Loan Repayment in Singapore: 6 Things You Can Do If You Can’t Pay Your Mortgage (2023)

Global interest rates (and hence, Singapore mortgage rates) have been on the rise since 2022. Last year, the US Federal Reserve raised interest rates seven times, which saw the benchmark federal funds rate shoot up to a range of 4.25% to 4.50% by 14 December 2022. For comparison, this rate was 0.25% to 0.50% on 17 March 2022.

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. Rates are expected to continue rising to above 5% throughout 2023, with hikes moderating only in the second half of 2023.

It’s safe to say that the near-zero interest rates we enjoyed during the COVID-19 pandemic are now a distant dream. In the current high interest rate environment, 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.

When interest rates were low, many banks and mortgage brokers had been encouraging homeowners to refinance their home loans to the then-record-low rates to maximise their savings.

But a low interest rate environment is not the only time to consider refinancing your home loan. 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-pegged loan to a more competitive SORA-pegged package. Currently, some of the best mortgage rates are from SORA packages. SORA is a backwards-looking rate while SIBOR is a forward-looking rate. This makes SORA more stable and slower to respond to the market as compared to SIBOR, 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 16 February 2023.

^ At the time of writing (23 February 2023), a spread of 0.55% was used for the illustration of SORA loans as it is the most competitive package on PropertyGuru Finance. 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 $233 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 $587 per month!

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.

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.

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. 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 working in Singapore are just some of the potential tenants you may have.

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 Q4 2022 for a 5-room flat in Queenstown was $4,200.

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, 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.