Quick Guide On Loan-To-Value Ratio (LTV) For Properties In Singapore
When buying a property in Singapore, understanding the Loan-to-Value (LTV) ratio is essential. This key financial metric directly impacts how much you can borrow, your downpayment requirements, and the overall affordability of your property purchase.
In this quick guide, let's find out in detail about what the LTV ratio is and how it affects home loans, both from the Housing and Development Board (HDB) and banks.
What Is LTV & How Does It Affect My Home Loan?
The LTV ratio is the percentage of a property's value or price that a bank or HDB is willing to finance through a loan. It determines the maximum amount you can borrow, based on either the purchase price or the valuation of the property, whichever is lower.
If you have no outstanding housing loans, the LTV limit is usually 75% or 55%, with a minimum cash downpayment of 5% or 10%, respectively. For those with one existing housing loan, the LTV limit drops to 45% or 25%.
For homeowners who have two or more outstanding loans, the limit reduces further to 35% or 15%. It's important to note that a lower LTV applies if the loan tenure exceeds 30 years (or 25 years for HDB flats), or if the loan extends beyond the borrower’s age of 65.
Factors which impacts the LTV ratio
1. Loan tenure and age
For bank loans, if the loan tenure exceeds 30 years or if the loan tenure plus the borrower’s age exceeds 65 years, the LTV ratio will be reduced. For instance, in such cases, the LTV for the first property may be reduced from 75% to 55%.
2. Credit score
A borrower’s credit standing plays a critical role in determining the LTV limit. Those with poor credit histories or significant outstanding debt might face lower LTV ratios, limiting their borrowing capacity.
3. Existing loans
If you have outstanding property loans, the LTV for your next property will be lower. As mentioned, for a second property, the LTV may drop to 45%, and for a third or more, it can fall further.
5 ways in which the LTV impacts your home loan
- Eligibility for a Home Loan: A lower LTV generally increases your chances of qualifying for a home loan, as it signifies a lower risk to the lender.
- Interest Rate: LTV is directly linked to your interest rate. A lower LTV typically results in a lower interest rate, saving you money over the life of your loan.
- Down Payment Requirement: The higher your LTV, the larger your down payment will need to be. This is because lenders require a larger equity stake in the property to mitigate their risk.
- Mortgage Insurance: In Singapore, you may be required to purchase mortgage insurance if your LTV exceeds a certain threshold. This insurance protects the lender in case you are unable to repay the loan.
- Loan-to-Value Surcharge: Some banks or lenders may impose a surcharge on your interest rate if your LTV exceeds a certain level. This can increase your overall borrowing cost.
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Differences In LTV Considerations for HDB Loans vs Bank Loans
| HDB Loan | Bank Loan | |
|---|---|---|
| Eligibility | Restricted to Singapore Citizens and Permanent Residents. Singapore Citizens generally have the highest LTV limits and can qualify for various government grants and subsidies, while PRs may have slightly lower LTV limits compared to Singapore Citizens | Open to Singapore Citizens, Permanent Residents, and some foreigners |
| LTV Limits | Generally lower than bank loans, with stricter limits for first-time buyers and resale flats | Higher LTV limits compared to HDB loans |
| Cooling Measures | Subject to government cooling measures such as Minimum Occupation Period (MOP), Seller Stamp Duty (SSD), and Additional Buyer's Stamp Duty (ABSD), which can significantly impact your LTV limits | May be subject to cooling measures, but typically less stringent than HDB loans. If property prices are rising rapidly, banks may impose higher LTV limits to discourage speculative buying and prevent a property bubble |
| Interest Rates | Subsidized interest rates offered by HDB, often lower than bank loan rates. Thus, this results in lower monthly repayments, allowing you to potentially borrow a larger amount for the same property. This can increase your LTV | Market-based interest rates, which can fluctuate. When interest rates rise, your monthly mortgage repayments increase, making it more difficult to afford a larger loan. This can lead to a lower LTV |
| Loan Tenure | Longer loan tenures available, often up to 35 years, which increases the LTV ratio and you'll end up paying more in interest over the life of the loan | Shorter loan tenures compared to HDB loans, which means lower LTV ratio |
| Repayment Options | Flexible repayment options, including monthly installments, step-up payments, and accelerated payments | More standardised repayment options, typically monthly installments |
Key Factors To Consider For Higher Or Lower LTV
The Loan-to-Value (LTV) limit directly impacts both the Mortgage Servicing Ratio (MSR) and the Total Debt Servicing Ratio (TDSR), which are key factors in determining your eligibility for a home loan, plus other aspects as well.
Higher or lower MSR
- Higher LTV, Higher MSR: A higher LTV means you're borrowing more relative to the property's value, resulting in higher monthly mortgage payments. This can lead to a higher MSR, which is calculated as the ratio of your monthly mortgage payments to your gross monthly income.
- Lower LTV, Lower MSR: A lower LTV means you're borrowing less, leading to lower monthly mortgage payments and a lower MSR.
Higher or lower TDSR
- Higher LTV, Higher TDSR: A higher LTV results in higher mortgage payments, which contribute to a higher TDSR. TDSR is calculated as the ratio of your total monthly debt payments (including mortgage, credit card, and other loans) to your gross monthly income.
- Lower LTV, Lower TDSR: A lower LTV means lower mortgage payments, leading to a lower TDSR.
Increase of downpayment amount
A lower LTV ratio increases the amount of downpayment you need to make. Here’s a breakdown of the typical downpayment requirements.
- HDB Loan: 25% downpayment (which can be paid using CPF, cash, or both)
- Bank Loan for First Property: 25% downpayment (with 5% paid in cash)
- Bank Loan for Second Property: 55% downpayment
- Bank Loan for Third Property: 65% or higher downpayment
A higher LTV allows you to borrow more, reducing your upfront costs. Conversely, a lower LTV increases the portion of the property’s price that you must cover yourself.
Property location and venue
The location of the property can also impact LTV as properties in prime locations may have higher LTV limits due to their perceived value and resale potential. In addition, the appraised value of the property determines the maximum loan amount you can obtain. A higher property value allows for a higher LTV.
Income level
Your income level will directly affect your LTV ratio as banks and lenders assess your Total Debt Servicing Ratio (TDSR), which caps your monthly debt repayments at 55% of your gross income. Higher income means you can service a larger loan, often leading to a higher LTV ratio.
Age
Younger borrowers can access longer loan tenures, which spread out payments and reduce monthly costs, allowing for a higher LTV, while more matured borrowers may be limited to shorter tenures, leading to higher monthly payments and a lower LTV. Usually, home loans that extend beyond age 65 or have tenures over 30 years may also be subject to a lower LTV cap.
Marital status
Your marital status can positively influence the LTV ratio, especially when both you and your spouse apply for a housing loan together. Your combined income increases the overall repayment capacity, which may qualify you for a higher loan amount and thus a higher LTV ratio. However, if one spouse has significant debt or a poor credit history, it could negatively affect your borrowing ability.
Frequently Asked Questions
What is the LTV ratio?
- In Singapore, the Loan-to-Value (LTV) ratio refers to the maximum amount a bank can lend for a property purchase, expressed as a percentage of the property's value or purchase price. If you have no outstanding housing loans, the LTV limit is 75% or 55%, with a minimum cash downpayment of 5% or 10%, respectively. For those with one existing housing loan, the LTV limit drops to 45% or 25%.
Will my HDB home loan or bank mortgage loan be affected by the LTV ratio?
- Yes. The LTV ratio determines the maximum loan amount you can borrow relative to the property's value. A higher LTV ratio means you can borrow more, but it also means you'll need a lower down payment. Conversely, a lower LTV ratio means you'll need a higher down payment.