It started with a strange virus emerging from a city in China named coronavirus in late December 2019. We were entering 2020 on a good note and bam! A black swan event happened.
Nobody could have expected COVID-19 to hit the world in such a big way. In Singapore, fortunately, our government and health care system are doing a great job containing the virus.
Many sectors are hard hit in Singapore and you may be badly affected by what has happened in recent weeks. Through this article, I hope that you or someone you know will find the methods highlighted below helpful to cope with this challenging time.
1) Use Equity Loans from your property to provide temporary Cash Flow
If you own private or commercial properties and have an income (or have assets to pledge), you are eligible to take up a low interest equity loan. This can help you with some liquidity to tide over this period.
The retail, F&B, tourism and aviation sectors are hardest hit and if you are in these few industries, you may need to have ready cash for overheads.
HDB owners, however, are not able to use this method as the current regulations do not allow it.
Equity loans are almost as low as mortgage loan rates. They range from 1.3% to 1.7% currently. (This article is written in April 2020)
Even in the short term, as your installments increase, it provides immediate liquidity to relieve some immediate pressure.
You can use this sum of money to pay off higher interest rate loans such as car and personal loans to save money.
You have to note that you cannot use your CPF funds to repay your equity loan installments. The bank will only accept cash repayments.
From the past crises, margin calls on properties (unlike in stocks) are historically less likely to happen should property prices plummet.
2) Refinance Your Loans (to lower your borrowing interest rates)
Interest rates in Singapore have reached new lows as the US cut their rates to zero. Current mortgage loan rates are around 1.3-1.4%!
If you are eligible to refinance your loan, please do so to save on the interest! Check with your banker if you are unsure if you're eligible to refinance. Your banker may even call you to let you know you're eligible. This happened to one of my colleague's client who's still under a locked-in package. The bank called him up to refinance at lower interest rates with no penalties.
Give your bank a call anyway. Under the Covid-19 situation, banks may make exceptions even if you're in a locked in package.
3) Stretch Your Loan Tenure
Not many people know this: you can stretch the tenure of your loan till the borrower is 75 years old or 35 years max.
The advantage is it will greatly reduce your monthly mortgage payments but the disadvantage is that you will end up paying more interest over the long term.
You can refinance, stretch your loan tenure and take an equity loan at the same time. This will lower both your interest rate and your monthly repayments and provide you with liquidity for this crisis.
4) Principal Loan Interest or 100% Mortgage Deferments (for the time being)
MAS (Monetary Authority of Singapore) has given banks the go ahead to allow deferment of mortgage payments completely or choose interest or principal free mortgage payments until 31st December 2020.
You can apply for this if you have been timely with your loan repayments. Within this same announcement, there are also schemes to help small medium enterprises (SMEs) and individuals with unsecured loans to defer or lower the interest rates.
You can read more about it here.
5) Use the TDSR waiver for owners with less than 50% loan on their property value
MAS announced on 10th March 2017 that owners who has less than 50% loans on their properties are exempted from the strict TDSR regulations.
This allows retirees to monetise their homes (up to 50% of the property value) for retirement through equity term loans (without the need to fulfil income or asset pledging requirements; or to include their children's names as guarantors).
6) Sell and downgrade or rent temporarily
As a last resort, it may be best to survive this period with equity in your home by selling and downgrading. This reduces mortgage payments and have cash on hand.
If you cannot afford to buy after selling, you can always rent a place until your situation improves.
With the current crisis, renting may be cheaper than owning a property.
If you have a second private or commercial property, you can cash out and have a source of emergency funds.
If you do not know what to do, do drop me a note and I will be happy to help you come up with a plan free-of-charge.
If you know someone having a difficult time, you can share this article with them as it may help them in some way.
Do schedule a zoom call should you need any guidance.
May we emerge victorious and safe! #SGUNITED
About the Author, Susanna Wong:
Susanna has been in real estate since 2006. She has transacted many private properties including GCBs (Good Class Bungalows) and Sentosa landed properties and of course HDBs. She is married with two lovely girls, Sophie, 6 and Sage, 1. Her husband, Roger and her share an obsession for MMORPGs and scrabble. They met on OKCupid (dating app) while challenging each other on Words with Friends (iphone App game). She loves watching binge watching Netflix in her free time (very rare with two children!) with a tub of Ben and Jerry's.
