The Best Mortgage Calculator in Singapore

A momentous milestone of adulthood is undeniably one’s home purchase. As housing is a big-ticket item requiring a large sum of money, it is crucial to plan your finances properly before diving into the property market. This is to ensure that you are purchasing within your financial means and that it is financially sustainable for you in the long run. 

Most home buyers will take on a home loan to fund their property purchase. Besides determining your loan eligibility and cash / CPF down payments required, an important component to consider is also the monthly mortgage payments as these payments take up a significant portion of one’s monthly cash flow for many years to come. Despite its importance, many people, especially first-time buyers, are unsure of how to calculate their mortgage payments.

Clive Chng is an associate director at Redbrick Mortgage Advisory and he is known for his passion in property financing and building meaningful relationships with his clients. Clive understands how daunting it can be when you are making decisions without the right information and advice. Couple that with the other regulatory requirements such as the Total Debt Servicing Ratio (TDSR) and Mortgage Servicing Ratio (MSR), Clive shares how one can often get confused when preparing the cash flow worksheets for their property purchase.

Understanding The Important Parameters Involved Before Using The Mortgage Calculator In Singapore

Before jumping ahead to the calculations, you need to understand the important parameters involved.

1. Loan tenor

Loan tenors for purchases are capped at age 65, or 30 years (Private property) or 25 years (HDB), whichever is lower. Should there be joint owners in the property of varying ages, an Income Weighted Average Age (IWAA) is calculated to determine the “combined” age of all owners. That said, there is also an option to get a longer loan tenor at the start, by reducing the loan amount taken on the mortgage.


2. Loan Quantum

When it comes to loan quantum, we’d have to dive deeper into factors such as loan eligibility, bank valuations and personal preference. The maximum Loan To Valuation (LTV) or loan amount one can take is always a factor of a borrower’s income and commitments, capped at a maximum of 75%.

To determine loan eligibility, MAS states that a buyer has to adhere to MSR and TDSR guidelines to ensure that he/she is not over leveraged. Part of the requirements also specify that the borrower’s income is stressed test against an interest rate of 3.5% to cater to potential rising interest costs. At present, as we are in a high interest rate environment, it is important to note that the stress test benchmark rate will increase should interest rates go beyond a certain level. The new stress test benchmark rate lies solely at the bank’s discretion.

Valuations also matter when it comes to determining the loan amount one can get. For HDB purchases, valuations are determined by HDB, and for private properties, the valuations are determined by the bank that you are obtaining a mortgage from. It is important to note that the banks will only grant you a maximum of 75% loan on the lower of the purchase price or valuation price. Hence, it is important to know what the property is worth, before making a commitment to purchase.

Lastly, one may decide to use more CPF for the down payment to take a lesser loan amount, while others will want to preserve their CPF in the Ordinary Account (OA) or Special Account (SA) so that it earns a virtually risk-free return of 2.50% or above, and in doing so also creates a buffer for rainy days (CPF can be used to pay for the monthly mortgage payments). It is not mandatory to take on the maximum loan of 75% if one does not choose to. However, careful consideration has to be taken when deciding on the amount of loan to take up, especially for buyers of HDB flats, because once you have decided to take on a lesser loan, the decision is irreversible; there is no way to release equity from the HDB apart from selling it in the open market. For private properties, owners can still consider taking out an Equity Term Loan on the property to release residual equity.

3. Interest Rates

The amount of mortgage you would have to pay monthly largely depends on the loan package that you choose, as well as the types of rates chosen. Banks often have a mixture of different loan packages with fixed rates or floating rates.

Fixed-rate mortgages mean that the interest rate is fixed for the first few years of the mortgage only. After which, your interest rates will automatically transition into a floating rate for the remaining tenor. The interest rate for the remaining years is usually pegged to the common benchmark rates such as SORA (Singapore Overnight Rate Average) coupled with a higher spread. Hence, it is common to look into refinancing when your mortgage is nearing the end of the lock-in period.

On the other hand, floating-rate mortgages has its interest rates tied to a particular reference rate plus a spread (bank’s profit margin) added to it. The more common reference rates are SORA, Fixed Deposit, and Board rates. If the reference rate changes, your monthly payments will change accordingly. As the borrower assumes a higher risk / volatility, floating rates are generally priced lower than fixed rates. It is common for the banks to offer lower spreads in the first few years of the mortgage (typically within the lock in period) and higher spreads thereafter. Hence, it is encouraged that you review the interest rates close to the end of the lock in period, and refinance to a more competitive package should the opportunity arise.

Calculating Your Monthly Mortgage Instalments

Now that you have understood the important parameters for your mortgage, you can input the values into an online mortgage calculator in Singapore, to get a gauge on the monthly mortgage instalments. It is also encouraged to simulate higher interest rates, should you decide to take on a floating / variable interest rate to cater for any potential increases in interest rates.

Should I Be Concerned About Mortgage Servicing Ratio (MSR)?

Earlier, we had discussed that MSR and TDSR would determine a borrower’s loan eligibility when making a purchase. Let’s dive deeper to find out more about how it affects you.

The mortgage servicing ratio (MSR) specifies the portion of a borrower’s gross monthly income that goes towards the repayment of the mortgage and is only applicable when purchasing a HDB flat, or an executive condominium (EC) where the minimum occupation period (MOP) has not yet been fulfilled

To calculate MSR, use the formula as shown below: 

MSR is capped at 30% of a borrower’s gross monthly income. What this means is that the monthly mortgage payments on the HDB cannot exceed 30% of a borrower’s monthly income. MSR helps to prevent borrowers from over leveraging, so it is alright if you realise that you are borrowing the maximum amount your income allows you to.

Can I Still Apply For My Mortgage If I Exceed 55% For Total Debt Servicing Ratio (TDSR)?

The total debt servicing ratio (TDSR) refers to the proportion of a borrower’s gross monthly income that can go towards repaying all their monthly debt obligations, inclusive of the mortgage loan being applied for. Monthly debt obligations include car loans, personal loans, renovation loans, student loans or any other debts usually taken from a financial institution and reflected on one’s credit report.

You can use this calculator to easily calculate your TDSR. Alternatively, the formula for calculating TDSR is as follows: 

With effect from 16 December 2021, the TDSR is set at a maximum of 55% by the Monetary Authority of Singapore (MAS). In short, your monthly commitments (inclusive of the mortgage you intend to get) cannot exceed 55% of your monthly gross income. Hence, the larger the commitments you have, the lesser income that can be used toward the mortgage, and that ultimately translates to a lower loan eligibility.

Unlike MSR, that only applies to property loans taken for HDB flats or ECs, the TDSR loan is relevant to loans taken up for all property types. Yes, HDB or EC purchases have to conform to both MSR and TDSR.

Summary

It is often easy to gain access to an online mortgage calculator in Singapore and start filling up your information to determine your loan eligibility and monthly mortgage payments. However, it is imperative to have a good understanding of how MSR and TDSR will affect your borrowing ability, and how the different loan tenor and types of interest rates can alter your monthly mortgage payments.

At present, online calculators are still unable to cater to providing credit policy-based results that you will eventually be subjected to when taking a mortgage from a financial institution. Always do your own homework and thorough research before making a purchase, or for avoidance of doubt, speak with a professional mortgage advisor for additional insights and advice on the best way to move forward.

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