are mutually exclusive, but joint borrowers are jointly and severally liable for the mortgage. Although as a joint borrower you’re not automatically implicated if the principal borrower cannot or is unable to pay the monthly repayments, banks actually do have the option to go after you, the principal borrower, or both.
Using the same example as above, if for whatever reason, Josh cannot afford to pay his share of the mortgage, Rissa (assuming she did become a co-owner and joint borrower) may be liable to pay his share.
The banks will also consider other factors like likelihood of recoverability, costs and etc.
4. Your TDSR And LTV Will Be Affected.
The Total Debt Servicing Ratio (TDSR) is a threshold set by the MAS to keep people from over-borrowing, and to limit the allowed monthly repayments of borrowers to only up to 60% of their gross monthly income. This means that, when you agree to become a joint borrower, the monthly repayments of the property will consume a part of your TDSR. And thus, the amount you can borrow in the future and your monthly repayments, whether for a car loan, a student loan, a personal loan, or a second mortgage (in case you’re planning to buy an additional private property), may also be limited to what’s left of your 60%.
Let’s illustrate this with Josh and Rissa as an example again. Imagine that years later, Rissa is now 35. She is still single, and still a joint borrower with her dad, and wants to buy a HDB flat for herself. As explained above, because she is already an HDB flat owner, she cannot buy another HDB flat.
Say she wants to buy a private property then—she is free to do so, but her current mortgage with Josh will ‘eat’ into her TDSR limit.
Let’s say Rissa’s share of the mortgage payment is $2,000 a month. She also has other credit lines and loans adding up to another $2,000 a month. That means her total debts amount to $4,000 a month, which translates to a TDSR of 4,000/13,000 = 30.8%.
Given that it will also be considered her second property, she will only be able to loan up to 45% LTV. This, coupled with the remaining 29.2% left of her TDSR will make it harder for Rissa to afford the property.
In case you’re interested to know the maximum mortgage you can afford at this point, using our mortgage affordability calculator can be of help.
5. Your Credit Score Will Be Affected.
Banks look at people’s credit scores when deciding to approve a loan, or when issuing them a credit card. The total amount you owe, and your behavior towards debt (i.e., the timing of your payments, the number of loan enquiries you have in a short time, the number of credit cards you have, etc.) affect your credit score.
Therefore, being a joint borrower may either increase or decrease your credit score, depending on how you and the principal borrower pay for the monthly repayments. The algorithm for credit ratings in Singapore is not publicly available, but it is possible that servicing multiple loans at once may affect your credit score.
Late payments by either party will also lower your credit score, so it’s also something that you have to consider also, or at least discuss with the principal borrower before you seal the deal. Make sure you’re sure of the other party’s financial trustworthiness before you commit!
Should You Become A Joint Borrower?
You Can, But Think Carefully Before You Commit.
As we’ve mentioned, signing up to be a mortgage joint borrower is a huge responsibility, and it may affect several things in your life, like your finances, and your eligibility for loans and certain properties in the future. For one, whether the principal borrower needs your help to pay for the monthly repayments, or he/she only needs your help to get the loan approved, your name will be on the title of the property which gives you the legal right and the obligations to it as well.
More FAQs on Joint Borrowing for Housing Loans
What Is A Joint Borrower?
A joint borrower is someone who has taken out a loan with another person. This is also sometimes called co-borrower, and in Singapore, in order to be a joint borrower, you must also be a co-owner of the property.
Is There A Difference Between Borrower and Co-Borrower?
When two people jointly take up a loan, there is usually a principal borrower and a joint or co-borrower. Both are jointly liable for the loan.
Do You Have To Be Married For A Joint Loan?
No, you do not. For private property, any two (or more) individuals can jointly buy a property and take up a home loan.
Can A Couple Get A Mortgage Without Being Married?
Technically, individuals can enter joint borrowing without being married. However, because all borrowers also need to be listed as owners of the property, property eligibility may come into play, especially for public housing like HDB flats and executive condos (EC).
Need More Help? PropertyGuru Finance Can Help.
Whatever your situation may be, we recommend that you speak with one of our home finance advisors so you can get professional advice before deciding whether to commit to become a mortgage joint borrower or not, or in getting a mortgage that involves a joint borrower.
At the same time, our team can help you with calculating how much the monthly repayments may affect your TDSR, how you can work on your credit score in case you decide to commit, and so much more. Remember that you’re not alone in this, so don’t hesitate to reach out, and we’ll try to get back to you within three hours.
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