Struggling to pay the bills during this tough pandemic times and wondering if you will have enough for all your loan obligations – especially your huge looming mortgage? Here is some good news! Amidst the pandemic economic uncertainty, the Singapore Government has created an impressive array of temporary measures to help Singaporeans tide through these times. From ABSD extensions to home loan deferments, there is a huge variety of measures that will relief the economic burden on many.
Since we touched on ABSD extensions (link to the previous article) in our latest article, here is a another on Home Loan Deferment – yet another hot topic amongst property owners in Singapore.
Here are the key things you need to know about this Home Loan Deferment measure:
- What a Home Loan Deferment?
- Who is eligible?
- How does the Home Loan Deferment work?
- Other common questions
- Pros & Cons
- How to apply?
What is a Home Loan Deferment?
In simple terms, it is a government initiative together with banks and finance companies to allow borrowers to defer (postpone) repayments of their existing residential mortgage loans to 31 Dec 2020. This is one of many Government initiatives to help Singaporeans lessen their financial burdens during these difficult times. Read on to see how it can be of help to you.
Who is Eligible?
Any Singaporean homeowner who has a residential mortgage is eligible. This is made especially simple to enable as many people to benefit from this scheme as possible.
The only condition is that you must not be in arrears (owing money) for more than 90 days as of 6 April 2020.
Simply opt-in if you are feeling the financial pressure. However, before you apply, make sure to learn all above how this deferment works and the costs to it. Yes, nothing in the world comes free. So, make sure you do your homework before applying for it.
How does the Home Loan Deferment work?
Based on the Monetary Authority of Singapore (MAS)’s announcement, there are two ways homeowners seeking for a deferment can go about it:
- Defer the principal portion of the monthly instalment (and continue to pay monthly interest)
- Defer the FULL monthly instalment
Let us explain the difference between the two. Assuming your current home loan is $4000 – $3000 being the principal portion and $1000 being the interest portion.
The first way of deferment allows you to stop paying the $3000 (principal) and pay only $1000 (interest) every month until 31 Dec 2020.
The second way of deferment allows you to stop payment the total of $4000 every month until 31 Dec 2020. However, interest will continue to accrue on your principal.
Other Common Questions
As we realize there are some common questions about this new scheme, we thought of consolidating some of the answers here:
- If you have any concerns about meeting TDSR/MSR to be eligible –do not be. This limit is waived during this period.
- If you would like to explore other options of deferment apart from the 2 ways shared above, do approach your bank or finance company to discuss options.
- This is not an automatic deferment. So, if you need it, please read on and apply for your deferment.
- This deferment will not be classified as a restructured loan so it will not affect your credit score
- It is currently only available until 31 Dec 2020. Any further extensions will be assessed and announced by the Government separately.
Pros and Cons
A clear benefit of this Home Loan Deferment is cashflow. Money that does not need to be paying off your substantial home loans, can be used to tide over these difficult times.
This is especially helpful for any individual who is struggling to make ends meet with their current finances. Income being cut off suddenly (unpaid leave or retrenchment) can be a reason why many could be stuck in such situations.
However, this is not without a price. The deferment is not free. Extra interest will be incurred during the period that the loan is being deferred. To illustrate, if you defer the principal portion of the monthly instalment until 31 Dec 2020 as per the example above, you will end up paying $1000 x (how many months deferred) worth of extra interest.
So, this should really be a measure of the last resort. If you are not tied up for cash, do continue to pay for your mortgage loans in full to avoid this unnecessary cost.
If you are unsure about the increased costs, please discuss with your bank or finance company beforehand. Make sure you are comfortable with the revised payment schedules and costs before you proceed with the application.
Take note that extra interest will be incurred if you will decide to defer your home loan
How to apply?
If you have done all the necessary homework, and decided it is in your best interest to get the Home Loan Deferment, it’s time to apply. You can easily do the application online. Here are some links to the banks that you can apply directly for this:
If the link for your bank is not here, simply google “[Bank name] Covid Relief” and you should find the correct link!
The processing times for applications is expected to defer across the various banks and financial companies, so do check their specific timelines on the sites. Do also try to be patient as it is highly likely that they will be dealing with large numbers of applications during this period too.
What will you do?
We sure hope our explanation about the Home Loan Deferment measure has helped shine a light on this topic for you. Please reach out to your respective banks or financial companies for details should you need more.
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Still not sure if you should defer your home loan? Contact us here for a non-obligation consultation.