Updated on December 17, 2023 by admin
Most homebuyers need to get a loan in order to cover the price of the property they want to buy. The Loan-to-Value (LTV) ratio is a major factor that lenders use to set the maximum loan amount they will provide.
Anyone in the market for a home loan would do well to familiarise themselves with the LTV ratio since it affects both the required down payment and the interest rate.
You should research the Loan-To-Value (LTV) limitations that may apply to you in Singapore before applying for a mortgage loan from a bank or FI. The greatest amount of a house loan you may get in Singapore is capped by the LTV limit, so you’ll need to have some cash on hand or CPF savings ready before you commit to buying a home there.
The Singaporean Ministry of Finance (MOF), the Monetary Authority of Singapore (MAS), and the Ministry of National Development (MND) jointly announced tighter LTV limits of 5%-points on all housing loans granted by FIs on July 5th, 2018.
On the 15th of December, 2021, the MND, MAS, and MOF announced further cooling measures to ensure housing remained affordable. The private residential property market was also adjusted by the government to reduce overall demand, particularly from investors buying a second or third home.
In an effort to promote more savings, the HDB and private home finance conditions have been tightened via the measures. Both private and public housing will see an increase in supply from the government in 2022.
The loan-to-value (LTV) ratio is the maximum amount that may be borrowed in relation to the value of the property. For a home worth $1,000,000, for instance, you would be able to borrow no more than $750,000 from the bank, given an LTV ceiling of 75%.
The maximum loan-to-value ratio (LTV) for an HDB loan will decrease from 90% to 85%, the government said on December 16th, 2021. The HDB loan LTV ceiling drops from 85% to 80% on September 30, 2022, barely 9.5 months later. Here, we will discuss the Loan-to-Value (LTV) ratio in detail, explaining all you need to know about it.
What is Property Loan-To-Value (LTV) ratio?
LTV is a ratio calculated by dividing the loan amount by the property’s estimated value at closing. It is a percentage derived by dividing the total loan amount by the appraised property value. The loan-to-value (LTV) ratio would be 75% if the purchase price of the property was $300,000 and the loan amount was $300,000.
Loan-to-value (LTV) ratios have a major effect on the circumstances under which borrowers get mortgage financing. When the LTV ratio is high, the lender takes on more of a financial risk. Therefore, lenders may demand mortgage insurance or increase interest rates on loans with a high LTV ratio. Conversely, a lower LTV ratio may lead to a cheaper interest rate and looser borrowing criteria.
The best loan-to-value (LTV) ratio will change based on a number of variables, such as the lender’s guidelines, the borrower’s credit, and the market value of the property. Most financial institutions set a maximum Loan-to-Value (LTV) ratio of 80%. A minimum deposit equal to 20% of the property’s worth would be required. For first-time purchasers or those with great credit, however, certain lenders may be willing to provide loans with higher LTV percentages.
Factors Affecting Property Loan-To-Value (LTV)
The loan amount you’re approved for and the interest rate you’re charged are both affected by the loan-to-value (LTV) ratio of the property you’re financing. If you have a solid understanding of these elements, you will be better equipped to negotiate the terms of your mortgage. Loan-to-value (LTV) ratios are affected by a number of variables, some of which are as follows:
Property Value
One of the most important aspects that will influence the LTV ratio is the value of the property you are buying. A greater loan amount will be required to acquire a home with a higher value. As a consequence, your LTV ratio may increase, which may affect the interest rate extended to you.
Deposit Size
The LTV ratio will also be affected by how much money you have available for a down payment on the home. The bigger the down payment, the lower the loan-to-value ratio and the cheaper the interest rate may be. Depending on the borrower’s credit history and the value of the property, the minimum down payment might range from five to twenty percent of the purchase price.
Credit Score
Your credit score is another essential criterion that lenders evaluate when establishing the LTV ratio and interest rate for your property loan. A strong credit score might boost your chances of receiving a loan with a lower LTV ratio and a cheaper interest rate. Conversely, a bad credit score might result in a larger LTV ratio and higher interest rates.
Loan Term
The LTV ratio and interest rate on your property loan may also be affected by the loan period. The LTV ratio and interest rate may increase with a longer loan period, whereas the inverse is true for shorter loan durations.
Employment Status
The LTV ratio and interest rate for a property loan are calculated in part based on the borrower’s employment situation. A higher interest rate could be provided to you if you are self-employed or get an irregular income.
Property Type
The LTV ratio and interest rate for the loan might also be affected by the sort of property you are buying. Loan terms and conditions may be affected by a lender’s policy about a certain property type, such as a policy regarding apartments vs a policy regarding a rural home.
Loan Purpose
Finally, the LTV ratio and interest rate might be affected by the loan’s intended use. A greater LTV ratio and interest rate, for instance, may be applied to loans for investment homes as opposed to loans for primary residences.
As a whole, these considerations affect the interest rate you’ll be given and the required down payment amount. Finding a loan that works for your situation and your finances is possible with little digging and comparison shopping.
Conclusion
Many variables affect the loan-to-value (LTV) ratio of a property, including the value of the property, the amount of the down payment, the borrower’s credit, the length of the loan, the borrower’s income, the property’s kind, and the loan’s intended use.
You should think about these things before applying for a mortgage since they affect the amount of money you may borrow and the interest rate you pay. Finding a loan that works for your situation and your finances is possible with little digging and comparison shopping. Over the course of the loan’s duration, you will save more money if your LTV ratio and interest rate are both low.
I’m hoping the above illustration helped you better understand the maximum Loan-to-Value (LTV) allowed when purchasing real estate in Singapore.
If you’re looking for advice on your first or subsequent home purchase and want to know how loan-to-value (LTV) limitations can affect you and what you can do to acquire a higher LTV limit, please feel free to contact me for a pleasant, no-obligation talk.
