UPDATED: On 5 October 2020, MAS extended the repayment relief measures for mortgage loans up to 30 June 2021. Read our upcoming article for more information.
On 31 March 2020, the Monetary Authority of Singapore, or MAS, announced a slew of financial relief measures for individuals, especially those affected by the COVID-19 pandemic and the economic downturn. Instead of offering different relief measures, banks and financial institutions are now adopting a standard deferment of mortgage repayment for anyone who needs it.
Here’s 5 main things you need to know about these mortgage repayment measures:
1. You can choose which mortgage repayment you want to defer.
Homeowners can defer repayment of principal, which means you only pay the interest on your home loan each month. Or, they can defer BOTH principal AND interest. This means you get what is known as a “mortgage holiday” where you don’t need to pay anything during this period!
Depending on your cashflow situation, either of these options will be very welcome. But which should you choose? We’ll share more on that below.
2. You can defer mortgage repayment up to 31 December 2020.
That means you can reduce your monthly repayment amount by up to 8 months! Since there’s no way of knowing how long the pandemic will last, this is a welcome measure.
3. There’s no need to prove that you need these deferred mortgage repayment measures.
Not everyone is able to prove conclusively that they have been directly affected by COVID-19. Your career and income may not have taken an immediate hit, but as more and more industries are impacted, we will see a domino effect. It’s a good thing that you now don’t need to provide evidence of how you’re affected to opt in for the deferred mortgage repayment schemes.
4. Your credit score will not be affected if you apply for the deferment.
Even though you are essentially restructuring the loan, your credit bureau report will not reflect this. You don’t need to worry about hurting your credit score.
5. You must have a good loan repayment history.
Your loan must not have overdue payments of more than 90 days as at 6 April 2020.
Should you apply to defer your mortgage repayment?
Deferring your mortgage repayment means you WILL pay more overall. It is NOT a way to save money on your home loan.
But, in an uncertain situation like the one we’re all in today, where cash flow is an immediate concern but not a long-term concern, deferring your mortgage repayment is the better alternative to being unable to meet other financial commitments.
Therefore, weigh the pros and cons to see if deferring your mortgage repayment will help your financial situation in the short-term. If it does, then don’t worry about the extra amount you’ll eventually end up paying later.
Which deferred mortgage repayment scheme should you opt for?
Let’s assume you have a $500,000 outstanding loan, with a 20-year tenure, at an interest rate of 2%.
Before this, you would be paying $2,530 a month - $834 as interest and $1,696 as principal repayment. Now let’s break down the two options mathematically.
Mortgage Repayment Option A
You defer your principal repayment and pay only the monthly interest for 6 months.
During the next 6 months, you would be paying $834 as interest each month, only 33% or 1/3 of your usual payment.
After the 6 months are up, you would have paid $5,004 in interest to the bank, but your outstanding loan is still $500,000. You now have the option of extending the loan tenure by up to the corresponding deferment period.
If you choose to do so, you will now repay $500,000 over 20 years. Assuming the interest rate remains at 2%, your monthly repayment goes back up to $2,530.
In total, you would have paid $5,004 MORE than if you didn’t take Option A.
Mortgage Repayment Option B
You defer your principal repayment and monthly interest for 6 months.
During the next 6 months, you don’t pay anything!
After the 6 months are up, your outstanding loan is now $505,004. This is because of the monthly interest payment that you deferred. You now have the option of extending the loan tenure by up to the corresponding deferment period.
If you choose to do so, you will now repay $505,004 over 20 years. Assuming the interest rate remains at 2%, your monthly repayment is now $2,555.
You are now paying $25 more each month than if you didn’t take Option B. In total, you would have paid $6,075 MORE than if you didn’t take Option B, and $1,071 MORE than if you took Option A.
Who should apply for deferred mortgage repayment?
Obviously if you have or expect to have cashflow issues in the next few months, this is a no-brainer. Mortgage repayment is a significant portion of many Singaporeans’ monthly financial commitments, so paying less or not paying anything for the rest of the year represents a huge relief.
However, even if you can afford your monthly home loan instalment today, you should still consider deferring your mortgage repayment. In this economic downturn, it’s more urgent than ever that you build up and secure your emergency funds and your CPF account, if you’ve been paying off your home loans via CPF.
Yes, there’s no doubt you will eventually be paying more overall. However, having that extra financial security may make all the difference in ensuring you weather this pandemic and its aftereffects.
For more information about MAS' relief measures for individuals and SMEs, read their media release and annex, or check out the infographic below.
Still can’t decide which option is best for you?
At Mortgage Master, we believe in helping you make the best decision for your home loan. Our mortgage consultants take the time to learn your risk profile, and then advise you on the home loan package that best fits your preferences and financial situations. We don’t just help you decide what’s best in the short-term but have your long-term financial well-being in mind. Best of all, our consultation service is provided completely free!
So drop us a WhatsApp message and let us help you confidently make this important decision in your life.