Loan-To-Value (LTV)

Factors that affect your maximum Home Loan (Loan-To-Value)

In this article, we will discuss the Loan-to-Value (LTV) of Home Loan for Private Property(Singapore’s new condo launch or resale condominium). LTV is a factor that will determine the maximum loan percentage base on the property’s market value. For example, if your LTV is at 75%, your maximum Home Loan will be $750,000 from any financial institution (FI) for a property that is $1,000,000 in value.

It is to our best interest to know our budget before we start house hunting. However to know the initial fund outlay to purchase our ideal house, one of the elements that we need to know is our LTV. This will more or less determine our loan amount and our initial fund outlay.

On 5th Jul 2018, LTV was tightened by an additional 5% as part of the cooling measures package to ensure the sustainability of Singapore property market growth.

As quoted by Minister of National Development, Mr. Lawrence Wong :

“Government intervention is necessary to prevent bubbles from forming and to achieve a stable property market. He noted that property prices would have soared by up to 10 to 15 percent had the government not introduced the latest measures”

3 factors will determine the LTV limit for the purchase of a private property. The 3 factors are :

  1. Loan Tenure
  2. Borrowing age
  3. Any existing home loan

Loan Tenure

We are allowed to stretch our loan tenure up to a maximum of 35 years in Singapore. However, if the loan tenure is more than 30 years, the LTV limit will be lower than those with a loan tenure of 30 years and below.

Borrowing age

Borrowing age in conjunction with loan tenure will determine the LTV limit. For joint borrowers, borrowing age will be calculated using Income-Weighted-Average-Age (IWAA). The result of IWAA will be round up to determine the actual borrowing age. The formula for IWAA is as follow :

B1=Borrower 1, B2=Borrower 2

IWAA = (B1’s Age * B1’s gross monthly income / (B1’s gross monthly income + B2’s gross monthly income)) + (B2’s Age * B2’s gross monthly income / (B1’s gross monthly income + B2’s gross monthly income))

Here is an example that illustrates how to calculate the borrowing age.

Example 1

Peter is 45 years old with a gross monthly income of $5,000 that are want to purchase Parc Central Residences.

His wife, Mary is 40 years old with a gross monthly income of $3.500

Their IWAA is

(45 x $5,000 / ($5,000 + $3,500)) + (40 x $3,500 / ($5,000 + $3,500)) = 26.47 + 16.47 = 42.94

The IWAA for Peter and Mary is 43 years old (round up from 42.94).

To enjoy the full 75% LTV limit (current maximum LTV limit set by Monetary Authority of Singapore (MAS)), The loan tenure must be 30 years and below and the loan tenure plus the borrowing age cannot exceed 65 years old.

For Peter and Mary’s case, they can enjoy a 75% LTV limit for a loan tenure of 22 years (65-43 = 22). This translated to higher monthly housing installment compare to the younger borrowers with a lower borrowing age. The ideal borrowing age is 35 years old or younger as they will be able to get a loan tenure of 30 years and also enjoy the maximum 75% LTV limit.

Existing housing loan

The last factor that will decide your LTV limit is the number of existing housing loan you are servicing now. Assuming your borrowing age is 35 years old, loan tenure is 30 years and do not have any outstanding housing loan. Your LTV limit will be 75%. However if you are currently servicing 1 housing loan, your LTV limit will drop to 45% and 35% if you are servicing 2 or more housing loans.

Loan-To-Value (LTV) flow chart with effect from 6th July 2016

It is extremely important to know your LTV limit before committing to a purchase to avoid disappointment or even the financial penalty. Our consultants are able to do the financial calculation for you to determine your total fund outlay and your budget before shortlisting your potential dream house for you. Do fix a free consultation session with us to understand how can a detailed financial calculation help to better manage your risk management while pursuing to own your dream home.