Loan Quantum

What is Loan Quantum and How to Increase Your Loan Quantum For Your Property?

If you’ve toured Singapore’s islands in recent year, you’ll have noticed the increasing property prices that 2020’s health situation created. Property demand has skyrocketed to new heights worldwide, including Singapore, creating an artificial boom in property prices. This somewhat feasible real estate market for sellers has discouraged Singaporean buyers in many cases.

As a result, sellers require buyers to lower their loan-to-value ratio by securing a higher loan quantum to mitigate risk for both sides. Thankfully, with Singapore’s many financial institutions and loan providers, securing a high loan quantum is easy, even for low-credit score borrowers.

Read on to find out more on how to do this. But before the tips, let’s learn some basic concepts to aid your reading first.

Concepts To Know Before Proceeding:

  1. Loan Quantum (or Loan Amount)

This is the total sum of money borrowed. It is usually in terms of thousands. Loan quantum is also called the loan amount.

  1. Loan-To-Value (LTV) Ratio

The loan-to-value ratio (LTV) is a measure of how much you borrow in relation to the purchase price or appraised value of the home. The higher your LTV, the more likely it is that you won’t be able to buy the home because of the seller perceiving you as a high-risk borrower.

For example, if someone has a house with a value of S $100,000 and takes out a loan for that same amount, then their LTV is 100%. On the other hand, a borrower paying for the same property pays S $50,000 as property down payment, their LTV becomes 50%, which is nominal for both sellers and buyers in terms of risk.

  1. Loan Tenure

This is the length of time you can pay for your loans. Sellers and banks prefer buyers with a shorter maximum loan tenure because they have a lower interest rate and are at a lower risk of default. Longer-term home loans incur bigger loan interest rates, consequently increasing the buyer’s risk of defaulting.

  1. Total Debt Servicing Ratio (TDSR)

The total debt servicing ratio (TDSR) is the ratio of a borrower’s total scheduled payments for all outstanding loans of any kind to their disposable income. Disposable income is what a borrower has left after paying taxes and other mandatory deductions.

Here’s a sample TDSR calculation:

Loan A: S $3,000 at 10% per year = S$300 per year

Loan B: S $4,000 at 7% per year = S $280 / per year

TDSR is $600 for Loan A + $560 for Loan B divided by the borrower’s disposable income.

  1. The Maximum Loan Quantum for Residential Properties

Singapore’s banks can only provide up to 75% LTV of any borrower’s property price valuation. This means that if you plan to purchase a property sold at S $100,000, they can only lend you up to S $75,000. This is the maximum loan quantum available in Singapore, and borrowers need to pay for the property’s minimum cash down payment of 5% and finance the rest with their Central Provident Fund savings or cash.

On the other hand, loans that don’t exceed 55% LTV can opt for a 30-year maximum loan tenure as long as you can pay 10% of your cash down payment and pay the rest in a similar fashion as we described above. Property owners with existing properties can receive up to 35% LTV from banks in purchasing new properties with minimum cash down payment of 25%

Here’s a table of the current state of LTVs that banks can provide to borrowers.

  Individual Borrower Corporate Borrower
  With Zero

Outstanding Loan

With 1

Outstanding Loan

With 2 or more

Outstanding Loans

 
PRIVATE PROPERTY – Up to 30 years tenor
Max. Loan Quantum

Min. Cash Down Payment

75%

5%

45%

25%

35%

25%

15%

85%

PRIVATE PROPERTY – Up to 35 years tenor
Max. Loan Quantum

Min. Cash Down Payment

55%

10%

25%

25%

15%

25%

15%

85%

HDB FLAT – Up to 25 years tenor
Max. Loan Quantum

Min. Cash Down Payment

75%

5%

45%

25%

35%

25%

N.A.
HDB FLAT – Up to 30 years tenor
Max. Loan Quantum

Min. Cash Down Payment

55%

10%

25%

25%

15%

25%

N.A.

 

With these terms, it’s easy to see why getting a higher loan quantum for better interest rates and risk mitigation is quite challenging. Thankfully, you have these six easy ways to increase your loan quantum.

 

6 Easy Ways to Increase Your Loan Quantum

  1. New Properties Always Get Higher Property Valuation

New properties have greater potential for appreciation or because they can be rented out more quickly. Additionally, they have fresh materials that can last for decades, making them much more appealing to home buyers. Without having much wear and tear, new properties maintain their performance and aesthetics, making them much easier to sell or rent out.

Banks give you a higher loan quantum for new properties because it benefits them. Upon foreclosure due to your default in payments, they can easily resell it to another borrower at a high value. Sellers easily sell newly-developed properties because of their prime condition despite their price. For these reasons, banks are willing to shoulder the risk on borrowers who take their chance with higher-valued properties by giving them a higher loan quantum for risk mitigation.

  1. Non-Bank Financial Institutions Are Excellent Loan Providers

Banks and real-estate-oriented financial institutions aren’t the only ones you can use for higher loan quantum. Licensed money lenders in Singapore can provide you six months of your monthly salary in a personal loan. This is enough to surpass the 5-10% down payment and pay a huge chunk of your outstanding home loan repayments.

If you’re a borrower with low credit scores, bank loans will be impossible or unavailable to you. But, you can always substitute your bank loan with a licensed money lender personal loan.

  1. Shorter Loan Tenures Increase Your Loan Quantum

Banks perceive shorter loan tenures to be of lower risk than lengthy decades-long payment periods, encouraging them to give you a higher loan quantum for your property.

However, shorter loan tenures for home loans typically have higher bank down payments with nominal interest rates. Banks will accept a certain amount of risk in order to achieve a greater gain, but they will bear down on borrowers who cannot comply with the stipulated terms and conditions.

  1. Learn About Income Weighted Average Age (IWAA)

IWAA pertains to your income capability and potential as you grow older. The years prior to your retirement affect your IWAA. For example, a younger borrower earning above-average income has a better income weighted average age than a middle-aged borrower with a high income. As a result, banks will favor younger borrowers with a stable income and job than a middle-aged worker who possesses the same stability but is closer to their retirement age.

Banks use IWAA extensively because a borrower near retirement is at higher risk of defaulting than a younger but lower-income borrower who is just about to build their career and increase their income. Middle-aged workers with less than 15 years before retirement see lower loan quantum than their younger counterparts.

  1. Settle Any Outstanding Loans and Financial Commitments

It’s good practice to settle all debts before taking on a mortgage because this can be expensive because you’re juggling multiple interest rates. Banks perceive you as a high-risk borrower with your lower TDSR, which means you might not qualify for the mortgage you want and need. The good news is that it is easier than ever to settle all debts and take out a mortgage, thanks to debt consolidation services in Singapore.

Always remember that home nloas are enormous commitments that require a good TDSR level. If you’re paying more than 50% of your monthly paycheck to various loans, adding a new loan isn’t going to make things better for you or the seller.

  1. Improve Your Credit Report a Year Beforehand

Clearing your loans with monthly repayments gives you much more access to financing that helps secure private properties and improves your credit scores too.

Before offering any home loan or financial product, a bank or financial institution will always look into your credit score. Your credit scores also determine if banks will ask you to attach collateral just in case.

Here are a few ways to increase your credit scores:

  1. Pay your monthly bills on time.
  2. Balance a checking account with a savings account.
  3. Keep a low credit utilization rate.
  4. Keep a low balance on credit cards.
  5. Keep a low total revolving debt load.
  6. Make payments on any debt above a certain threshold to pay off the debt in full.

Answers to Your Most-Asked Questions

  1. Is Having a Lower LTV Bad?

Not at all. Banks want a low LTV because it means you’re paying a huge chunk of the down payment. However, if you’re a high LTV borrower, you can still manage your home loan provided that you can repay everything, including interest and principal, in full.

  1. What’s The Maximum Loan Tenure for a Home Loan?

Borrowers in Singapore have a 30-year maximum to pay for a home loan.

  1. What’s The Minimum Down Payment When Buying a Second Home

If you’re buying a second home, you’ll need to pay a minimum of 25% cash down payment on your new property. Plus, the bank can only shoulder 45% of the new property’s LTV.

  1. What’s the Calculating Age for Joint Borrowers?

The age of a joint borrower is a factor that affects the co-borrower’s loan repayment. In order to calculate an age for joint borrowers, you need to know the day of birth, month, year, and day of death for all people involved in the loan.

  1. Why Does a Loan-To-Value Ratio Exist?

The loan to value ratio limit can be used as a way for lenders, borrowers, and investors to ensure that they are getting the best possible return on their investment. The limit also helps prevent borrowers from refinancing too many times, which can cause economic stress.

Lenders need an amount of capital that they can reasonably expect in order to make a sound lending decision without risking the safety of their reserves.

To Sum it All Up

  • You can increase your loan quantum by minimizing your loan-to-value ratio.
  • The maximum LTV banks can give new homeowners is 90% LTV. Homeowners with more than one home and buying new financing will receive a lower LTV.
  • There are many ways to increase your loan quantum, such as by improving your financial management, clearing your debt, and improving your credit score.
  • You can use licensed money lenders as an alternative to bank loans and financing from other financial institutions.

If you’re short on cash to pay for a property down payment, Instant Loan can provide you up to three high-quality quotes from dependable and fully licensed money lenders in Singapore for any financial need. Visit our website today and get the highest-quality quotes now.

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