6 ways to use your property to tide over COVID-19 crisis

It has been a rocky start to the Year 2020, with an outbreak of a new virus, Coronavirus, also known as Covid-19.

Unfortunately, Covid-19 has claimed many lives in different countries all around the world; it has also caused great impact to everyone's lives across the globe.

On 3 April 2020, Singapore government announced an elevated set of safe distancing measures, as a circuit breaker to reduce the number of local transmission cases . This has to be in place so that community spread of Covid-19 can be prevented.

This circuit breaker started on 7 April 2020, and was extended till 1 June 20020. Many changes took place, disrupting our daily lives.

Taking a few seconds, I would like to thank these group of people: our unsung heroes in medical sector and front line workers in essential services, who had to work during this circuit breaker.

Strict measures were imposed during circuit breaker to ensure people follow the regulations.

Everyone was to stay at home, no dining out, no social activities to be carried out during this period.

All businesses to cease operations, only essential services are allowed to operate.

Children have to stay at home, home based learning became the way to their learning from home.

Working adults to work from home, online video conferencing took the lead to the new trend of conducting meetings.

With the circuit breaker's measures, it has affected many businesses, in turn, resulting in pay cuts, job losses, etc. This has definitely impacted many of us, directly and indirectly.

Through this article, I would like to share with you 6 methods on how property owners can make use of their properties to assist them to cope during this difficult time.

Refinance your mortgage loan with lower interest rates

Following US Fed's announcement on the cut in their interest rates since March 2020, many banks in Singapore have taken the same steps to lower bank interest rates.

Majority of the mortgage loans come with lock-in periods, the lock-in period varies with different banks and the packages they offer. Property owners can contact their bankers/ brokers to check if they are eligible to apply for refinancing of their mortgage loans.

If you are not restricted by lock-in period, why not consider refinancing your mortgage loan for your property? You can save on the interests and probably a lower monthly installment that is easier to manage financially.

Even if you are still within the lock-in period, do discuss with your banker/ broker to contact the bank to request for refinancing of your mortgage loan with waiver of penalties .

There is no harm trying, the bank may look into your request and offer you alternatives, especially in tough times like this.

Stretch loan tenure

A fact that many is not aware of: loan tenure can be stretched up to a maximum 75 years old or a maximum of 35 years tenure, whichever is lower. Stretching the loan tenure will significantly reduce the monthly installment, but do bear in mind that you will end up paying more interests over time. In order to pay lesser interests, you can perhaps look into the option of reducing the loan tenure when financially more stable.

Let me share with you a case of my client who recently contacted me on refinancing her mortgage loan for her private residential property.

Jasmine is self employed with businesses in China and travels frequently. Her outstanding loan is $700,000/- at 2% interest rate and a loan tenure of 15 years. She now finds her monthly installment of S$4,505 taxing as her income has been largely affected due to the travel bans imposed resulting from Covid-19.

We discussed on stretching the loan tenure and did some calculations for loan tenure between 25 to 35 years. Looking at the figures, she eventually decided that with 30 years loan tenure, a monthly installment of S$ 2,416/- is a more comfortable amount for her with the current situation.

I shared with Jasmine that she can consider to either refinance her mortgage loan or do partial loan repayment so as to reduce the interests when her finances gets better.

Deferment scheme for your mortgage loan

On 31st March 2020, Monetary Authority of Singapore (MAS) announced that banks are allowed for deferment of mortgage repayments on individuals's residential property loans. There is also a choice to either defer the principal amount and/or principal amount + interests payment until 31 Dec 2020.

Chances of getting this deferment approved by the bank is high so long you are prompt with your loan repayments.

You can find out more here on the MAS measures and how these measures can help you to cope with any financial struggles that you may be facing.

Make use of low interest Home Equity Loan to cope financially

Home Equity Loan is similar to equity term loan, used for private properties in which the property's value has appreciated over time. Unfortunately, HDB owners are not eligible for Home Equity Loan.

This loan allows property owners to use the their property as a collateral , or rather the amount that has been paid for the property, to borrow money at a much lower interest rate. Keep in mind that the owner(s) will still be subjected to Total Debt Servicing Ratio (TDSR) under MAS regulations, when applying for this loan.

Taking this loan will increase your outstanding loan amount as well as your monthly installments, but this lump sum amount will be able to help to ease off some financial burdens during this period.

My client, Mr Chua, who works in the tourism industry and is badly affected by Covid-19) did an equity home loan recently.

Mr Chua purchased his first private property in 2008 at $900k, this property's current market value is $1.2 million. The outstanding loan for this property is $200k and his CPF usage for this property is $400k.

75% of 1,200,000 - 200,000 - 400,000 = $300,000/-

Using his property that has increased in value, Mr Chua can apply for a Home Equity Loan of $300,000/- to assist him financially.

There is this one very important consideration before taking up Home Equity Loan: only cash is allowed for the monthly installments repayment, no funds from CPF can be used.

TDSR waiver for owners with less than 50% loan on their property value

Under Monetary Authority of Singapore (MAS) regulation, all housing loans, loans secured by properties, and mortgage loan refinancing are subjected to Total Debt Servicing Ratio (TDSR). TDSR cannot exceed 60% of the borrower's monthly income. Borrowers will be subjected to TDSR when applying for mortgage loans.

This regulation restricted aged property owners and retirees who had intentions to monetise their homes for retirement through home equity loan.

In March 2017, MAS made an announcement , property owners who has less than 50% mortgage loans on their properties are exempted from the TDSR regulations. This came as a good news to retirees and aged property owners, especially those who have fully paid up their property.

With this exemption, property owners are allowed to draw out an equity loan amount of up to 50% of the property value, without fulfilling income or asset pledging requirements, or to include their children’s name as guarantors for the loans.

Downgrade or rent temporary

In the event that all the above methods cannot help you, the last option you may consider is to sell your current property and downgrade.

Ensure that proper financial calculations are done and only market your property for sale if the numbers makes sense for you to sell. The sales proceeds from the sale of your property can be used to purchase a smaller property and you will also have excess cash in hand as emergency funds for rainy days.

Remember, there is no rush in getting a property. Should you not find anything suitable, you can always temporary rent a place until you identify a good deal worth investing.

I hope my sharing of the methods has been helpful to you in a way or another. Do share my article with your friends, family , members or anyone you know who may be facing some difficulties this trying period, it may be helpful to them.

Circuit breaker is coming to an end soon. Stay safe!

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About The Author

Serene is the Senior Associate Director of Orange Tee & Tie and has been in the real estate business since 2013. Through the years, she has assisted many clients in their different property needs. Many of these clients eventually become her friends over the years, something that she is very thankful for.

She is a fan of TV serials, Hong Kong, Taiwan, not forgetting local productions too. Singing is her way of releasing stress, especially with her ktv khakis. Whenever she gets to travel, her number one choice is definitely Taiwan, the food and the shopping is awesome! :)

She is also a mother to two lovely girls , elder sister is a bubbly 7 years old girl with the younger one coming to the terrible 2 this year. They are both her pride and joy, the elder one often helps out in the little things such as folding mailers in Serene's real estate business too.