This article was written in collaboration with CIMB Bank. Views expressed in the article are the independent opinion of DollarsAndSense.sg. Product features are accurate at time of writing and are subject to change in future. Please refer to CIMB Bank’s website for the latest rates and promotions.
Upgrading to a private property is a dream for many people living in Singapore. Here are 6 considerations you should use to assess whether you’re ready to take this next step.
#1 Are You Eligible To Upgrade To A Private Property?
If you’re staying in a HDB flat, you’ll need to ensure you have fulfilled the Minimum Occupancy Period (MOP) of 5 years before you can i) Sell the flat in the open market; ii) Rent out the whole flat; iii) Invest in private property.
In addition, you also need to ensure that your flat sale is within the Ethnic Integration Policy (EIP) and Singapore Permanent Resident (SPR) quota.
The EIP ensures a balanced ethnic mix in HDB estates, while the SPR quota ensures that SPR families can better integrate into the local community. You will not be able to sell a particular flat if the sale causes your block or neighbourhood’s EIP or SPR quota to exceed.
#2 Have You Cleared Your Existing Mortgage?
When you sell your HDB flat, you have to use the sale proceeds to pay off your outstanding housing loan first. You also have to refund any amount (plus accrued interest) which you have borrowed from your CPF Ordinary Account. These include the downpayment, monthly loan repayment and any HDB housing grant that you may have taken.
After paying off any outstanding housing loan and the amount which needs to be returned to your CPF, you will receive the remaining amount in cash.
#3 Will You Be Taking Up A New Home Loan?
For many Singaporeans, you would need to take up a bank loan in order to purchase your private property. If this is your first property, you can borrow up to 75% of the property value or selling price, whichever is lower.
For example, CIMB’s Private Home Loan offers:
Low Interest Rates: Opt for either a Fixed Rate or Singapore Interbank Offer Rate (SIBOR) package.
High Margin of Financing: With up to 75% Loan -To-Value (LTV) on CIMB Private Property Loans, you get to keep your initial outlays at a minimum.
Flexible Loan Tenures: Everyone has different financial needs. CIMB Private Home Loans offer tenures of up to 35 years (or 70 years of age, whichever is earlier).
#4 Have You Calculated Your Total Debt Servicing Ratio (TDSR)?
The Total Debt Servicing Ratio (TDSR) is the maximum percentage of one’s monthly income that can be used to service all your loan obligations. This includes credit card debt, student loans, car loans, and existing mortgages.
Here’s how the TDSR is calculated:
(Borrower’s total monthly debt obligations / Borrower’s gross monthly income) x 100%
Currently, the TDSR limit is 60% of one’s gross monthly income. For example, if your monthly income is $4,000, the maximum amount that can be used to service your loans is $2,400.
#5 How Much In Additional Buyer’s Stamp Duty (ABSD) Do You Need To Pay?
There is no Additional Buyer’s Stamp Duty (ABSD) imposed on the purchase of your first property. However, when you upgrade by purchasing your private property, you will have to pay ABSD as this will be your second property.
Citizens and permanent residents (PRs) buying second property are required to pay stamp duty of 12% if this private property is your second home and 15% if this is your third or more residential property.
#6 Do You Require Short-Term Financing Support?
Between the time you purchase your private property and sell your HDB, there could be a difference of a few months.
During these few months, you may be waiting for the sales proceeds from your HDB flat to come in, while servicing the loan for your private property.
If you are tight on cash, you might need to consider short-term financing options such as a bridging loan.
CIMB Beautiful Sunday
From now till 31st December 2019, homeowners can enjoy 52 Interest-free Sundays on their Mortgage when they take up a loan with CIMB Bank with interest is as low as 1.84% per annum, subject to terms and conditions.
For more information, visit CIMB Bank’s website today.
To recap the pointers in this article, you can refer to this infographic created by DollarsAndSense: