Many cannot wait to put 2020 in the rear-view mirror. Yet, the end of the year also signals the expiry of many Government reliefs. And without such support, the devastating economic effects wreaked by the COVID-19 pandemic may persist – or even be amplified – into 2021.
COVID-19 Property Relief Measures Announced Earlier This Year
Back in April 2020, the Monetary Authority of Singapore (MAS) announced a slew of relief measures aimed at residential property owners who still have mortgages to service. Borrowers could apply to their banks to defer their loan payments up to 31 December 2020. They could opt to either defer just the principal portion (and thus continue to service the monthly interest) or both the principal and interest.
There are now fewer than three months till the original scheme expires. And there is indeed light on the horizon. The daily count of COVID-19 cases have been brought under control (even as the rest of the world grapples with a second wave), and the government is moving toward Phase 3 of the reopening. Retail sales, industrial output, and exports are all picking up.
Even property prices have seen an uptick. As shown by PropertyGuru’s Property Market Index Q3 2020, private property prices increased in the second quarter – particularly for new launches. And new home sales hit an 11-month high in August, with government data also showing HDB resale prices rising in both the second and third quarters.
These are all no doubt good signs for the economy, but we are not out of the woods yet: Singapore is still expected to face a full-year recession, and unemployment recently climbed to 3.4% in August. This was higher than the peak seen during the Global Financial Crisis, and the Ministry of Manpower notes that it may rise even further in the coming months.
MAS Extends Lifeline for Distressed Borrowers
Recognising this, MAS announced an extension to the existing home loan deferment scheme (5 Oct 2020). The idea is to provide struggling borrowers breathing room to get back on firmer financial footing.
Under the extension, borrowers can apply to only pay 60% of their regular instalments for a period of 9 months, starting from application approval. Eligible borrowers can apply anytime between November 9, 2020 and June 30, 2021.
But before you head down to your bank thinking about all the things you could do with an extra 40% of your loan instalment in your pocket every month, here are five things to keep in mind.
#1 You Must Prove Your Income was Affected
Under the original deferment scheme, there was no explicit requirement to prove that your income had been affected by the pandemic. However, the banks retained the authority to reject or approve applications. Although the latest data shows that they had approved about 90% of almost 40,000 deferment applications, it still means about 10% of applications were rejected.
This time around, it is stricter. There are explicit income requirements – you must be able to prove that your income had fallen by at least 25%. Now, MAS has not provided specifics on the time period. So, we are not exactly sure whether you must prove your income has fallen over one, three, six months, or longer. But very likely, this will be at the discretion of the individual banks.
#2 You Cannot Be Too Far Behind on Your Payments
This scheme is only open to those with property loan payments that are not more than 90 days past due. Why 90 days? That is the standard threshold beyond which MAS requires that banks classify the loan as “non-performing”.
Keep in mind that this is not new – it was already present as an eligibility requirement in the original deferment scheme. This is also why it is so important to be proactive about your finances. If you know that you will struggle in meeting your loan obligations, reach out to your lenders and discuss your options.
#3 You Can be a “First Time” Applicant
While this latest deferral scheme has been billed as an extension, it is also available to those who did not apply under the original scheme. So, if your income had only been recently affected by the pandemic – or if it declines during the 9 November to 30 June application period – you can still apply, as long as you meet the other eligibility criteria.
#4 Your Principal Payments Will be Pushed Into the Future
In the original scheme, you could choose whether you wanted to defer the principal or both the principal and interest. The latest extension is more rigid – everything is fixed at 60% of monthly instalments.
But what does this cover?
As stated by MAS, this 60% amount can cover 100% of your interest payments, with the rest going to service the principal. In other words, this is a fixed partial principal deferral. What this means for you is:
- Your principal amount will be paid down slower, meaning that
- Your loan tenure will be extended, and
- You will ultimately end up paying higher interest costs on that deferred principal
As such, even if you meet all the eligibility criteria…
#5 You Should Think Carefully Before Applying for this New Scheme
We get it – times are tough. And for many who are facing unbearable near-term cash flow pressures, this programme may be a lifesaver. But remember, there is no such thing as a free lunch. That short-term relief carries a long-term price.
Our suggestion is for you to comb through your finances in detail before making any decision. As we mentioned in our article, ‘What Happens To Your Mortgage If You Lose Your Job?’, you might first want to review your spending, rent out a room (if possible), refinance or reprice your loan, or even move to a smaller home.
Note: Mortgage rates are likely to remain lower than the guaranteed returns on your CPF monies for quite some time. Hence, it may make more financial sense to apply for a deferral rather than tapping into your CPF account. Read more about the opportunity costs of using your CPF funds to service your home loans here.
Failing to Plan is Planning to Fail – Staying Proactive in Turbulent Times
Individually, we cannot influence the economy. Nor do we have any power over whether businesses choose to retrench, or how soon a global vaccine will be available. But we can – and should – be proactive with our financial lives.
We can trim our budgets. We can search for better jobs with more established companies – or even just take advantage of upskilling opportunities (while keeping our current jobs). And when it comes to our home loan costs, the least we can do is find out how much we could potentially save each month by refinancing or repricing our loans.
If you want to get an educated estimate of how much lower your monthly instalments could be, our friendly Home Finance Advisors are standing by. Simply fill out this short form, and one of them will contact you within 3 hours to provide advice specific to your personal situation. And for more information on everything related to home financing, check out the rest of our home financing guides.
Disclaimer: Information provided on this website is general in nature and does not constitute financial advice.
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