What is the mortgage on a million dollar home?

Given the current property measures in Singapore now, LTV (loan to value) was implemented and the maximum loan a buyer can get is 75% of the property purchase price. So what is the mortgage on a million dollar home in Singapore?

Therefore, on a $1,000,000 property in Singapore, a buyer can loan up to $750,000. However, in Singapore, it is not so straightforward. There is TDSR (total debt servicing ratio) and different types of loan interest rates to consider before taking up a mortgage.

What is the mortgage for your home?

TDSR – total debt servicing ratio

There was a point in the Singapore economy there the property prices were peaking non-stop. Therefore, the government had to intervene to control the prices. TDSR was implemented so that buyers have restrictions in taking loans and ensuring that the buyers can still service the loan during crisis. In order to curb speculation, FIs (Financial Institutions) can only loan up to a maximum of 60% of your income. This will have to include all your housing loans, car loans, credit card loans, and any other repayment obligations.

variable income

However, not everyone in Singapore has a fixed income. So how do Govt go about to keep a self-employed person in check? How much can a self-employed borrow?

Under the new TDSR framework, all commissions, rentals, variable bonuses are all lumped under variable sum. From there, FIs have to reduce another 30% of the variable sums. For example, a business owner is making $5,000 every month, he has to take a haircut of 30%, thus making only $3,500. Thereafter, FIs will then do the TDSR calculation on $3,500, hence having a lower loan quantum.

Loan refinancing for a million dollar home

So far, TDSR applies when you are getting a new loan. So how about buyers that are actually doing refinancing? Does TDSR apply for them? The good news is that TDSR does not apply for owners that are refinancing their loans. In the case where salaries have fallen or you have taken on more debt, don’t worry as TDSR will not affect your refinancing.

Bank interest rates

So since we are on the topic of mortgage on a million dollar home, I believe interest rates are very important for buyers out there as well. Hence, I want to take this opportunity to at least spread the knowledge. Loans will make up of 2 components, interest and principal. However, bank interest rates will fluctuate depending on the economy. So let’s take an example here, keeping tenure to 30 years and quantum to $1,000,000. We will have 2 different types of interest rates, 0.4%, and 2%.

2% interest rate for a million dollar home

0.4% interest rate for a million dollar home

So on the left, we have 2% and right we have 0.4%. We can see that right now during COVID-19, some owners who have SIBOR loan rates will be enjoying a 0.4% now. Choosing the right loan package will help you to save a lot as well. This is because, for the right side, you can see that interest is only $248 per month and the majority goes to the principal. By the 5th month, you only have a $740,187 loan left as compare to $742,363 (2% interest rate). Hence, refinancing is as important as looking at macro factors of the world economy.

conclusion – What is the mortgage on a million dollar property?

In Singapore, properties are not cheap and out of $1,000,000 property, you can loan up to $750,000. Even HDB flats can fetch more than a million dollars now. The interest rates will also be a factor in how fast your principal can be paid off. Hence, during low-interest rate environment, it will be a good time for you to save up and do capital repayment during a high-interest environment.

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