Global interest rates (and hence, Singapore mortgage rates) have been on the rise in 2022. This year alone, the US Federal Reserve has already raised interest rates four times – the most recent one on 2 November 2022, by 0.75 percentage points. This brings the benchmark federal funds rate to a range of 3.75% to 4%.
Although the US Fed acknowledges that the rate hikes bring “some pain to households and businesses”, they are committed to raising the cost of borrowing to combat inflation. According to the US central bank projections, rates are expected to continue rising, peaking at 4.5% to 4.75% in 2023.
These global rate hikes are no surprise – in fact, the Monetary Authority of Singapore (MAS) had already warned Singaporeans last year-end to prepare for higher mortgage debts ahead. Home prices were outpacing Singapore’s gross domestic product, and housing debt was growing. "Accordingly, household leverage risk has effectively risen compared with pre-Covid-19 levels," said MAS. In layman’s terms, what all of that means is that many of us have large debts that could put us in a risky position in 2022 and beyond.
Now that we’ve reached that bridge to cross, there are inevitably some of us who struggle to repay our loans. If you need some guidance on what you could do to improve your situation, here are six possible solutions to consider if you are unable to repay your mortgage.
1. Refinance Your Home Loan
Over the past two years, many banks and mortgage brokers had been encouraging homeowners to refinance their home loans to the then-record-low rates to maximise their savings. That is one way to use refinancing to your advantage.
But a low interest rate environment is not the only time to consider refinancing. In fact, the reverse could also apply. If you’re struggling to service your mortgage, you can refinance to lower your monthly repayments and ease your cash flow issues. You can extend your loan tenure, or try to find a better rate.
For example, you can switch from a SIBOR package (very popular in the past few years, but is being phased out), to a more competitive SORA package. Currently, some of the best mortgage rates are from SORA packages. Compared to SIBOR, SORA is backwards-looking, which makes it more stable and slower to respond to the market, giving you more time to assess any changes and plan for your next move.
Here’s an example. Let’s say you have an outstanding loan of $450,000, and 20 years left in your tenure.
* Both the 3M SIBOR and 3M Compounded SORA values were taken from 28 Oct 2022, which is the most recent value at the time of writing.
^ At the time of writing, a spread of 0.7% was used for the illustration of SORA loans as it is the most competitive package on PropertyGuru Finance (interest 3.15% to 3.2% based on the latest SORA).at the time of writing. The best SORA home loans are 3M Compounded SORA + 0.70% to 0.75% (3.15% to 3.2% based on the latest SORA). You may compare the latest mortgage rates on PropertyGuru Finance.
As you can see from above, just by refinancing alone (i.e., no other change to the terms of your mortgage) you already save $371 per month. If you need to further tighten your purse strings, you can refinance to a more competitive package and extend your tenure. In the example above, that will save you $732 per month!
Aside from refinancing, you may also reprice your mortgage, which is basically just changing to another home loan from the same bank. However, quite often, refinancing packages are more attractive.
2. Speak to Financial Advisors, or Your Bank/ Debt Counsellors – For Those on Bank Loans
Refinancing your home loan is the most straightforward to ease cash flow during challenging times. However, if you’re in really hot soup, you may not be eligible to refinance to improve your situation. In such a case, it may be worthwhile to speak to financial advisors (such as PropertyGuru Finance mortgage experts) and/or your bank counsellors. They will be able to better advise you and help you plan for a solution.
For example, if in addition to your mortgage, you have many lines of unsecured debt (credit cards, personal loans, etc), you may benefit from a debt consolidation plan. This will improve your credit score, free up your Total Debt Servicing Ratio (TDSR) and improve your chances of refinancing.
3. Speak to Hdb for Financial Assistance Measures (FAM) – For Those on HDB Loans
If you’ve taken on an HDB-granted home loan and are struggling, you can reach out to HDB for help. They actually have Financial Assistance Measures (FAM) to help you tide over difficult periods.
If approved, you may be able to extend your home loan term, defer or reduce your monthly repayments for up to six months, and/or include family members as joint owners to help with the mortgage.
You will need to apply for the HDB FAM at an HDB Branch with the NRIC of all flat owners, income documents, CPF statements, debt documents, and other documents detailing your financial hardship.
Now, in addition to appealing to either the bank or HDB for help, you can also visit your MP to seek assistance. There is no rulebook on what your MP can do for you, but generally, they will be able to point you in the right direction for resources and write appeals on your behalf for a more convincing case.
5. Get a Tenant for Side Income
If you’re struggling to service your mortgage debt, you can also consider looking for additional sources of income. A common way is by renting out part of your home (e.g., spare rooms) to earn monthly rent from tenants.
If you have family members who may allow you to move in with them in the short term, you can also consider renting out the entire unit. But do note that you’re not allowed to rent out your entire flat during the Minimum Occupation Period (MOP) for HDB flats.
Becoming a landlord is particularly lucrative in current times, especially if you own a large property with three bedrooms or more. According to PropertyGuru’s Singapore Property Market Report Q3 2022, the Singapore Rental Price Index is at a 16-quarter high, at 152.4 points.
This is driven by Singapore residents of almost all ages: young adults who need space and privacy for remote and/or hybrid work arrangements (WFH), couples and/or families who are waiting for their Build-to-Order (BTO) flats to be ready, and expatriates who are streaming back into the country.
For HDB flats, the highest rents are found for 4- and 5-room flats in areas like Bishan, Bukit Merah, Central, Clementi, Kallang/ Whampoa, Queenstown, and Toa Payoh – the median rental rate in Q3 2022 for a 5-room flat in Queenstown is $3,600. For private properties, non-landed private properties in the Rest of Central Region (RCR) command top dollar.
6. Rightsize Your Home
Finally, if there is no way you can continue to service your loan and/or you feel that you are overleveraged and want to ‘correct; it, you can sell your property and buy a smaller and/or more affordable one.
In addition to freeing up cash, there are other ‘hidden’ monetary benefits in terms of general maintenance such as lower maintenance fees, utility bills, and property tax.
As you can see, aside from refinancing and getting a tenant, most strategies to help you with your mortgage debt require some form of professional advice or help. If you are struggling with an HDB loan, the good news is that HDB is comparatively lenient, and as long as you can prove that you are indeed in financial trouble, they should be able to help you.
For those on bank loans, things are trickier because, in the absolute worst-case scenario, you might lose your home. It is best not to let it reach that stage.
If you are worried about repaying your home loan and need guidance, our PropertyGuru Finance mortgage experts can help. The service is completely free, and we promise to only deliver objective and transparent expert advice and recommendations.
Nevertheless, if you require more information on home loans or interest rates, check out these articles:
- Renting in Singapore (2022): 3 Upcoming Trends for the HDB and Private Rental Market
- Will the HDB Home Loan Interest Rate Increase in 2022?
- Interest Rates Are Expected to Increase Further In 2022: How This Affects Your Mortgage in Singapore and What Homeowners Should Take Note
- Rightsizing for Retirement: Moving to A Cosy 4-Room Flat in Henderson
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