Singapore doesn’t have an expansive landmass. Because of this, the real estate market tends to be always moving, and prices remain robust with excellent deal flow. Some foreigners may wish to purchase a home in Singapore. To do so, applying for a mortgage might be required. Here is our guide to the relevant facts about getting a mortgage in the country.
Loan to Value Ratios
Something to appreciate right away is that any mortgage is considered based partly on the loan to value ratio (LTV).
What is this LTV?
It is the amount of money that is being borrowed in comparison to the value of the property. There’s usually a limit of between 60 percent, and it may be as high as eighty percent on what can be borrowed.
The difference between the amount being borrowed and the property price needs to be covered from a cash balance or a Central Provident Fund (CPF).
Debt Servicing Ratios
Another ratio that’s worth looking at is what’s known as the Total Debt Servicing Ratio. This is shortened to TDSR and puts a restriction on an individual’s requirement to pay the debt. Essentially, what it is saying is that you cannot borrow more than a certain percentage of your income from a job, commission, or through self-employment.
For someone with a job in Singapore, there’s a limit of 60 percent to be aware of. With people who receive commission or who are self-employed, then 70 percent is the restriction.
Therefore, consider all relevant debts that may pertain to TDSR to ensure that you won’t exceed them when including the mortgage value too. Ideally, you shouldn’t come anywhere near them to avoid current or future difficulties in making payments.
Short-rate Mortgage Deals
In some situations, a bank may be willing to offer a low one or two percent interest rate for a short duration. The idea is that this makes the initial purchase more affordable when other housing costs such as decorating, furnishings, etc. are higher.
A reduced interest rate may be valid for the first year or possibly up to five years. The rate may be set differently depending on the duration of the fixed interest rate period. Therefore, interest rate reductions may be available on shorter discounted periods to balance things out. It all depends on the bank and what they’re willing to offer (or the mortgage broker and the deals they can source on your behalf).
Property Guru has information on the latest mortgage rates and the application process. They’ll even notify you when there is a good deal on offer.
Other Mortgage Packages
Beyond short-term discounted rates, there are other mortgage packages available too.
Here are a few:
- Fixed Deposit-Pegged Mortgage – This uses a deposit rate interest rate based on what the bank sets. It’s not tied to the Interbank borrowing offer rate in Singapore.
- Interbank Rate Mortgage – Various Interbank or offer rates may be used. This change is relative to supply and demand, and other factors. The Interbank rate is the amount banks charge each other to exchange funds.
- Board Rate Mortgage – These lack transparency with interest rates set by the bank. They’re unrelated to central bank interest rates or the rates banks charge between each other. However, sometimes they’re cheaper than other alternatives.
- Deposit Matching Mortgage – There is also a mortgage that pairs a deposit account with it. The idea here is that the funds on deposit earn a good rate, sometimes substantially higher than the mortgage interest applied. This then results in a mortgage that’s paid off faster using interest deposits.
Mortgage Legal Requirements
The Singapore Land Authority must approve of the property being purchased by a foreigner. Not all property types are permitted for purchase.
Property purchases have a 15 percent stamp duty applied on first-time or follow-up purchases. Various free trade agreements exclude certain countries from needing to pay stamp duty, including the USA, Norway, and Switzerland, but citizens from most other countries must pay it.
Once approved, a mortgage application runs similarly for foreigners or Singaporean.
The documentation for a mortgage application is pretty typical and not much different from when applying for a mortgage in your home country. Various documentation including recent pay slips, bank statements, annual tax assessments, CFP statements, and ID card or passport is required.
Additionally, a signed Sales and Purchase Agreement or Option to Purchase must be in hand, plus an HDB confirmation page obtained from their portal, and an approved property valuation report too.
It pays to be organized with any mortgage application; being disorganized only creates delays.
Should You Use a Mortgage Broker or Go Direct?
Using a mortgage broker to secure the best mortgage is often beneficial as a foreigner.
Dealing with a bank that may not understand your concerns or be able to properly address them is extremely frustrating. Whereas with a broker, not only can they find you the best deal, but they can also anticipate your questions probably before you’ve even thought of them.
When dealing with a home purchase, using a broker can cut through some of the unknowns and obtain a better deal. Sometimes, any fees are covered by the bank rather than the broker, however, when purchasing property abroad, qualified assistance often proves invaluable in complicated, high-value transactions.
© 2023 The Havok Journal