If you’re a property owner trying to finance your home loan in the middle of the pandemic, you’d know how trying the year has been. The global pandemic has hit almost every industry, and the real estate and property industry is no exception.
Facing a massive economic downturn, many businesses have been forced to restructure or shut down. Employees, on the other hand, are forced to take unpaid leave, and many were retrenched.
In such climate, both businesses and homeowners have been struggling to finance their property loans.
To help property owners cope, the Monetary Authority of Singapore (MAS) has rolled out relief measures to help finance property loans. Industry support packages, renovation and student loans, extending loan tenures — these are just some of the many relief packages that have been put in place.
But now that many of these relief packages are coming to an end, how should property owners cope in the future?
Relief measures to help homeowners finance loans
On 30 April 2020, the MAS announced a myriad of packages to provide additional support for individuals who need to finance loans.
Many of these packages are targeted at property owners who are financing their property or those who are paying off their renovation loans.
As part of MAS and the Financial Industry’s effort to help ease the burden of property owners, several plans have been announced to allow deferment of repayment for property loans.
Borrowers who were financing commercial and industrial property loans could extend the loan tenure by up to the corresponding deferment period, and this deferment will not be reflected in the borrowers’ credit report.
Deferment of repayments was also extended to new mortgage equity withdrawal loans and even for renovations loans.
These plans have been put in place to help ease the financial burdens of businesses and individuals, as well as to ease cash flow requirements.
Reducing debt obligations
To ensure that property owners are not bogged down by debt during this trying period, MAS also rolled out plans to make refinancing and repricing of investment property loans easier.
Borrowers who have investment property loans that are out of the lock-in period are allowed to refinance or reprice their loans without being subjected to previous property loan rules under the MAS.
Those who do not meet MAS’ Total Debt Servicing Ratio (TDSR) and Mortgage Servicing Ratio (MSR) property loan rules will need to repay 3% of their outstanding loan amount over a period of 3 years.
This allows borrowers to refinance and reprice their loans and lower monthly payments this year.
Which relief measures are coming to an end?
With the year drawing to a close, many of the MAS’ relief measures will be coming to an end on 31 December 2020.
From 1 Jan 2021 onwards, measures that allow for deferment in repayment and plans for refinancing and repricing of investment property loans will no longer be in place.
Property owners who have relied on these measures in 2020 will have to find new ways to ease cash flow and cope with their debt obligations.
Relief measures that will be extended
That being said, not all property loan relief measures will end on 31 December 2020.
A number of relief measures will be extended to give borrowers financial support for the next year.
Extended deferment repayments
Those who have renovation loans to pay off may opt for a longer repayment period beyond 31 December 2020.
On the other hand, SMEs will also get to defer principal payments on selected loans partially, and receive restructuring options.
These plans are put in place to enable small business owners to transition into usual regulations after reliefs in 2020 have ended and also to receive financial support in the meanwhile.
Individual property loans
Those who need to finance their residential, commercial, and industrial property loans may temporarily reduce their monthly loan repayments to 60% in 2021.
The reduced monthly instalments will cover interest and partial principal payments to help ease cash flow.
To qualify for the extension of relief measures, individuals will need to prove that their incomes have been impacted by at least 25% and are not in arrears for more than 90 days on their property and home loan payments.
Application for the extension has already started on 9 Nov, and the application window will be open to 30 June 2021.
Under this extension, instalment plans may be temporarily reduced up to 9 months but will not exceed 31 December 2021.
What this means for SMEs and individuals
The extension of these relief measures will help businesses and individuals transition financially in the next year.
Criteria set for the extended relief measures will also help businesses and individuals who are struggling more financially, and channel funds to those facing more financial difficulties.
These plans will also help to give more runway for property owners to prepare them for regular monthly repayments in the future, and not be bogged down by financial obligations too suddenly.
Businesses and individuals who do not qualify for the extended measures may have to look for alternative solutions to cope with property loans and cash flow next year.
What’s the next step?
To cope with this transition, it’s vital for individuals and property owners to start comparing loan interest rates and to think about refinancing their loans.
Getting the best interest rates will make a drastic difference during these trying times. Additionally, refinancing your loans can help you cope with financial obligations, cash flow, and debt in the near future.
As relief measures from MAS and the financial industry are coming to an end, property owners will have to take proactive steps to manage property loans.
If you own a residential, commercial or industrial property, ensure that you know whether you can still defer repayments under the extended relief measures.
Knowing the timeline you have for repayments will enable you to make better decisions on how to finance your loans and manage your cash flow.
Here at FinanceGuru, we seek to help you better prepare for your finances and the upcoming milestones in your life. Learn more about how you can optimise your home loan, and uncover potential ways to save you money and time. Get a non-obligatory assessment and loan product recommendations today.