Are you planning to purchase a private residential property in 2023 and wondering what the maximum mortgage you could apply for? The loan-to-value (LTV) rules set the maximum mortgage amount that banks can lend to you. In this article, we will explore the various factors that affect the maximum LTV and how they impact your maximum mortgage amount.
Refer to this blog post for the LTV rules table.
Number of mortgages you have versus number of properties you own
It is important to note that the number of mortgages you have is different from the number of properties you own. For example, if you own 10 paid-up residential properties with no mortgages, the 11th property you plan to purchase will be considered your first mortgage.
Limiting buyers with lesser cash
The LTV rules also aim to restrict buyers who have less savings to invest in residential property. If you have a mortgage in hand, you will need to accumulate more savings or pay off your existing mortgage before you can purchase a second property.
Maximum LTV changes based on loan tenure
The maximum LTV changes based on the maximum loan tenure. For loan tenures up to age 65 or less than 30 years, the LTV is higher. However, for loan tenures beyond age 65 or between 30-35 years, the LTV is lower.
Example:
Let’s consider an example of a 60-year-old man who plans to invest in a residential property and intends to take out a mortgage. If he chooses a higher LTV, his loan tenure will be shorter (e.g., 5 years) and his monthly installments may be relatively high. In this case, he may need to set aside more cash for a down payment to opt for a lower LTV with a longer loan tenure (e.g., 15 years until age 75).
Maximum borrowing capacity versus maximum LTV
It is important to note that your maximum borrowing capacity must always be more than the maximum LTV. For example, if you have no mortgage in hand and your maximum borrowing capacity is $1 million, the highest value of property you could purchase would be approximately $1.34 million. This is because $1 million is 75% of $1.34 million, and you will need to have at least $340,000 in cash and CPF for the down payment.
On the other hand, if you already have a mortgage in hand and your borrowing capacity remains at $1 million, the maximum LTV drops to only 45%. In this case, if you want to purchase a property valued at $1.34 million, the bank will only grant you a mortgage of $603,000, and you will need to have a total of $737,000 in cash and CPF for the down payment.
Conclusion
In conclusion, the maximum mortgage amount you can apply for a private residential property in 2023 is determined by the LTV rules and various other factors such as your number of mortgages, savings, and loan tenure. Understanding these factors can help you determine your maximum mortgage amount and plan your property purchase accordingly.
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