The Monetary Authority of Singapore (MAS) has announced yesterday that the loans used to refinance owner-occupied homes bought before 29 June 2013 will be exempted from the Total Debt Servicing Ratio (TDSR) cap of 60 per cent with immediate effect. This come as a relief for both banks and homeowners as the refinancing of mortgage loan would be made easier with a broader exemption from the TDSR threshold of 60 per cent. Previously, home owners who wanted to refinance their loans could only be exempted from the TSDR rule if they do not owned other property and had no other home loan.
The exemptions is applicable to owner-occupied residential and investment properties. However, there are additional requirements for an investment property borrower. The investment property borrower has to refinance the loan by 30 June 2017, and also commit to a plan to reduce the debt when refinancing the loan.
As for HDB flats and executive condominiums (ECs) that are owner-occupied and were bought before the implementation dates of their respective mortgage servicing ratio (MSR), the 30 per cent MSR will also not apply to the refinancing of loans.
The tweak in policy is triggered by feedback from borrowers who face difficulties in refinancing the loans for owner-occupied properties bought before the introduction of the TDSR rules. Most home loan offered by banks has a low teaser interest rates for the first two years of the loan to entice borrower to take up the loan. The interest rates would increase substantially after two years and many borrowers would refinance their loans with a new loan to enjoy paying the teaser rates, or opt for a fixed-rate loan if they feel that the interest rate is rising.
MAS is concerned about the financial prudence among borrowers. Last year, figures from MAS have shown that 5-10 per cent of Singapore borrowers were at risk of overstretching themselves and the proportion of "at-risk" borrowers might increase to 15 per cent if mortgage rates were to increase by three percentage points. This policy change is in line with TDSR framework to encourage financial prudence among borrowers.