Loan Tenure

MAS Restricts Loan Tenure for Residential Properties in Singapore

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How Loan Tenure Affect Residential Property Prices In Singapore?

Aiming to curb continued upward pressure on residential property prices in Singapore.

With effect from 6 October 2012, the Monetary Authority of Singapore (MAS) restricts the loan tenure granted by financial institutions to purchase residential properties in Singapore. This measure will apply to both private properties and HDB flats.

  • The loan tenure capped at 35 years. This ruling will apply to loans to both individual and non-individual borrowers, as well as refinancing loans.
  • Loans exceeding 30 years loan tenure, or the loan period extends beyond the retirement age of 65, will face tighter loan-to-value (LTV) limits.
Housing Loan 1st Home Loan 2nd Home Loan 3rd Home Loan
Loan Tenure Up To 30 Years 31-35 Years Up To 30 Years 31-35 Years Up To 30 Years 31-35 Years
Sum of Tenure & Age of Borrower Up To 65 Above 65 Up To 65 Above 65 Up To 65 Above 65
LTV Limit
75% 55% 55% 45% 25% 25% 35% 15% 15%
Cash Outlay 5% 10% 10% 25% 25% 25% 25% 25% 25%
LTV Limit
15% 15% 15%

Why is there a need to restricts Loan Tenure?

  • Borrowers with longer loan tenure will end up paying more as interest compounds and accumulates over a more extended period. Therefore, it will cause a more substantial debt repayment burden on borrowers.
  • The current climate of low interest rates may mislead the borrowers. They may overestimate their ability and taking a bigger loan which beyond what they can afford.
  • When the correction comes, the interest rates rise, borrowers who have overcommitted themselves will have financial difficulties servicing their loans.

All these pose risks to financial institutions. The consequences could be, financial institutions may be caught holding more bad loans.

The government is taking this step to encourage more prudent lending and avoid a property price bubble. Also, to foster long term stability in the residential property market in Singapore.

Loan tenure is determined by Income Weighted Average Age of Borrowers (all borrowers must be mortgagors)

Following is a simple illustration for your easy reference:

Younger Borrower Earns Higher Income Older Borrower Earns Higher Income
Borrowers' Age & Income A age 30 earns $7000 per month
B age 50 earns $3000 per month
A age 30 earns $3000 per month
B age 50 earns $7000 per month
Income Weighted Average Age
= (30 x $7000) + (50 x $3000) / $7k + $3k
= ($210,000 + $150,000) / $10,000
= 36 years
= (30 x $3000) + (50 x $7000) / $3k + $7k
= ($90,000 + $350,000) / $10,000
= 44 years
Maximum Loan Tenure
for 75% Loan-To-Value
= 65 years - 36 years
= 29 years
= 65 years - 44 years
= 21 years
Outcome Lower IWAA
Longer Max Loan Tenure
Higher IWAA
Shorter Max Loan Tenure

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