Home Loans With Different Rests: Creating Their Amortization Schedule

Home Loans With Different Rests Creating Their Amortization Schedule from Property Buyer Singapore

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How Do I Compare Home Loans in Singapore?

How Do I Compare Home Loans in Singapore from Property Buyer Singapore

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Explaining the Advantages of HDB Loans versus Bank Loans

Explaining The Advantages of HDB Loans Versus Bank Loans from Property Buyer Singapore

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All About Using Home Loan Consultancy Sites

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Why Singapore Property Prices Go Crazy

By PROPERTY BUYER

“The measures that were announced by the Singapore government on February 19 do not address the root cause of the problem yet. The root cause of the problem is a short-term supply crunch at the lower end of the market, but it definitely helps mitigate the risk of bubbles being formed in the future.” (Channel NewsAsia, 2 Mar 2010, Asian property prices expected to continue to rise despite govt measures, Karamjit Singh)

We read Mr. Karamjit Singh’s comments and we did a bit more research. So here is what we found.

 

Singapore’s population according to the Singapore Department of Statistics are: -

Table 1: Singapore's Population 2000-2012

	Total Population ('000)	Resident Population (Citizen + PR) ('000)	Annual Increase in Resident Population + Local Citizens ('000)	Annual Increase in Total Population ('000)
2000	4,027.9	3,273.4
2001	4,138.0	3,325.9	52.5	110.1
2002	4,176.0	3,382.9	57.0	38.0
2003	4,114.8	3,366.9	-16.0	-61.2
2004	4,166.7	3,413.3	46.4	51.9
2005	4,265.8	3,467.8	54.5	99.1
2006	4,401.4	3,525.9	58.1	135.6
2007	4,588.6	3,583.1	57.2	187.2
2008	4,839.4	3,642.7	59.6	250.8
2009	4,987.6	3,733.9	91.2	148.2
2010	5,076.7	3,771.7	37.8	89.1
2011	5,183.7	3,789.3	17.6	107.0
2012	5,312.4	3,818.2	28.9	128.7

Figure 1: Detailed Statistical Table (Singstat)

There is a nice table at
http://tankinlian.blogspot.com/2010/01/hdb-flats-and-population-growth.html
which shows the relative growth rates of HDB.

We are not against importing talent, but we think Singapore had been over-doing it, without studying the strain the additional populace will make on the country's basic infrastructure like transportation and housing. The miscalculation by the Government resulted in an inadequate supply of HDB flats to meet demand. This, we believe, is one of the causes of Singapore's escalating property prices.

Table 2 shows the number of new HDB flats (Source: HDB Press Release) rolled out each year from 2006 -2012 and the estimated housing demand in those years.

Based on the latest Census of Population 2010, the average household size stands at 3.5 people (Source: Department of Statistics), we divide the Annual Increase in Total Population by 3.5 to obtain the Estimated Housing Demand, the latent demand (rental + purchase)

Since 80% of the Singapore's population lives in HDB flats, we estimate that the Estimated HDB Housing Demand from foreigners to follow the same trend as 80% of total demand.

Table 2: Singapore's Estimated Housing Demand and HDB Housing Supply

	Estimated Housing Demand (Annual Increase in Total Population / 3.5 per household)	Estimated HDB Housing Demand at 80% of Total Demand	HDB Supply of New Flats (estimated)
2006	38,743	30,994	2,733
2007	53,486	42,789	5,063
2008	71,657	57,326	7,793
2009	42,343	33,874	13,500
2010	25,457	20,366	17,713
2011	30,571	24,457	25,200
2012	36,771	29,417	34,237
Total		293,600	106,239

(Source: www.PropertyBuyer.com.sg, Singstat and HDB Press Release)

This is the total latent demand as all foreigners arriving into Singapore will need to have a place to stay. In other words, these form largely the total demand (Rental + Purchase).

ACTUAL DEMAND IMPACT ON HDB

Now let’s take a look at the number of immigrants eligible for HDB purchase. Only Singapore citizens can buy HDB flats directly from HDB. Permanent Residents (PRs) are allowed to buy HDB flats only from the resale market.

Figure 2: Singstat, popinbrief2012a.pdf

Annual increase in population based on Table 1 (in 000s), is 54.5 in 2005, 58.1 in 2006 and 57.2 in 2007, 59.6 in 2008, 91.2 in 2009 and 37.8 in 2010, 17.6 in 2011, 28.9 in 2012.

Using Table 1, 3,818,200 (2012) – 3,467,800 (2005), the total population increase is 350,400.

As can be seen, a large part of these increases are due to NEW Permanent Residents and new Singaporeans (naturalised citizens) (Figure 2) with a small part contributed from local born Singaporeans.

Assumption of HDB demand caused by population increase

The increase in population is largely due to New Permanent Residents and New Citizens (Figure 2), with a small part contributed by increase in local born Singaporeans.

Assumption 1: 80% of the 350,400 population increase buys HDB.

Let’s assume that 80% of these new population increase buys HDB, that is a total of 280,320 people.

Assumption 2: 3.5 people to a household

Let’s assume that there will be 3.5 people to a household. 280,320 / 3.5 = 80,091 units of HDB demand arising from Permanent Residents and new Singaporeans.

• 80,091 HDB units of NEW Demand of HDBs from 2005 to 2012!!!

From 2006 to 2012, total numbers of HDB built and those that is announced and not yet completed are 106,239. But, since Permanent Residents cannot buy directly from HDB they will be competing for these flats after the minimum occupancy period (MOP) of 5 years when these flats can be sold on the open market.

LOCAL HDB Demand

There is also the annual household formation of 19,000 to 22,000 per year. Assume that 80% of these households would want to buy HDBs. So let’s say 80% of 20,000 would buy HDB, that would equate to 16,000 a year. 2005 to 2012, there would be a 128,000 of demand of HDB units.

• 128,000 HDB units of Local Demand of HDBs from 2006 to 2012!!!

Therefore, the total demand is estimated to be 208,091 units of HDB.

And HDB has only built or announced to build 106,239 units. There is an estimated shortage of over 100,000 units.

MASS MARKET HDB BEING PROPPED UP

Many of these new supplies were “Built-to-order” flats which can take 3 to 4 years to complete adding to acute shortages of HDB flats, further adding to the demand.

Demand from household formation (marriages) comes in at a range of 19,761 to 22,840.

These newly married couples surely need somewhere to stay.

Why didn’t HDB anticipate the demand?

Marriage rates is something which is very easy to estimate and very consistent over the years. Why didn’t HDB anticipate the demand?

WHAT IS THE LIKELY EFFECT OF MASSIVE IMMIGRATION?

Rental rates are being pushed up.

HDB property prices are being pushed up.

Faced with a lack of choices, Singaporeans will be forced to choose HDB flats in previously less desirable locations such as Punggol or Sengkang which has excess units. Not only that, some Singaporeans may choose not to wait and instead buy private housing directly if they can afford to.

For HDB flat owners whose property valuations have risen, they may consider selling their flats. After the sale, they will find buying another HDB flat too expensive; hence they may opt for private housing instead.
There is currently no shortage of total private properties in pipeline, which stands at 83,975 (Source: URA Release of 3rd Quarter 2012 Real Estate Statistics). This is easily 7 to 8 years of supply based on the average consumption trend.

The end effect is that a greater proportion of people will end up living in condominiums and private apartments. This will gradually deplete supplies and bring smiles to property developers in Singapore.

The Singapore government on the other hand will be happy that prices of land will rise and reach the land’s minimum reserve price to trigger a bidding process. More land sales equal more revenues for the government. And more developers bidding for land means higher prices. These higher prices are then translated into higher priced condominiums. Singaporeans will have to work even harder and hopefully earn more to pay for such private apartments or condominiums of which the major price component is the land price.

PERFECTING THE ART OF MICRO MANAGEMENT

Although it is a market driven economy, various policy levers which the government has access to means that it is not a 100% market driven economy. Though many countries are also similar.

Singapore has perfected the art of micro-management.

At $10,000 household income, HDB income ceiling, you cannot buy HDB flats.

At $12,000 you reach the Executive Condominium ceiling, you are not eligible to buy Executive condominium anymore.

At a household income of $12,000 onwards, the Singapore government strongly encourage you to move upwards in consumption.

Consumptions helps increase tax revenues (annual property tax, stamp duty, transaction fees for property agents which translate into taxes, sale of furniture, construction, work for lawyers, etc.), and helps the economy in creating jobs.

WHAT THIS MEANS FOR THE SINGAPORE PROPERTY BUYERS AND THEIR HOUSING LOANS?

If you are a Singapore Property Buyer, you have to be mindful that there is a gradual shift in Singapore Government policy in play. The government is the largest land-owner, it can regulate supply to influence prices. Being an honest and efficient Singapore government bent on maximising land productivity, hence the Singapore government is now releasing a lot of HDB land with these elevated prices to maximize revenues. If you already own land, good for you, if you do not own any property, you could be price out.

These subtle or not so subtle policy directions will either enrich or impoverish you. And when you consider your Singapore home loans, you ought also to take care to choose the right structure to capitalize on these unwritten government policies or mis-calculations.

We do not support or reject any government policies, we only highlight such policies to the attention of our readers so that they can find ways to benefit from these policies or outcomes of government’s miscalculations.  

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Explaining the Advantages of HDB Loans versus Bank Loans

by SUSAN TEO

Before 1 January 2003, people buying a HDB (Housing Development Board) flat have to finance it either with a HDB Concessionary Rate Loan or a HDB market rate loan. But since then the HDB market rate loan was replaced by home mortgage from financing institutions, which are gazetted by the Monetary Authority of Singapore.

HDB Concessionary Rate Loan 

Compared to a home loan from a financing institution, a HDB loan has more stringent eligibility requirements. The below covers most of them.   

Eligibility Criteria:

• For HDB flats only (resale or direct purchase from HDB)

• At least one buyer must be a Singapore citizen

• Must have a gross monthly income not exceeding $10,000 (or $15,000 for extended families)

• For DBSS flat the income ceiling is $8,000 (or $10,000 for extended families)

• For applicants under the Single Singapore Citizen (SSC) scheme, the income ceiling is $5,000

• Must not own any private residence (in Singapore or abroad), including HUDC and executive condominium

• Must not have sold a private residential property within 30 months and taken a HDB loan before

• Must not have previously obtained a HDB loan within 30 months

• Must not have taken more than two previous HDB loans

• Must not own more any market / hawker stalls or commercial / industrial property (Except if you operate the business yourself, have no other source of income, and only own one market / hawker stall or commercial / industrial property)

From July 2013, HDB loan will not be granted for flats with less than 20 years of lease. In addition, for flats with lease between 20 and 59 years, loan approval and tenure will be subjected to certain conditions.

Given the many restrictions of a HDB loan, why then do Singaporeans still want to take one? We delve further into the pros of this loan in the following sections.

1. Higher CPF (Central Provident Fund) withdrawal limit 

For financing by bank loans, the CPF Ordinary Account withdrawal cap is up to 100% of the valuation limit (VL), which is the lower of the purchase price or valuation at the time of purchase. If the loan is still outstanding when this limit is breached, the housing withdrawal limit can be increased to 120% VL provided that half (entire) of the prevailing Minimum Sum is set aside for borrowers below 55 (55 and above). This housing withdrawal limit varies with the purchase date of the flat, for purchases from 2008 onwards it is 120%.

With a HDB concessionary loan, however, you can enjoy a higher withdrawal limit.

For direct purchase from HDB, there is no limit to the saving in the Ordinary Account you can use.

For resale HDB flats, there is no limit to the saving in the Ordinary Account you can use, after you have set aside half of the prevailing Minimum Sum.

But from July 2013 onwards, for flats with leases between 30 and 59 years the use of CPF fund is allowed only if the remaining lease covers the buyer till at least 80. For such flats, the withdrawal limit will be computed based on the below formula:

Withdrawal Limit
 = (The remaining lease of flat or property when the youngest owner is 55 years old / The lease of the flat or property at the point of purchase) x VL

For example, at the point of purchase the buyer is 38 years old and the lease is 40 years. When the buyer turns 55, the remaining lease will be 23 years. Hence

Withdrawal Limit = 23/ 40 x VL

Table 1 further illustrates what is VL.

Table 1: VL

	Flat A	Flat B
Purchase Price (S$)	400,000	370,000
Valuation (S$)	350,000	420,000
VL (S$)	350,000	370,000

For flats with under 30 years of lease, use of CPF fund is prohibited. In other words, buyers will to cough up cash for the down-payment, monthly repayment of the loan, stamp duties and other miscellaneous fees.

2. No cash component required for the down-payment 

A key advantage of a HDB loan is that you do not have to stump up any portion of the down-payment in cash. You are allowed to use the balance in your CPF (Central Provident Fund) Ordinary Account to pay for it completely.

Whereas with a bank loan, you will have to pay at least 5% of the Valuation Limit (VL) in cash. If the loan tenure exceeds 30 years or extends past the age of 65, the minimum amount jumps to 10%.

3. Higher loan quantum 

For the first HDB Concessionary Rate Loan you are taking, the loan quantum is as high as 90% VL. In contrast, for bank loans, the quantum is capped at 80% LTV (loan-to-value ratio). It dips to 60% if the loan tenure exceeds 30 years or extends past age 65. Table 2 compares the down-payment components and loan ceilings for HDB and bank loans.

Table 2: Payment Structure for a HDB Flat

	Down-payment
	Cash Component	CPF Component	Maximum Loan Quantum
HDB Loan	≥ 0% of VL	First 10% or more of VL*	≤ 90% of VL**
Private Loan without*** Outstanding Mortgage AND• Loan tenure does not exceed 30 years; and • Sum of loan tenure and age of borrower at the time of applying for the loan does not extend beyond retirement age of 65 years.	≥ 5% of VL	Next 15% or more of VL*	≤ 80% LTV
Private Loan without Outstanding Mortgage AND• Loan tenure exceeds 30 years; or • Sum of loan tenure and age of borrower at the time of applying for the loan extends beyond retirement age of 65 years.	≥ 10% of VL	Next 30% or more of VL*	≤ 60% LTV

Source: HDB (http://www.hdb.gov.sg/fi10/fi10321p.nsf/w/HLHDBWhat?OpenDocument) Monetary Authority of Singapore (http://www.mas.gov.sg/~/media/resource/news_room/press_releases2013/Annex%20II.pdf) MoneySENSE (http://www.moneysense.gov.sg/en/Life-Events/Buying-a-Home.aspx)

*Do note that there is a limit to the CPF amount you can use for mortgage financing, as discussed earlier in the article.
** This loan quantum only applies to the first HDB Concessionary Rate Loan. The loan quantum for the second HDB loan will be reduced by the full CPF proceeds and part of the cash proceeds made from the sales of the previous flat.
*** Since buyers are not allowed to own more than 1 HDB flat concurrently and must dispose of their private residential properties within 6 months after buying a HDB flat, technically there shan't be a case with an outstanding mortgage.

New regulations, that have kicked in from 12 January 2013, dictate that the mortgage servicing ratio (MSR) for private loans must not exceed 30% of the gross monthly income of the borrower and 35% for HDB loans. So do note that to be eligible for the maximum loan limits stated in Table 2, you also have to meet the MSR cap.

Effectively, this can translate into a lower loan quantum for a bank loan compared to a HDB loan. For example, for a 30-year loan with a 80% quantum for a S$800,000 HDB flat, at an interest rate of 1.5% p.a., the monthly repayment amount will be S$1,932.67. In order to be eligible for a

• HDB loan: Gross monthly income ≥ S$5,521.92

• Private loan: Gross monthly income ≥ S$6,442.24

Thus, if your income is below S$6,442.24, you will not be eligible for a private loan of 80% LTV. If you extend the loan tenure, current rules mandate that you can only take up to 60% LTV.

Therefore, a HDB loan will allow a higher loan quantum.

4. HDB is more lenient 

As a Government agency which main goals are to provide affordable quality housing and encourage home-ownership, HDB tends to be more tolerant of delinquent borrowers.

But for a loan from a financing institution, you are always required to pay the monthly stipulated amount even if you have suffered a pay cut.

Further, HDB usually grants deferment of monthly installment payment if you have fallen into financial hardship. The banks, on the other hand, will likely be hot on your heels if you defer payment even for a day!

5. No penalty for partial or full repayment of loan, interest rebate given instead  

Of note, is that HDB imposes zero penalty for partial or full repayment of its loan.

Most mortgages of financial institutions, however, come with a lock-in period (aka commitment period) typically of 3-5 years. During this period, any repayment above the prior agreed amount will result in a penalty - usually at most 1.5% of the repayment amount. Financial institutions profit from the interest incurred on the loan, any partial or full repayment of the loan means a loss on interest earnings. Hence, the penalty helps to compensate for this loss.

In fact, HDB even reward you for making capital repayment. Interest rebates will be given on any amount of capital repayment made by flat owner from the next following day after payment is received. The rebate is calculated based on the below formula:

Interest Rebate = (Amount Repaid x Interest Rate) / 12 x 1/ No of Days in the Month x (No of Days in the Month – Day in which Amount is Repaid)

To illustrate

• HDB Interest Rate = 2.6% 
• Capital Repayment = $1,000 on 20th Mar 2013 
• No of Days in March = 31 

Interest Rebate = (1000 x 2.6% ) /12 x 1/ 31 x (31 – 20) = $0.77

6. Stability in interest rate 

Since revision to the interest rate of a HDB loan is made quarterly in tandem with changes to the CPF rate, which has been the same for over 10 years. The interest rate has, likewise, remained stagnant. A HDB loan, thus, offers relatively more stability than even a fixed-rate mortgage which rate is only fixed for 3- 5 years. This is not saying that there have been no fluctuations in HDB interest rates. For instance, in the 1990s rates demonstrated more volatility (Source: CPF, “Historical HDB Concessionary Interest Rate”).  

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What Are Home Loan Consultancy Sites All About?

by SUSAN TEO

This article introduces the benefits of using home loan consultancy sites. If you are planning to take a mortgage at some point in your life, you can benefit from reading this.

How online home loan consultancy work in Singapore? 

1. Mortgage consultants or brokers 

Basically, home loan consultancy or mortgage consultancy websites act as middlemen connecting borrowers to the financing institutions.

These sites have professional mortgage consultants who are aware of all the different home loans offered by every Singapore's bank. They will first assess the your financial risk profile and advise on the type of loan you should take. The consultant will then refer you to the financier providing the best loan.

This advisory service is completely free to you as the financing institutions will pay the mortgage consultants a commission upon successful disbursement of loan.

The financing institutions are willing to incur this cost as it saves them on front-end staffing.

2. Online home loan packages comparison 

Apart from free mortgage advisory services, some home loan consultancy sites also have tools to allow you to compare loan packages across different banks. For example, the online home loan comparison system at www.iCompareLoan.com do that in 4 simple steps. You only have to input a few pieces of information, such as the loan quantum, duration, type (fixed or floating rate), and the system will display all the available loans that meet the search query. Figure 1 and 2 illustrate this system.

Figure 1: Step 1 of Loan Comparison System  

Source: www.iCompareLoan.com/new_loan 

Figure 2: Step 4 of Loan Comparison System 

Source: www.iCompareLoan.com/new_loan 

3. Home Loan Reports 

A handful of these mortgage consultancy sites may even provide more sophisticated home loan reports, which are available for free or a small fee. www.iCompareLoan.com offers a loan analysis system, which coincidentally is Singapore's most advanced. They give out one-time complimentary reports from this system. Various types of reports that compare loan packages can be generated from the system including interest cost savings from refinancing or new loans, building-under-construction loans, amortisation tables, and more. Figure 3 shows the log-in page.

Figure 3: Loan Analysis System 

 Source: www.iCompareLoan.com/consultant/ 

Usefulness of home loan consultancy sites

1. Save time and effort 

There are about 16 banks in Singapore offering over 50 types of mortgages. If you were to do the research yourself, you would have to trawl through numerous banks' websites to learn about the loans they provide. But more often than not, the websites will not even state basic information about the loans, like whether there is a lock-in period and clawback period or the interest rates payable.

Instead the websites will encourage you to contact them for more details. You would have to speak to over 10 bank officers if you were to conduct a thorough search. As a home loan is a major financial commitment, it will be wise to have comprehensive information before selecting a loan package. And a home loan consultancy site will make this task a whole lot simpler.

At the most basic level, the free DIY loan comparison tools offered by the consultancy sites allow you to compare loans in only a few steps, with the results displayed in easy-to-read table forms.

If you are in need of more comprehensive advice, you can contact the mortgage consultants.

Loan features can also change every now and then. It may be difficult for a novice to keep abreast of all the latest loan information. Mortgage consultants, on the other hand, are in the know so they are well-positioned to advise you accordingly.

2. Unbiased loan advice 

Because the mortgage consultants are not direct staff of the banks, they will give you unbiased loan recommendations and comparison across different banks. Conversely, if you were to turn a bank directly, the officer will naturally try to sell their loan packages. The officer is also unable to advise you about packages offered by other banks.

Mortgage consultants, however, have knowledge of packages across different banks and are not beholden to any.

3. Extra assistance 

Besides dispensing loan recommendation, most mortgage consultants are also happy to help out in the application process. Paperwork can be time-consuming, so the consultants can assist you by ensuring all the required documents are in order. Otherwise, your loan application can be delayed.

In some cases, the mortgage consultants may even be able to negotiate for a better rate, or facilitate the approval process, if the loan amount is above S$2 million.  

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How Do I Compare Home Loans in Singapore?

by SUSAN TEO

Taking a mortgage to finance a residential property is a heavy financial liability for most; thus it is a decision that shan't be taken lightly. This article provides a starting point and some basic things to consider before shopping for a mortgage.

Loan types

You can select from an array of loan packages available in the market. These can be broadly classified as

• Fixed rate loan
• Variable (floating rate) loan
• Combo (hybrid) loan
• Cashback or cash-incentive loan
• Interest-offset loan
• Interest-only loan [Do note that interest-only mortgages for residential properties have been disallowed by MAS (Monetary Authority of Singapore – Singapore's central bank) since14 Sep 2009, MAS Notice 632]

To read about the exact definition of each of these, go here.

The most popular types are the fixed-rate package and variable (floating rate) package. For the former, the interest rate are only fixed for a period of 2-5 years, after which rates are allowed to float. The latter, however, has rates that fluctuate throughout the loan duration. The interest rates for fixed rate are usually higher than for variable, in order to compensate the bank for keeping rates stable. To understand more about the nuances between the two and which to select, do look at our previous article: “Fixed-Rate Versus Floating Rate Home Loan Packages in Singapore: Which is Right for You?”.

Further, for each of the 6 types listed above, you may find different variants. For example, for the Variable (floating rate) loan, the interest rate can be SIBOR-pegged, SOR-pegged or an average of SIBOR or SOR. Others may also offer a cap on the upper limit of the interest. For a detailed discussion about choosing between a SIBOR or SOR based loan, read “Understanding SIBOR and SOR Based Home Loans in Singapore”.

If you feel flushed by the myriad of loan types and muddled by which to choose, you should consult a mortgage consultant.

Interest cost

Interest is the cost of borrowing. So naturally it is a key deciding factor when selecting a loan. You will not want to pay an excessive price for borrowing; therefore take note of the interest rate over the entire life of the loan, not just in the beginning. To compare the interest payable for different loans, you can make use of the loan analysis system at iCompareLoan.com, which can generate reports showing the interest incurred for all the mortgage packages in Singapore. Figure 1 and 2 show a snapshot of the interest comparison tables and charts to be found in our reports.

Figure 1

Figure 2

 

 

Conditions of the package

• Lock-in period (or commitment period)
• Clawback period (or reimbursement period)
• Conversion (or repricing if there is no cost involved)

Interest costs aside, you should look out for other features in the package that can add to the cost of the loan; particularly, when you intend to make partial or full repayment, refinance or sell the property in a few years' time.

Any repayment during the lock-in period (normally the first 2 to 5 years of the loan) will result in a penalty of usually at most 1.5% of the redeemed amount. But some packages do not come with a lock-in period. You can consider these if you foresee early repayment.

The clawback period, on the other hand, is the period (typically the first 3 years) in which a full redemption of the loan will incur a refund of all the freebies given such as legal subsidies, valuations, etc. The cost of these perks usually total $2,000 to $3,000.

Do note that MAS passed a ruling stating that cash rebates (including legal subsidy and stamp duties) offered in a mortgage have to be deducted from the purchase price, which effectively lowers the loan quantum. This has caused many banks to stop offering subsidies of any sort since mid-2012. However for those that still do, there may remain a claw-back period.

Finally, some loan packages have a free one-time conversion (repricing) to another loan package with a different interest rate or structure. So before you refinance, you should ask your current financier if they offer free repricing. Repricing can less costly then switching to another financier.

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