Thinking of taking out a loan? Understanding loan quantum could be the key to making the right financial decisions. In Singapore, knowing how much you can borrow—whether for a home or a car—helps you stay on track with your financial goals and avoid potential pitfalls.
With recent changes, like the government’s move to lower the Housing and Development Board (HDB) loan-to-value (LTV) ratio to 75%, aim to encourage more responsible borrowing. Even though most buyers borrow within this range, knowing these limits helps prevent over-borrowing, especially in higher-end markets. These changes highlight how critical it is for borrowers to be aware of loan quantum regulations that affect their purchasing power.
In this article, we’ll break down how loan quantum works, what influences your loan eligibility, and share tips to help you maximize your borrowing potential. Let’s dive in!
Loan Quantum for Different Loan Types
Loan quantum can differ significantly based on the type of loan you’re seeking, such as a mortgage, car loan, or personal loan. Each category has unique limits and eligibility criteria that impact how much you can borrow, often tied to factors like property value, income, and government regulations. Understanding these distinctions is crucial for making informed borrowing decisions that align with your financial goals and commitments.
Mortgage Loans
As of August 20, 2024, the LTV limit for HDB loans has been lowered from 80% to 75%, bringing it in line with the limits set by banks for private property mortgages. This change aims to promote prudent borrowing practices, especially in the resale market where higher-end properties are often sought.
According to National Development Minister Desmond Lee, the adjustment won’t significantly impact most homebuyers, as 90% of borrowers already take loans within this 75% LTV limit.
For example, if you’re purchasing an HDB flat valued at S$500,000, the new HDB loan quantum allows you to borrow up to S$375,000 (75% of the flat’s value). The remaining 25% must be covered by cash or CPF savings, similar to the structure for bank loans.
| New Flats | Resale Flats | |
| LTV limit^ | Up to 75% of the flat purchase price | Up to 75% of the lower of the resale price or value of the flat |
| Conditions | If the remaining lease of the flat does not cover the youngest applicant to the age of 95 and above at the point of flat application, the LTV limit will be pro-rated from 75%. | |
(Table from Housing & Development Board)
Bank Loan Quantum and LTV Ratios
For bank loans, the LTV limit remains unchanged at 75%, whether you’re purchasing HDB or private property. However, bank loans often come with different downpayment structures. For instance, 5% of the downpayment must be made in cash, while the rest can come from your CPF Ordinary Account or other sources.
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% |
Car Loans
In Singapore, the loan quantum for car loans is determined by the Open Market Value (OMV) of the vehicle, which includes both new and used cars. The maximum loan amount varies depending on the OMV and is capped by the government to ensure responsible borrowing practices.
Maximum Loan Quantum by OMV:
| OMV of motor Vehicle | Maximum LTV | Maximum Loan Tenure |
| Less than or equal to S$20,000, | 70% | 7 years |
| More than S$20,000 | 60% | 7 years |
(Table from Monetary Authority Singapore)
Example:
Let’s say you’re purchasing a car with an OMV of S$15,000. You’ll be eligible to borrow up to 70% of the OMV, which amounts to S$10,500. Conversely, for a car with an OMV of S$25,000, the maximum loan quantum would be S$15,000 (60% of the OMV).
These limits apply to all motor vehicles except motorcycles and commercial vehicles, which are exempt. Additionally, vehicles used by physically disabled persons (PD) and their caregivers also have different loan criteria.
Renovation Loans
When it comes to renovation loans in Singapore, the loan quantum is typically based on your monthly income and capped at six times your monthly income or a maximum of S$30,000, whichever is lower. This limit applies to both single and joint applicants, ensuring that borrowers stay within responsible borrowing limits while upgrading their homes.
How is loan quantum calculated?
For Single Applicants
For single applicants, the loan quantum is up to 6 times your monthly income, or S$30,000, whichever is lower. For instance, if your monthly income is S$3,000, you can borrow up to S$18,000 (6 x S$3,000).
For Joint Applicants
For joint applicants, such as a spouse, parent, or sibling, the quantum can be raised to 12 times the monthly income. However, the final loan amount is determined based on the lower income of the two applicants. Even with joint applications, the maximum loan quantum is capped at S$30,000.
In the case where one applicant earns S$5,000 and the other earns S$3,000, the loan is calculated based on the lower income of S$3,000. In this scenario, the maximum loan quantum is S$30,000 (even though the calculation would result in S$36,000, it’s capped at S$30,000).
Personal Loans
When applying for a personal loan in Singapore, the loan quantum is typically capped at up to 4 times your monthly salary. This limit helps ensure that borrowers don’t overextend themselves financially. Plus, the exact amount you’re eligible for depends on several factors, including:
- Income level
- Credit score
- Total Debt Servicing Ratio (TDSR)
- Existing financial commitments
Bank Loans
Most banks and financial institutions offer personal loans up to 4x your monthly income. However, for high-income individuals or those with excellent credit ratings, some lenders may offer loans that exceed this limit.
For instance, if your monthly income is S$5,000, you can borrow up to S$20,000 (4x your salary).
Licensed Money Lender Loans
For secured loans, there is no limit to the amount you can borrow. However, for unsecured loans, the table below outlines the maximum total amount you can borrow:
| Borrower’s annual income | Singapore Citizens and Permanent Residents | Foreigners residing in Singapore |
| Less than $10,000 | $3,000 | $500 |
| At least $10,000
and less than $20,000 |
$3,000 | |
| At least $20,000 | 6 times monthly income | 6 times monthly income |
(Table from Ministry of Law Singapore)
Secured vs. Unsecured Loan Quantum
The loan quantum—the amount you can borrow—differs significantly between secured and unsecured loans. The primary distinction lies in collateral: secured loans are backed by an asset, while unsecured loans rely on your income and credit score to determine the amount.
Secured Loans
Secured loans involve borrowing against collateral, such as a house or car, and typically allow higher loan quantum since the lender’s risk is lower. For example:
- Housing Loan: You can borrow up to 75% of a property’s value under the Loan-to-Value (LTV) limit for bank loans.
- Car Loan: Borrowers can obtain up to 70% of the car’s Open Market Value (OMV) depending on its value.
Unsecured Loans
Unsecured loans, on the other hand, are not backed by any collateral, which makes them riskier for lenders. Consequently, the loan quantum is usually lower and tied directly to your income and creditworthiness. Here’s a breakdown:
- Personal Loans: Most banks in Singapore offer loan quantum up to 4x your monthly income. However, banks like DBS and POSB may provide up to 10x your monthly salary for those with higher incomes and strong credit.
- Licensed Money Lenders: Licensed money lenders in Singapore typically offer unsecured loans up to 6x your monthly income, depending on your annual earnings.
Factors That Affect Loan Quantum
Several key factors influence how much you can borrow, or your loan quantum. Understanding these variables will help you plan and maximize your borrowing potential.
1. Income Level
Your monthly or annual income plays a critical role in determining your loan quantum. In general, banks and financial institutions will offer higher loan amounts to borrowers with higher income levels because it signals greater repayment ability.
2. Credit Score
Your credit score is another key factor that can either increase or limit the loan quantum offered. A strong credit score demonstrates responsible borrowing behavior and low default risk, which can lead to:
- Higher loan quantum and preferential terms, such as lower interest rates.
- Conversely, a poor credit score may reduce the loan quantum or result in a loan rejection. For unsecured loans like personal loans, having a low credit score might result in being offered a smaller amount—sometimes significantly below the 4x salary cap.
3. Total Debt Servicing Ratio (TDSR)
According to the Monetary Authority of Singapore (MAS), the Total Debt Servicing Ratio (TDSR) the percentage of a borrower’s gross monthly income that is used to cover their monthly debt obligations, including the loan they are currently applying for.
It is a government regulation that caps the amount you can spend on loan repayments to 55% of your gross monthly income. This cap is designed to ensure responsible borrowing and to prevent overleveraging.
For example, if your gross monthly income is S$5,000, your total debt repayments, including the new loan, cannot exceed S$2,750. This regulation effectively limits the loan quantum you can qualify for, ensuring that you do not take on excessive debt.
How Loan Quantum is Calculated
The loan is calculated based on several factors, especially for housing loans, personal loans, or vehicle loans. These factors are generally regulated by government authorities such as the Monetary Authority of Singapore (MAS), and they ensure that borrowers do not become over-leveraged.
Here’s how the loan quantum is typically calculated across different loan types:
Housing Loans
The Loan-to-Value (LTV) ratio determines the maximum loan amount based on a property’s value.
Loan Quantum = LTV Ratio × Property Valuation
Example: For a property valued at S$1,000,000 with an LTV of 75%, the loan quantum would be S$750,000.
Other considerations:
- TDSR ensures loan repayments do not exceed 55% of gross monthly income.
- MSR limits mortgage payments to 30% of gross monthly income for HDB loans.
Car Loans
Loan quantum is based on the Open Market Value (OMV):
- Up to 70% for cars with OMV ≤ SGD 20,000, and 60% for OMV > SGD 20,000.
Example: If you are purchasing a car with an OMV of SGD 18,000 and a purchase price of SGD 100,000, the maximum loan quantum would be:
0.70 × S$100,000 = S$70,000
General Formula
Loan Quantum = LTV Ratio × Asset Value or Income
Tips to Maximize Loan Quantum
1. New Properties Always Get Higher Property Valuation
New properties often receive higher valuations because they have greater potential for appreciation and are easier to sell or rent. Their fresh condition and minimal wear make them more appealing, and banks are more likely to offer higher loan quantum due to their lower risk of foreclosure.
2. Non-Bank Financial Institutions Are Excellent Loan Providers
Non-bank financial institutions can offer personal loans of up to six months of your salary, which can cover a significant portion of your down payment. These options are especially helpful for borrowers with low credit scores who may not qualify for bank loans.
3. Shorter Loan Tenures Increase Your Loan Quantum
Banks tend to favor shorter loan tenures as they pose less risk, allowing them to offer a higher loan quantum. However, shorter tenures typically come with higher down payments and nominal interest rates.
4. Learn About Income Weighted Average Age (IWAA)
Banks prefer younger borrowers with higher IWAA since they have more earning years ahead. Older borrowers nearing retirement tend to receive lower loan quantum due to the higher risk of default.
5. Settle Any Outstanding Loans and Financial Commitments
It’s advisable to clear existing debts before applying for a mortgage, as multiple loans lower your TDSR and reduce your chances of securing the desired mortgage amount.
6. Improve Your Credit Report a Year Beforehand
Improving your credit score through timely bill payments and maintaining a low credit utilization rate can significantly increase your chances of loan approval. Better credit scores often lead to better loan terms and higher quantum.
Conclusion
Understanding loan quantum and the factors that influence it is key to making informed borrowing decisions. By knowing how your income, credit score, and government regulations like TDSR affect your loan eligibility, you can better plan your financial commitments.
Key Takeaways:
- For HDB loans, the loan quantum is up to 75% of the property’s value, while bank loans for private properties follow similar limits but also consider the property’s value and lease.
- Car loans are capped at 70% of the Open Market Value (OMV) for vehicles priced below S$20,000, and 60% for cars with higher OMVs.
- Lenders calculate loan quantum based on your income and current debt, with the Total Debt Servicing Ratio (TDSR) capping debt repayments at 55% of income.
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