Are you a Singaporean who's looking to refinance your existing home loan? Well, paying off your home loan debt at lower interest rates might not have been that feasible for you prior to last week's fine-tuning by the Monetary Authority of Singapore (MAS), but you could possibly take advantage of the modified Total Debt Servicing Ratio (TDSR) rules now.
Here, we at GET.com list down the 3 crucial things you need to know about the TDSR revision. Have a read to find out whether you'll stand to gain from the recent modifications.
3 Things To Know About The TDSR Changes
1. The Tweaks Don't Apply To New Home Loans
In case you're new to the term TDSR, you just have to know that it restricts the home loan quantum by making sure that your monthly repayments for all of your debts (such as credit cards, personal loans, car loans, home loan, etc.) do not exceed 60% of your monthly earnings.
Introduced back in 2013, the TDSR was implemented as one of the property cooling measures to encourage responsible borrowing so that borrowers do not bite off more than they can chew.
As highlighted above, the tweaks to the TDSR are not applicable for new home loans. The 60% threshold still stands for new home loans that borrowers take up.
2. What The Changes Are
Homeowners who are refinancing their property loans may be exempted from TDSR if they meet certain criteria. They'll thus enjoy greater flexibility with the revised TDSR, compared to the original set of rules which made it impossible for some borrowers to refinance and take advantage of lower interest rates because they didn't meet the TDSR threshold of 60%.
Prior to the tweak, the TDSR exemption was granted only to the refinancing of owner-occupied homes purchased before the TDSR framework kicked in back in June 2013.
On the contrary, the exemption applies now to the refinancing of all owner-occupied homes, no matter when the property was bought.
In addition, previously only investment property owners who bought their properties before the TSDR was introduced were allowed to refinance their loans above the 60% threshold subject to debt reduction plans.
Now, all investment property owners could refinance their loans above the TDSR threshold, regardless of when the property was purchased, provided they fulfill these conditions: (i) commit to a debt reduction plan with their banks to pay back at least 3% of the outstanding balance on their property loans over 3 years, and (ii) pass the bank's credit assessments.
3. The Significance Of The Revision
When borrowers cannot refinance because of the TDSR threshold of 60% due to a confluence of factors ranging from reduced income, job loss or increased financial liabilities, they're stuck in the rut with climbing and more volatile interest rates.
That certainly doesn't help alleviate their financial burden, especially when Singapore and her people are increasingly exposed to economic slowdown.
Although only a small minority of borrowers can benefit from the TDSR revision right now (approximately 2.5% of home loans made after the implementation of TDSR rules are currently above the 60% threshold), it is still a beneficial change for consumers because you never know when it'll come in handy for you.
The main reason why borrowers take up home loans pegged to floating rates in the first place is the fact that refinancing can be part of the equation. Refinancing can help borrowers save a fair bit of money in the long run, although consumers should always be wary of the various fees and conditions involved.