Photo: Towfiqu barbhuiya
Photo: Towfiqu barbhuiya
February 28, 2023

Getting as much help as possible with your home loan via borrowing may sound like a brilliant idea with how much properties cost in Singapore - but does it really work out to your advantage at the end of the day? Read on to find out how you can best make use of the Loan-to-Value (LTV) limit to avoid getting the short end of the stick.

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Wendy Ker

As explained on MAS, the LTV refers to ‘The maximum amount that an individual can borrow for a housing loan from a financial institution (FI) based on the loan tenure, borrower’s age, borrower’s existing loans and whether the borrower is a shell company.’ This limit was first realized in a bid to curb over-borrowing from homebuyers alongside the Total Debt Servicing Ratio (TDSR), and the current LTV limit where the OTP is granted on or after 6 July 2018 is as follows:

* Lower LTV limit is applied if the loan tenure exceeds 30 years (or 25 years for HDB flats), or the loan period extends beyond the borrower’s age of 65 years

Furthermore, with the sudden announcement of the most recent cooling measures last December came a lowered LTV for HDB Housing Loans from 90% to 85%. With a lower LTV, home buyers have to commit to a larger down payment during the purchase of a property i.e. for a S$1m HDB, buyers who previously have to pay 10% down payment of S$100,000 will face the increase of 5% to S$150,000 down payment instead.

LTV Limit for Bank Loans

First housing loan

Those who do not currently have any housing loans get to enjoy a higher LTV limit, at either 75% or 55%. Each of the percentages will apply when

  • The remaining loan tenure is 30 years or less, with a minimum cash down payment of 5% (LTV of 75%)
  • The remaining loan tenure is more than 30 years OR loan extends past the age of 65, with a minimum cash down payment of 10% (LTV of 55%)

With the remaining down payment payable by either cash or CPF.

Second housing loan

Those who are already servicing one housing loan will find themselves qualifying for a lower LTV, at either 45% or 25%. Furthermore, the minimum cash down payment is increased to 25%, with each of the percentages applicable when

  • The remaining loan tenure is 30 years or less (LTV of 45%)
  • The remaining loan tenure is more than 30 years OR loan extends past the age of 65 (LTV of 25%)

Third housing loan onwards

Those who already have 2 or more housing loans under their name will find themselves with an even lower LTV at either 35% or 15%, which is put in place to prevent people from overleveraging on loans. Similar to those who already have one housing loan in place, the minimum cash down payment is also set at 25%, with each of the percentages applicable when

  • The remaining loan tenure is 30 years or less (LTV of 35%)
  • The remaining loan tenure is more than 30 years OR loan extends past the age of 65 (LTV of 15%)

Maximum LTV May Not Always Be Approved

The qualifiers may seem pretty straightforward above, with the factors to note seemingly only focused on loan tenure or age. However, do keep in mind that banks are able to adjust the limit and only approve of a lower percentage or outright reject your application.

Some typical factors that can affect your application include a bad credit score, poor location or condition of property, advanced age and high loan tenure, or the remaining lease of your property can be too low, which affects the property's market value.

Calculation of LTV

It can get confusing on which amount the LTV is referenced from - the value of the property or purchase price. A simple rule of thumb is to remember that new properties such as BTO flats, executive condominiums and new launch condominiums will always take reference from purchase price whereas resale properties will be based on its valuation amount and this is when Cash Over Valuation (COV) comes in.

Take for example a resale property is valued at S$600,000, but you have paid S$650,000 for it. The excess amount, also known as the COV amount MUST be paid in cash and the LTV ratio will only apply to the valuation amount, in this case S$600,000. 

Loan ∝ Interest?

With the rising prices of properties in Singapore, one might be tempted to opt for borrowing as much as possible to avoid a hefty down payment. While this is a good idea to help ease the burden, the higher the loan is, the higher the interest will be. This is a good time to find out whether you would benefit more from a bank loan or HDB home loan.

The right loan * interest rate helps make borrowing cheaper, and ensure home buyers benefit from a more affordable down payment (check out our article on bank loans to understand more). Most importantly, take note to only buy what you can afford and ensure you have enough resources to not only pay for upfront costs but also monthly loan installments and other homeownership expenses.

Just like how there are two sides to each coin, each and every situation is unique and has its own pros and cons. While some might argue that loans should not stray too close to its maximum limit, those who are more strapped for cash would find the maximum LTV helpful for catering aside emergency funds in case of rainy days.

What do you think of the LTV limits and what would be your preferred choice? Depending on your circumstances, navigating between these two options can be tough. At The Origins Property, we welcome you to get in touch with us for an obligation free consultation so we can better explore your options and settle on the best decision according to your needs.

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