Tweaks for refinancing of home loans

Tweaks for refinancing of home loans

Home owners looking to refinance their mortgages will now enjoy more flexibility with the total debt servicing ratio (TDSR).

The Monetary Authority of Singapore (MAS) tweaked the rules yesterday so that under certain conditions, borrowers may be exempted from the TDSR framework when refinancing their loans.

The TDSR rules will still apply to new housing loans and the MAS noted that this move does not represent a relaxation of property cooling measures.

About 2.5 per cent of new home loans are currently above the TDSR threshold.

The MAS said it had received feedback from some borrowers that they were unable to refinance because they could not meet the TDSR threshold of 60 per cent.

This deems that borrowers cannot take on total debt obligations exceeding 60 per cent of their gross monthly income.

Previously, the TDSR exemption was granted only to the refinancing of loans for properties bought before the introduction of the TDSR framework in June 2013.

Now the exemption applies to all owner-occupied housing loans, regardless of when the property was purchased.

Moneysmart's head of mortgage, David Baey, said: "MAS has done a very good job in reducing the burden of people with owner-occupied properties, and who were unable to refinance their loans due to the date restriction and a drop in household income. They are the ones who need it the most."

Ms Wong, 40, who did not want to give her first name, bought a four-room Housing Board resale flat in late 2013. She noted that while her debt obligations have not risen since she took out her loan, she would likely want to refinance in the near future to take advantage of lower rates.

"At least I know I won't be disadvantaged if I take on more financial commitments," she added.

Under previous rules, investment property loans could also be refinanced above the 60 per cent TDSR threshold if the borrower committed to a debt reduction plan and applied for the refinancing before June 30 next year.

Now the MAS has specified that to benefit from the TDSR exemption, the debt reduction plan should involve the borrower committing to repay at least 3 per cent of the loan's total outstanding balance over three years.

The borrower would also have to meet the bank's credit assessment criteria.

Cushman & Wakefield research director Christine Li said the MAS move is a timely one that will ensure the stability of the property market.

"In view of the recent weaknesses in the oil and gas and financial services sectors, retrenchment and pay cuts could affect the home owners' ability to refinance existing home loans," she added.

"While mortgage rates are still low, the inability to refinance under the old TDSR rules could result in some foreclosures where home owners are forced to sell their properties in a down market."

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