The process of buying your first home is just like learning a new language. There are so many terms that you have never came across. If you are an aspiring homeowner, you need to be prepared to learn some of those property terms so that you will not end up with a bad experience on your foray into the property market.
The Complete Glossary Of Terms That Every Homeowner Must Know
What Is TDSR?
Total debt servicing ratio, or TDSR, is a framework introduced by the Monetary Authority of Singapore (MAS) in 2013 to ensure that Singaporeans make responsible loan decisions. In MAS’ words, it is meant to “encourage financial prudence among borrowers”.
Here’s How TDSR Works
The current TDSR limits the amount you can spend on your loan repayment to 60% of your (combined) gross monthly income. This means that your loan amount will be capped, depending on your current TDSR. This applies to not just home loans, but any kind of loans such as personal loans, car loans or even your credit card loans.
What Is MSR?
Mortgage Servicing Ratio (MSR) a framework that is similar to TDSR. It also aims to encourage financial prudence among Singaporeans. But MSR is very specific, i.e. only to HDB & Executive Condominiums home buyers. Thus, if you are buying a HDB, you need to know how the MSR works.
Here’s How MSR Works
MSR imposes a loan repayment limit that pegs to 30% of your (combined) gross monthly income. For example, if your (combined) gross monthly income is $5,000, the maximum home loan you can get from the bank will be pegged to a monthly repayment of $1,500.
TDSR and MSR can be a hassle to calculate. Find out how much you can borrow using Moneyline’s free TDSR/MSR calculator.
What Is ABSD?
Additional Buyer Stamp Duty (ABSD) was first announced in 2011 as part of the government’s cooling measure on the property market. ABSD only applies to property owners who are looking to buy their second (or onwards) property.
Here’s How ABSD Works
For buyers of their second property, you will need to pay an additional 12% (Singapore Citizen) as tax to IRAS under ABSD. Thus, if you are buying a property valued at $1M, you will need to fork out $1.12M instead of $1M. While you can pay for your ABSD through CPF, it is advisable to pay in cash as the CPF board might not be able to release the funds in time to pay IRAS.
|ABSD Payable||1st Property||2nd Property||3rd Property and More|
|Singapore Permanent Residents||5%||15%||15%|
What Is SSD?
Seller Stamp Duty (SSD) is the opposite type of tax to ABSD. It is a tax that is imposed if you sell your property within 3 years of purchase. The SSD was recently revised in 2017. The amount of tax payable under SSD depends on how many years you have held onto your property since your purchase.
|Number Of Years Since Purchase||0-1 yr||1-2 yrs||2-3 yrs||>3 yrs|
Loan-To-Value (LTV) is a ratio that determines how much money the bank is able to loan to you, i.e. as a percentage of your property’s valuation. If you take up more than one loan at any point in time, you will be subjected to MAS’ LTV limits.
|1st Home Loan||2nd Home Loan||3rd Home Loan|
60% if the loan tenure exceeds 30 years or extends past age 65
30% if the loan tenure exceeds 30 years or extends past age 65
20% if the loan tenure exceeds 30 years or extends past age 65
What Is Refinance?
Refinancing is the act of terminating your existing home loan package and taking on another one with an alternate bank. If you choose to take on another loan package within the same bank, it is an act of repricing.
Why Do People Refinance?
As interest rates fluctuate, the cost of your mortgage will also adjust. Refinance allows you to migrate to loan packages that offer you a better interest rate so that you can reduce the cost of your mortgage.
What Is Lock-In?
If you are looking to refinance, then you need to make sure that you are no longer in your loan’s lock-in period. A lock-in period is a pre-agreed period with the bank where you will incur an exit penalty if you choose to pay off your loan in full, be it by complete settlement, refinancing or sale.
What Is Early Repayment?
Early repayment, as the name suggests, is to clear your mortgage earlier than scheduled. Early repayment can be done in two ways: Repaying your entire loan in full or making an overpayment on your monthly mortgage.
Are There Any Conditions For Early Repayment?
If you are looking to make an early repayment, you need to know that there is an early repayment penalty involved for all bank home loans. Moreover, you cannot make an overpayment on your monthly mortgage for bank home loans. The only loan provider that doesn’t penalize you for early repayment is HDB, i.e. under a HDB home loan.
An approval in principle is a pre-agreement with the bank on the loan amount they will extend to you if you are buying a property. Having an approval in principle allows you to act decisively when you find your dream home on your house hunting.
Most home loans adopt a floating interest rate pegging. As long as your home loan does not adopt a fixed interest rate pegging, you can safely assume that it is pegged to a floating interest rate. There are a few types of floating interest rates, from the more familiar SIBOR to SOR to bank-determined board rate (e.g. DBS’ FHR, OCBC’s FDMR, UOB’s Board Rate).
Finding a good home loan can be as easy as ABC, only if you know how. At Moneyline, we use our proprietary data, comparison tool and know-how to help you source for the best home loan deal you can get. Search for a suitable home loan right here.