What Happens To Your Mortgage If You Lose Your Job?
Compared to many countries, Singapore has handled the COVID-19 crisis admirably. Movement restrictions are being eased and the economy is slowly but surely reopening.
We don’t mean to be grim, but that said, the job market has taken an undeniable hit, and we must be prepared for the unexpected.
Consider that total employment fell by 19,900 in the first quarter – before the circuit breaker was implemented. The Ministry of Manpower (MOM) has predicted that the labour market will only bottom out in the second quarter and that over 187,000 workers have had their wages impacted by companies’ cost-cutting measures so far.
Other analysts have extended the timeline even further, stating that the job market will face its “real test” only at the end of the year, once the pay-outs from the government’s Jobs Support Scheme ends in October and when the moratorium on loan repayments end in December.
With such uncertainty still lingering, many are wondering how they would cope with their mortgage payments if they are forced to take a pay cut, or worse – lose their job.
5 Things to Do For Your Mortgage If You Lose Your Job
If this happens to you, the truth is that there are no easy fixes. But here are five things you should do immediately.
#1 Cut Back On All Unnecessary Expenses
Your immediate priority should be reducing your cash “burn rate”, to use a popular phrase in the start-up world. Depending on your individual financial situation – such as amount of debt repayments and the strength of your “support network” – how much you will have to cut back will vary.
But what shouldn’t vary is the process. You should undertake a comprehensive budget review of every single household expense you have and go through it line-by-line to see where you can cut back. You might have to replace that gym membership with bodyweight home workouts and use YouTube instead of Netflix. This will be painful – but also necessary.
#2 See If You Can Alleviate The Pressure Using Your CPF Funds
In a previous article, we recapped the rules for using your CPF Ordinary Account (OA) funds ) to service your home loan and discussed whether it is a good idea to do so. The conclusion was that – because of the opportunity costs involved – it is something best avoided, if possible.
But if you’ve lost your job, such idealistic scenarios are no longer realistic. Financial survival must be your priority, and this might mean sacrificing longer-term returns to get through the near-term storm. Even multibillion-dollar investment funds are doing this – for instance, CNBC recently reported that SoftBank has shifted its strategy from long-term domination to short-term survival.
So, if you have accumulated sufficient CPF OA funds, don’t be afraid to tap into them in these times to alleviate the pressure.
#3 Have a Discussion With Your Bank on Potential Reliefs
It’s never easy to confront your financial distress, but it’s a needed conversation. So, if you are struggling to make your monthly mortgage repayments, don’t be afraid to contact the bank to explore your options. There is nothing to be anxious about – generally, the banks will want to help.
Ask them if you can renegotiate interest rates and prepare beforehand by familiarising yourself with all the reliefs the government is offering from this aspect. Mortgage-related reliefs (lasting till the end of the year) include:
- Being able to apply to defer the principal or interest payments (or both) on your mortgage – banks have already approved about 34,000 such applications as of July
- Deferring principal or interest payments for home equity loans (which can provide an immediate cash buffer to tide you over if you have a private property)
- Being able to refinance or reprice investment property loans without being subject to total debt servicing ratio (TDSR) requirements
If you have a HDB, there are also financial assistance measures in place to help you, including loan deferment, extensions, and instalment reductions.
And while mortgages are the focus of this article, don’t forget that reliefs apply to other forms of loans too, such as student, renovation, and auto loans. On top of these, depending on your previous income, you may be eligible for direct cash assistance from the government via the COVID-19 Support Grant or Courage Fund.
#4 – Consider Renting Out a Room for Additional Income
We all value our privacy and convenience, but when drastic situations such as sudden job loss occurs, having a tenant can be helpful. Depending on where you live, renting out a room could net you anywhere from a few hundred to well over a thousand dollars in additional income per month.
Keep in mind that if you are in a HDB flat, it must be a 3-room or bigger to rent out spare bedrooms. Further, the lease period must have a minimum of six months.
It’s worthy to note that finding a good tenant can take time – especially given the current situation – so to speed things up, we recommend you check out the following PropertyGuru articles:
- Singapore Property Rental: A Guide for Tenants and Landlords
- How To Screen Tenants – Questions, What To Check When Renting Out Your Property
- 9 Things To Do When You Rent Out Your Property
#5 – Think About Moving To A Smaller Home
If the other options listed above just aren’t enough, then you may have to consider moving to a smaller, more sustainable property. Your current home may have been a good fit for you and your family previously, but this could very easily change the moment you lose your job and/or income – especially if your ability to finance it depended largely on your monthly salary.
This could mean renting out your entire property and then renting a cheaper, smaller unit (or staying with friends or family). Or it could mean selling your property altogether. Without knowing your personal financial situation, we cannot decide for you.
Just remember, this measure is meant to help you tide through a difficult time. As the job market recovers, it is always possible for you to get back on your feet.
Exploring Worst Case Scenarios – What Happens If You Really Cannot Pay?
While the options above will help, it never hurts to be prepared for the worst-case scenarios. In this context, they would be either foreclosure or bankruptcy. Let’s briefly examine the implications of each.
Foreclosure happens when the bank takes possession of your mortgage’s collateral – your property – and auctions it off to recoup the loan amount. There are rules dictating the property disposal (i.e. the auction), and any difference between the sale price and the outstanding liability (how much is owed) is due to the mortgagor (i.e. you). In Singapore, the lender must obtain a court order to undertake a foreclosure.
You can file for bankruptcy in Singapore if you are unable to repay debts exceeding S$15,000 (now temporarily at S$60,000 because of COVID-19). While creditors cannot repossess your HDB flat if you are bankrupt and sell it off to repay your debts, the owner of your mortgage – whether a bank or the HDB – still has the legal right to foreclose. Thus, if your mortgage is the only debt you are worried about, it is rather pointless to declare bankruptcy.
Prevention is Better Than Cure – The Importance of Refinancing Early
The truth is that while there are steps you can take to alleviate pressure from your mortgage if you lose your job, there will be no quick or easy fix. So, if you have the chance to lower your monthly mortgage payments – such as by refinancing – it might be prudent to do so now, with interest rates (and mortgage rates) at all-time lows.
Don’t wait until it’s too late – refinancing will be more difficult if you are trying to do so when unemployed. Use our Home Loan Refinancing Calculator to see how much you could save by refinancing. And make sure to also proactively explore the opportunities being created by job support initiatives such as SGUnited.
For more helpful information on anything and everything to do with property financing in Singapore, check out our home financing guides. And if you want to take it one step further and get objective and personalised advice, our friendly Home Finance Advisors will be happy to give you a call.
Disclaimer: Information provided on this website is general in nature and does not constitute financial advice.PropertyGuru will endeavour to update the website as needed. However, information can change without notice and we do not guarantee the accuracy of information on the website, including information provided by third parties, at any particular time. Whilst every effort has been made to ensure that the information provided is accurate, individuals must not rely on this information to make a financial or investment decision. Before making any decision, we recommend you consult a financial planner or your bank to take into account your particular financial situation and individual needs. PropertyGuru does not give any warranty as to the accuracy, reliability or completeness of information which is contained in this website. Except insofar as any liability under statute cannot be excluded, PropertyGuru, its employees do not accept any liability for any error or omission on this web site or for any resulting loss or damage suffered by the recipient or any other person.
This article was written by Ian Lee, an ex-banker turned financial writer who hopes to use his financial background and writing skills to help raise people’s financial literacy levels – a necessity in our modern world.