February 10, 2014: The Monetary Authority of Singapore has announced much-needed concessions applied to the general debt service calculation rule for refinancing loans for owner-occupied residential properties. From this date onwards, borrowers who owned property prior to the introduction of the TDSR rule on June 28, 2013 will be exempt from the TDSR threshold applicable to them.
The changes made to the original rules of the General Debt Service are as follows:
As for the refinancing of home loans for property owned by the owner:
- Any borrower who owned residential property during the introduction of the TDSR rules (OTP - Purchase Option - property dated before June 29, 2013) will be exempted from the TDSR threshold with the condition that they will continue to engage in property that is being refinanced, in accordance with the revised rules . For comparison, the current TDSR rule states that the borrower must not have a loan and has no other property.
- Similarly, the MCP (Mortgage Loan Ratio) will not apply to refinancing mortgage loans for apartments owned by homeowners and boards of directors and executive condominiums that were acquired prior to the introduction of MCP (OTP is a purchase option - property dated earlier than January 12, 2013 year and December 10, 2013).
- In addition, the MAS concession deals with the lease of loans for residential real estate, which were acquired prior to the implementation dates for limits on credit ownership. Borrowers who have a lease term for a residential property held by the owner that exceeds the limits of ownership of the loan will be allowed to extend the term of their loan when refinancing.
As for the refinancing of loans for investment in real estate:
The ratio of total debt service in the amount of 60% will resume in the event of refinancing loans for real estate investments. This threshold is aimed at ensuring caution among investors and encouraging borrowers to choose an acceptable and affordable loan by minimizing their financial risks and maximizing their financial stability in the event of adverse economic conditions or sharp fluctuations in interest rates. However, in the short term, borrowers face the current TDSR threshold.
As a solution, in accordance with the revised rules, MAS permits a transition period, waiting until June 30, 2017, for borrowers to refinance their loans to invest in real estate above the required threshold of 60% of total debt if they meet the following conditions:
- The option to purchase the property was granted until June 29, 2013;
- In refinancing, the borrower accepts and undertakes to develop and implement a debt reduction plan with the assistance of a financial institution;
- The assessment of a financial institution is considered to be a borrower eligible for a concession.
