When applying for a mortgage for a private residential property, it’s important to understand how the bank determines the maximum loan tenure that you are eligible for. The final loan tenure is calculated based on a combination of various factors, including your age, income, and the loan-to-value ratio of the property. In this blog post, we’ll go over the key factors that the bank considers when determining your maximum mortgage tenure and explain the “whichever is lower” rule that may affect your eligibility. By understanding these factors, you can better prepare for the mortgage application process and make informed decisions about your home loan.
Maximum Age
According to the latest Monetary Authority of Singapore (MAS) regulations, the maximum age for all residential property borrowers is 65 years. However, if the borrower has a lower loan-to-value ratio, the bank may be able to extend the loan tenure beyond 65 years, with some banks approving loan tenures until the age of 70 or 75.
Maximum Loan Tenure
The maximum loan tenure is always 30 years. This means that even if a young couple, aged 25, are approved for a mortgage, the bank can only offer them a maximum loan tenure of 30 years, not until the age of 65. This is because the loan tenure would be 40 years if it were extended until the age of 65.
Income-Weighted Average Age for Combined Income
In the past, different banks had their own in-house rules for determining the average age based on the borrower’s income. However, under current rules, younger borrowers are not necessarily advantaged in terms of obtaining longer loan tenures. If the younger borrower’s income is significantly lower than the older borrower’s, the average age will be shifted towards the higher end, resulting in a shorter loan tenure. Our maximum borrowing capacity calculator includes an income-weighted formula to help you determine your maximum borrowing capacity.
Loan-to-Value Ratio
There is always a limit on the loan amount based on the property’s valuation or transaction price, even if the applicant is eligible for a higher borrowing capacity based on their income.
If based on your income, your maximum borrowing capacity is $1mil, this doesn’t mean you can buy a $1mil property with full loan. Additionally, the loan-to-value ratio may vary depending on the number of property mortgages the borrower currently has. The table below shows the loan-to-value ratios for different scenarios.
Whichever is Lower Rule
This rule applies to both the loan tenure and the loan-to-value ratio. As mentioned in the “Maximum Loan Tenure” section, the maximum loan tenure is always subject to the whichever is lower rule. In terms of the loan-to-value ratio, if there are two borrowers, one of whom already has a residential property mortgage and the other does not, the bank will only approve the maximum loan amount based on the borrower who already has a mortgage, resulting in a lower maximum loan-to-value ratio for both borrowers.
Want to find out your maximum borrowing? Just click here to have a self-assessment and RICHCO-SPACE consultant will assist you.
