By now, many of us would likely have felt the financial impact of COVID-19 on our lives, either directly or indirectly.
Already, the Monetary Authority of Singapore (MAS) predicts a recession, stating that the economy may contract even more steeply than the -1% to -4% forecast, partly due to the extension of circuit breaker measures to 1 June 2020. This puts Singapore on course for her worst-ever recession. In addition, job cuts are likely to be inevitable with some economists estimating unemployment rates to hit close to 4% to 5% – even higher than during SARS.
To help individuals and SMEs ease cash flow and reduce debt concerns, the MAS announced its initial Deferred Payment Options about a month ago – covering areas of loans and insurance commitments. Since then, the circuit breaker has been extended to 1 June 2020. In response, MAS has also announced a second package of support measures to help individuals cope.
Here’s a look at the MAS second package of support measures.
#1 Defer Loan Repayment
There are 5 components to the new deferred loan repayment support, enabling individuals to extend their loan tenure without affecting their credit score. The Total Debt Servicing Ratio (TDSR) also does not apply when individuals:
- Apply for property loan payment deferment
- Refinance owner-occupied and investment property loans
- Take up new mortgage equity withdrawal loans if the Loan-To-Value ratio does not exceed 50%
- Take up unsecured credit facilities such as credit cards and personal loans
i) Residential Property Loans
This is an existing measure from the first support package. Individuals can defer either the principal payment or both the principal and interest payments up to 31 December 2020.
Interest will continue to accrue on the deferred principal amount. This means interest payment deferrals accumulate, but do not accrue.
At the end of the deferment period, the remaining loan amount and any accrued interest will be fully amortised across the remaining loan tenure. This safeguards individuals from a shock balloon repayment, i.e. having to fork out a very large sum at the end. Borrowers also have the option to extend their loan tenure by the corresponding duration of their deferment period.
ii) Commercial And Industrial Property Loans (NEW)
Individuals can now defer the principal payment up to 31 December 2020. This will help individuals with cash flow issues if they or their tenants are unable to pay rents during the circuit breaker and beyond.
There is no need for individuals to demonstrate any impact from COVID-19 to receive the deferment. As long as their repayments were current as at 1 February 2020, the deferment will be granted.
Individuals will also have the option to extend the loan tenure by up to the corresponding deferment period, most likely to avoid a balloon repayment.
iii) Mortgage Equity Withdrawal Loans Granted After 6 April 2020 (NEW)
Supplementing the Residential Property Loan measure above, this measure enables individuals to defer either their principal or principal and interest payments on mortgage equity withdrawal loans regardless of when the loans were granted.
Similarly, interest will only accrue on the deferred principal amount, and not on the deferred interest payments. They can also choose to extend the mortgage tenure by up to the corresponding deferment period.
This will help individuals facing cash flow constraints. Again, there is no requirement to demonstrate that COVID-19 has impacted them. However, property loan rules for obtaining the new mortgage equity withdrawal loan (TDSR and LTV limits) in the first place continue to apply.
iv) Defer Repayment Of Renovation And Student Loans (NEW)
Individuals with renovation or non-MOE student loans may defer both their principal and interest payments up to 31 December 2020. Interest will accrue only on the principal amount, and not on the deferred interest payments.
Borrowers can also choose to extend their loan tenure by up to the corresponding deferment period. After the deferment period, the loan amount and any accrued interest will be amortised over the remaining loan tenure to avoid balloon repayments.
v) Defer Repayment Of Motor Vehicle Loans And Hire-Purchase Agreements, Subject To Assessment (NEW)
Individuals with motor vehicle loans and hire-purchase agreements who are affected by COVID-19 can approach their lender to discuss suitable repayment plans on a case-by-case basis.
Lenders will assess factors such as an individual’s financial situation, need for the motor vehicle, current market value of the motor vehicle and its estimated market value after the deferment period.
If the deferment is granted, individuals can extend to loan tenure by up to the corresponding deferment period, easing their monthly instalments when they resume regular repayments.
#2 Premium Payments For Life And Long-Term Health Insurance
This is also an existing measure, enabling individuals to defer premiums for their life and long-term health insurance policies for up to six months.
This measure gives policyholders another option to maintain important life and long-term health coverage, even if they cannot afford premiums in the short term. Other options policyholders have is to surrender policies, taking a premium loan, changing their policy to a paid-up one or reducing their sum assured.
Only policies with renewal or premiums due date between 1 April to 30 September 2020 are eligible. This will also be subject to insurers’ assessment and approval.
#3 Flexible Instalment Plans For General Insurance
Individuals who need help with their general insurance policies, including for their home or vehicles can approach their insurer to pay for the premiums in instalments.
This will allow them to maintain important insurance protection while forking out a more affordable monthly sum for the policy period.
#4 Extend Loan Tenure Of Existing Debt Consolidation Plans (DCPs) (NEW)
Individuals may extend the loan tenure of their existing DCPs for up to 5 years at any point between 18 May 2020 and 31 December 2020. This will help them lower their monthly financial commitment to the loan.
The take up of unsecured credit facilities such as credit cards and personal loans will not affect an individual’s TDSR.
#5 Refinance Or Reprice Investment Property Loans, Without Being Subject To TDSR And Mortgage Servicing Ratio (MSR)
Individuals may refinance or reprice their loan, without being subject to the TDSR and MSR, up to 31 December 2020. This means individuals who do not meet TDSR or MSR do not need to commit to a debt repayment plan to repay 3% of their outstanding loan amount over 3 years.
Individuals will still need to consider the contractual penalties involved if they refinancing or repricing their loans within their lock-in period. In addition, they can also use measure #1 to defer their property loan repayment at the same time, but this has to be assessed on a case-by-case basis.
This will help individuals to lower their debt obligations and interest cost.
#6 Ensuring Access To Basic Banking Services
This measure enables individuals to apply for a waiver for fall-below service fees or failed GIRO deduction charges up to 31 December 2020.
As a result of tight cash flow situations, individuals may be hard-pressed to cough up enough money to pay for their monthly financial commitments. This measure will provide a small relief, especially to those who really need it.
Thinking About Longer-Term Sustainability Over Shorter-Term Financial Difficulties
These measures have been put in place to help individuals in Singapore ease any strain on their cash flow, reduce their debt obligations, maintain access to basic banking services in the face of an extraordinarily difficult time.
The main aim of the measure is to help individuals overcome short-term financial pressures to hold down their homes, investment properties and vehicles as well as maintaining important insurance protection coverage. In the longer-term, once they are able to have better visibility of their finances or even experience an improvement in the economy, they will be able to continue regular repayments.
On the part of the government and financial institutions, they do not gain by seeing large groups of people losing their assets and important insurance protection coverage because they are unable to afford it in the short-term. By helping these people get back on their feet, financial institutions will be better served as well.
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