This article was originally published on 2 April 2020 and updated on 6 October 2020 to include the additional support from MAS announced on 5 October 2020.
As part of efforts to complement the government’s relief measures for individuals and companies to deal with the ongoing COVID-19 situation and resulting economic impact, the Monetary Authority of Singapore (MAS) announced a series of special relief measures to help individuals and SMEs cope with their existing debt obligations and insurance commitments.
These measures were introduced by MAS on 31 March 2020, in partnership with the Association of Banks in Singapore (ABS), Life Insurance Association (LIA), General Association of Singapore (GIA), and Financial Houses Association of Singapore (FHAS).
In total, there are four measures that cover 1) home mortgage repayments; 2) repayments on unsecured personal credit; 3) deferred premium payments for health and life insurance; and 4) flexible instalment plans for general insurance.
Additionally, MAS has announced on 5 October 2020, more support in form of reduced instalment payment for mortgages, extension of existing support measures and loan tenure extension for renovation and student loans.
Here’s a look at what each of these measures entail, and what Singaporeans need to know before deciding if they want to take advantage of these measures.
#1 Deferred Repayment Of Residential Property Loans
Dubbed Special Financial Relief Programme (Mortgages), this provision applies to property mortgages, home equity loans, and debt reduction plans for both owner-occupied (HDB and private) and investment properties.
It allows borrowers to apply to their respective bank or financial institution to defer either principal payment or both principal and interest payment up to 31 December 2020, which is a 9-month reprieve.
During the period of deferment, interest will still continue to accrue, but only on the deferred principal amount. No interest will be charged on the deferred interest payments – in other words, interest-on-interest is waived.
After the deferment period, the remaining loan amount together with the interest accrued on the deferred principal amount will be fully-amortised (spread out) over the remaining loan tenure (no balloon repayment). Borrowers also have the option to extend their loan tenure by the corresponding duration of the deferment period.
This deferment will not be reflected as a restructured loan in the borrower’s credit bureau report.
This mortgage repayment deferment is granted on an application basis, and MAS has said that lenders will be approving deferment requests “expeditiously” to borrowers who are not in arrears for more than 90 days as at 6 April 2020. There is no need to demonstrate any COVID-19 impact to qualify for deferment.
After applying with their respective bank or financial institution, borrowers will receive illustrations of the revised monthly repayments during and after the deferment period, the additional interest that will accrue over the deferment period and revised total interest costs.
Borrowers should know that deferments and tenure extensions have the effect of increasing your total interest costs, so you should avail yourself to this option if you need to – and only for as long as you need to.
[Update] Additionally, as announced by MAS on 5 October, borrowers may apply to their respective bank or finance company to make reduced instalment payments pegged at 60% of their monthly instalment, for a period of up to 9 months. For most case, the 60% reduced monthly instalment will cover interest and partial principal payments. This will ease individuals’ cashflow, while still allowing borrowers to pay down their principal amount.
Eligible borrowers may apply for the reduced instalment payments from 9 November 2020 till 30 June 2021. The reduced instalment payment may be for a period of up to 9 months but not exceeding 31 December 2021, starting from the date that the application is approved.
#2 Converting Personal Unsecured Credit Balances Into A Term Loan With Lower Interest
Referred to as Special Financial Relief Programme (Unsecured), this provision applies to credit card debts and other revolving credit lines with banks and credit card issuers.
Those who have outstanding balances on their credit card or other unsecured credit facilities can apply to their respective lenders to convert what they owe into a term loan, which will have interest capped at 8% per annum and a maximum tenure of up to 5 years. This is much lower than the 26% per annum typically charged for outstanding credit card balances.
This option is only available to Singapore Citizens or PRs who suffered a loss of 25% or more in their monthly income after 1 February 2020, and are thus at risk of incurring substantial arrears.
Individuals can apply to their respective lenders for conversion of their outstanding unsecured debts anytime from 6 April to 31 December 2020. MAS has said that requests will be processed and granted “expeditiously” by lenders and that this conversion will not be reflected as a restructured loan in the borrower’s credit bureau report.
[Update] The application period has been extended to 30 June 2021.
It is important to note that the unutilised credit limit with the respective lenders will not be available to borrowers after the conversion, until the loans are cleared, which makes sense, since the purpose of the conversion is to protect consumers from being mired in a vicious cycle of high-interest debt.
Obviously, consolidating high-interest loans like credit card debts into lower interest loans with a sustainable repayment schedule is the logical thing to do. Before this special conversion programme, borrowers could use credit card balance transfers or even take a personal loans.
Typically, a good practice for borrowers to minimise the total amount of interest paid is to choose the shortest loan tenure that will still allow then to comfortably service the monthly repayments.
However, given the uncertainty of the COVID-19 situation and the fact that this special term loan comes with no early repayment penalty, borrowers could consider stretching their loan tenure, provided they are disciplined enough to pay down more of their debts as quickly as they can manage.
#3 Deferred Payments For Life And Health Insurance Premiums
To help policyholders who might be facing financial difficulties not lose their important health and life insurance coverage, MAS has announced that individuals can apply to their insurers to defer premium payments for up to six months while maintaining insurance coverage during the deferment period.
This deferment option applies to all individual life and health insurance policies with a policy renewal of premium due date between 1 April and 30 September 2020 but will be subject to insurers’ assessment and approval.
This measure adds yet another option available to Singaporeans to keep their protection costs manageable and sustainable during times of financial distress, such as taking a premium loan, changing their policy to a paid-up one, or reducing their sum assured.
[Update] The deferment of payment for insurance premiums has been extended. You may apply to defer premiums for up to six months for policies with renewal or premium due date between 1 April 2020 and 31 March 2021 (both dates inclusive). Only policies which are not already on Defer Premium Payment are eligible.
#4 Flexible Instalment Plans For General Insurance
To ease the financial burden for those paying for general insurance policies, such as motor insurance and property insurance, policyholders can apply their insurer to work out an instalment payment plan, while maintaining insurance protection for paid-up period.
This allows policyholders to pay their premiums in smaller amounts and enjoy coverage for the paid-up period, instead of needing to pay a lump sum of premiums for the entire policy period at the start.
Policyholders can approach their respective general insurance company to find out more.
#5 Loan Tenure Extension For Renovation and Student Loans [New]
To ease the cashflow burden and lower monthly instalments, individuals with renovation and student loans may apply to their respective bank to extend their loan tenures by up to 3 years. This is available for renovation or student loan with payments that are not more than 90 days past due, regardless of whether they have taken up payment reliefs previously. The student loans measure covers all non-MOE student loans.
Eligible borrowers may apply for assistance from 9 November 2020 till 30 June 2021.
Flexibility And Sustainability For Tiding Over This Difficult Period
These measures are timely and will be much appreciated by those whose income and financial situation has been adversely affected by economic fallout from COVID-19.
It is also in the banks’ and insurers’ interest that flexibility is afforded to clients. After all, the last thing insurers want is a wave of policy cancellations because of temporary financial hardship, or banks needing to write-off bad debts or spend time and/or money to try to claw back whatever they can from borrowers.
With the added flexibility, individuals can continue to fulfil their obligations to financial institutions, while enjoying the benefits of continued access to credit and insurance coverage.