Today is 26th May 2021, It's a Singapore public holiday, Vesak Day (Buddha Day)
More than a year since the Circuit breakers take place in Singapore due to COVID-19, everything look good till recently there is a second outbreak of the virus around the world.
Singapore is now going into decon Orange (Back to stage 2 of the circuit breaker) from 16th May 2021.
Sadly, COVID-19 has taken many lives globally, and many people's livelihood is affected.
Nobody knows how long will this last, hopes that everyone is safe and healthy and the storm will finally end.
Recently, most of the media is reporting and updating news all over the world related to COVID-19.
The disputes between countries, and political issues within the nations, all are taken back.
The world now is united into one to beat the pandemic.
All operation ceases except those on essential services.
All schools close and students have to stay home for online lessons.
Strictly regulations have been imposed over the days from the start of the CB.
This, directly and indirectly, affected a lot of people's normal activities, cause jobs losses in many sectors and also had a huge impact on the livelihoods of our community.
Through this article, I would like to share some possible methods for house owners that will be helpful for you to cope with the storm ahead.
I will touch on the various tips below:
1. Equity loan
2. Refinancing and/or stretching your loan tenure
3. Mortgage deferment schemes
4. TDSR wavier for properties with <50% loans
5. Sell and downgrade
6. Rent temporary
Please read on for me to explain and elaborate on each possible solution.
6 Tips for property owners to tide through the crisis
First Tip : Using Equity Loan to gather cash for your emergency need.
This method is nothing new to some investors in properties.
Nevertheless, is one of the tips that can assist you to tie through this difficult period.
Unfortunately for HDB owners, this method is not applicable to you due to HDB regulations.
For privates and commercial property owners, if you need immediate cash flow to sort out your need, you can take up an equity loan. As long as you have an income or can use your assets to pledge.
The equity loan is especially suitable for business owners who need immediate cash, like those in retail or F&B business, those who need to standby funds for their operation needs.
What is Equity loan?
An equity loan is a type of consumer debt. It allows homeowners to borrow against the equity in their residence. The loan amount is based on the difference between the home's current market value and the homeowner's mortgage balance due.
Will you be paying interest rates higher than the normal mortgages loan?
No worries, at the point of writing this article,
The Equity loan interest rate range from 1.3% to 1.7%, which is as low as a mortgage loan.
As mentioned, the equity loan amount is based on the difference between the home's current market value and the homeowner's mortgage balance due.
Hence this will increase your outstanding loan, and directly will also increase your monthly instalment, but the cash lump sum you cash out can solve many of your pressures instantly.
You can use it to pay off loans with higher interest rates to save money.
I will higher recommend you to do so if you have not already done so.
One important point to add, you are not allowed to use CPF funds to pay for your equity loan. Only cash is allowed.
During the past crisis, historical records show that there is a margin call on properties ( during the Asia Financial Crisis in 1997), this is unlikely to happen now, as our government have put in place a good TDSR system in which if property prices depreciate, the probability of property fall below the loan amount is likely to happen.
SECOND TIP: REFINANCING AND /OR STRETCHING YOUR LOAN TENURE
Due to the COVID-19 outbreak, affecting the economy worldwide, as Singapore's interest rate is tracking the rates of the US, the interest rate, once again drop to a new low.
At this point in time, the interest rates drop to as low as 1.3 to 1.4%.
This is the best opportunity to refinance your loans and save on the interest if you’re eligible, and I strongly encourage you to do so.
Being eligible, mean you are not in any bank loan package that has a lock-in period that does not allow you from refinancing today.
In fact, some banks have started to offer their clients who have locked-in packages to refinance their loan to a lower rate with no penalties, so as to relieve their clients to lower their commitment to the loan.
In today’s conditions, our government have rolled out so many financial assistance packages to help the citizens, you should give a call to your bank if your lock-in period is not due.
The bank is willing to waive the penalty to do its part to keep the market stable.
Our government has already made the move, why can’t they?
When refinancing, you should consider stretching the tenure of your loan further.
You should take up to your maximum age of 75 years old or a maximum of 35 years tenure period whichever is deemed fit for you.
Why doing so?
This will be able to reduce your monthly instalment until your finance is more stabilise.
By then, you can either reduce the tenure or do a partial repayment.
The only disadvantage, you increase your interest paid over a longer term.
Another possibility for you to maximise the refinancing method, you can take up an equity loan at the same time.
If this is achieved, it will lower your interest rates, lower your monthly instalment (refinancing) and at the same time provide you with a lump sum of cash (equity loan) for your emergency needs.
THE THIRD TIP: Apply for principal, interest or total mortgage deferments for the time being
Announced on the 31st March 2020, MAS has allowed banks to defer mortgage payments totally.
Choose an interest or principal free mortgage payment until 31st Dec 2020.
This is a piece of good news for those property owners who are on the borderline, finances are slightly affected during this crisis, but not eligible for the equity loan.
Anyone can apply for this package, as long as the individual is not in arrears for more than 90 days as of Apr 6 2021. ( Individuals on Debt Consolidation Plans (DCP) who can provide proof of income impact and with repayments that are between 30 and 90 days past due, may apply to their lender till 30 June 2021 to extend the loan tenure of their DCPs for up to 5 years.)
In the same announcement, there are also schemes to help SMEs with SME loans and those with personal unsecured loans defer or lower their interest rates.
More details, you can find on this website
The FOURTH TIP: Using the little-known TDSR waiver for the owner with less than 50% loan on their property value.
On 10 march 2017, MAS announced exempted owners with less than 50% loans on their properties, from the harsh TDSR regulations.
This relaxation was due mainly to retirees who were intending to monetise their homes for retirement through equity term loans on their properties but were restricted when TDSR was introduced in 2013.
This method allows owners to draw out an equity loan amount UP TO 50% of the property value without the need to fulfil income or asset pledging requirements, or to include their children’s names as guarantors for the loans in case their advanced age prevents them from doing so
FIFTH TIPS: Sell and downgrade or rent temporarily.
When all the above 4 methods fail, you might need to consider selling your current home and downgrading to reduce your mortgage repayment and keep some cash on hand.
If after selling your home and not possible to buy, nothing to be ashamed of, renting is a good choice till your finances improve.
The SIXTH TIPS: Rent out your spare rooms or whole unit
Not intend to sell, then you might want to consider this possibility.
Rent out your spare room to generate more cash flows for your needs. Or
Rent out your whole premises and yourself rent a cheaper place temporarily for more cash flow.
The old Chinese saying “ 非常时机,非常手段“， means, in this Extraordinary period, we use Extraordinary methods to solve our problems.
I hope the few methods can find you some useful ideas for you to get through this tough moment you are facing today.
If you’re at a loss about what you can do, you’re always welcome to get in touch with me, I will be happy to assist you to come up with a plan.
Please do share this article with someone facing challenging times, they may be able to find something useful to make end meets.
Hi, I am Peter Tan.
Since 1995, I’ve been providing professional consulting services to clients in Singapore and beyond.
From strategic getting to innovative solutions, my focus is usually on building an efficient and results-driven relationship.
I’ll work with you to make a customized plan of action for yourself or your organization.
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