Borrowing money against property easier now for retirees

The Government is relaxing loan limit rules for anyone wanting to borrow money using their residential property as collateral.

It is tweaking the total debt servicing ratio (TDSR) framework which stipulates that all of a borrower’s debt repayments – including mortgage, credit cards and car loans – should not top 60 per cent of monthly income.

The move is set to help retirees, along with others wanting to cash out using the value of their home.

To date, the TDSR has applied to drawing down loans against the value of a home – known as mortgage equity withdrawal loans.

Under the change, the TDSR will no longer apply to such loans where the ratio of the loans, including any existing loans, to the property’s value is 50 per cent or less. For example, a person with a $1 million home and a $100,000 outstanding housing loan can borrow up to $400,000 – that is, up to half the $1 million value of the property.

Under the old rules, he would also need to have ensured that his total debt servicing did not exceed 60 per cent of his monthly income, but this is no longer applicable. However, if the person in this example wants to borrow more than $400,000, he would not be exempt from TDSR.

The Government said in a press statement yesterday that “some borrowers have given feedback that the TDSR framework has limited their flexibility to monetise their properties in their retirement years”.

“The Monetary Authority of Singapore will therefore relax the rules to meet such needs,” it added.

Mr David Baey, head of mortgages at MoneySmart.sg, said that the number of such loans has been very small to date, at about one to two of every 100 loans he negotiates.

Such borrowers tend to use the loans to start businesses, send their children overseas for studies, or to make other investments such as stocks, he added.

Mr Desmond Sim, head of CBRE Research for Singapore and Southeast Asia, said the change would “likely promote property purchases only by asset-rich individuals”, which are a small portion of property owners.

A DBS spokesman said the move gives home owners, especially the semi-retired or business owners, an added option to generate cash flow.

“A mortgage equity withdrawal loan is still a mid- to long-term financial commitment which requires monthly loan repayments. Home owners need to fully understand their needs and think how they will be using this increased cash flow,” he added.

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