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Analysis of MAS' update of TDSR for refinancing

By Paul Ho, MBA Macq., B.Eng(Hons), ACTA

Analysis of MAS' update of TDSR for refinancing

Regional Currency Outlook 2016

Analysis of MAS updates TDSR rules for Refinancing – Sep 2016
(Singapore Property Regulations from Feb 2014 till Sep 2016)

Paul HO(iCompareLoan.com)

The chronology of earlier regulations can be found here.

14 Sep 2009 till Aug 2013

Singapore Property Regulations From 14 Sep 2009 till Aug 2013

Aug 2013 till Feb 2014

Singapore Property Regulations from Aug 2013 till Feb 2014

With a long absence of regulatory announcements from MAS, we finally have a new and welcomed tweak.

What does MAS fine-tune on the TDSR?

We are now probably familiar with Total-Debt-Servicing-Ratio (TDSR) all know that the ratio is 60%. That means that if a person earns $10,000 a month, the maximum amount of debt he can service is only $6,000 for Private Property purchase or refinance.

If he spends more than $6,000 a month on paying off debt, that will only leave him with $4,000 to spend.

What are the 15 things that you need to know about Bangkok Properties?

Private Residential Owner-Occupied Homes - Before 1st Sep 2016

For Owner-occupied Residential properties bought before the 28th June 2013 (the introduction of TDSR), a borrower may be exempted from the TDSR framework when he refinances his housing loan.

Private Residential Owner-Occupied Homes – from 1st Sep 2016

Even owner-occupied residential properties bought after 28th June 2013 will enjoy refinancing concession. The reason is that these home buyers would have already been assessed for TDSR when they bought their house after 28th June 2013.

Private Residential – For Investment – Before 1st Sep 2016

Properties that were puchased for investment before the introduction of TDSR, borrowers can refinance even if TDSR exceeds 60% as long as borrowers commit to a debt reduction plan when refinancing their loans.

Private Residential – For Investment – From 1st Sep 2016 onwards

Properties that were purchased before 28 June 2013 (TDSR rule) or after 28 June 2013, borrowers can still refinance even if TDSR exceeds 60% as long as they meet the following conditions: -

  • Commit with his Financial institution to a debt reduction plan of 3% of the outstanding balance over a period of not more than 3 years.
  • Fulfill and pass the Financial institution’s credit assessment.

Private Residential Refinance

Figure 1: Before and After 1st Sep 2016 with MAS’ Fine-tune of TDSR rules for Private Residential Property refinance

TDSR for Investment Residential Property

Figure 2: TDSR for Investment Residential Property – with $5,000 rental

The couple managed to squeeze through the TDSR to be below 60% with rental income.

TDSR for Investment Residential Property

Figure 3: TDSR for Investment Residential Property – Vacant – FAIL TDSR.

However lately the house has not been rented out. They are into their 3rd year of a bank loan. The bank loan they are with uses a step-up rate. They fail TDSR now.

Under the old rule before 1st Sep 2016, they will not be able to refinance their investment property.

Under the fine-tuned TDSR rules for refinancing private residential property, they are now able to refinance their property provided that they pay down 3% of their outstanding loan.

• 3% of outstanding loan $1,500,000 = $45,000 over 3 years. (Let’s just assume 0% interest for simplicity)

Refinance Savings Analysis

Figure 4: Refinance Savings Analysis, 3 Years savings ~ $43,756

They are now able to refinance. Let’s say they save 1% in interest cost, based on a 30 years loan tenure, they will have an estimated savings of $43,756.

Total savings versus Increased repayment due to Debt reduction plan: -

• The savings is : $43,756

• Debt reduction pay down : $45,000

There will be a heavier monthly repayment as refinance savings cannot offset the requirement to increase the rate of repayment.

While MAS' fine-tune of TDSR is a welcomed move, it does nothing much to alleviate the repayment stress of struggling residential investment properties.

It only helps residential owner-occupied homes where the borrower might have become temporarily unemployed. However it is important to note that while MAS allows borrowers who fail TDSR at 60% to refinance, it is entirely up to the bank whether to refinance the borrowers. Hence Bank’s internal guide lines is most likely to be relaxed to TDSR of 80%, anything more, it will have to be a case-by-case assessment.

REFERENCES

1. MAS, TDSR Rules on Refinance Fine-tuned, http://www.mas.gov.sg/News-and-Publications/Media-Releases/2016/TDSR-Rules-on-Refinancing-Fine-Tuned.aspx

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PAUL HO
PAUL HO

Paul holds an a B.Eng(Hons) Aberdeen University (UK) and a Masters of Business Administration (MBA) from Macquarie Graduate School of Business (MGSM) Australia. He also serves as current President of Macquarie University Alumni Association of Singapore and Treasurer of Australian Alumni Singapore (AAS).

He is founder of www.iCompareLoan.com. His articles have been syndicated/featured on STproperty, iProperty, BTInvest, TheEdgeProperty, Propwise, Propquest, Yahoo, TheOnlineCitizen and Propertyguru amongst many other sites. He has also been quoted on South China Morning Posts, Xinmin daily 新民日报 and interviewed on Channel 8 狮城有约, 938 Live.

He has given speeches, trainings and/or seminars at NUH Lunch time talk, iProperty, David Poh and Associates, Getty Goh’s Ascendant Asset property, NTU (Guest Lecture on SEO), Panel discussions at GPS Alliance, C&H, Skillup, British Alumni, Propertyguru, FPAS just to name a few.

He is passionate about helping people enhance their wealth and in making money work harder for them.

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