Mortgage Age Limit
“I am going to be over 65 next year and the government won’t let me avail myself of a housing loan after that.”
It is not true. There is no authority-defined upper mortgage age limit on borrowers, contrary to the popular perception that the Monetary Authority of Singapore (MAS) has set the mortgage loan age limit of 65 for borrowers.
The new guidelines by MAS have definitely sent many potential borrowers and Financial Institutions into thinking mode. Housing loan tenure is set at 30 years for HDB flats and 35 years for non-HDB properties, according to recent MAS announcements. Well, this is open to interpretation and many speculations have been flying around in the market.
That being said, borrowers’ maximum housing loan amount is determined by their age, loan duration, property type, and whether or not they have previous housing loans.
If the loan period extends beyond the borrower’s age of 65 years, or the loan tenure exceeds 30 years, apply the lower LTV limit.
The maximum amount a person can borrow from a financial institution (FI) for a house loan is determined by the loan-to-value (LTV) limit.
LTV refers to the loan amount as a percentage of the property’s value. For instance, if a person borrows $750,000 to buy a home worth $1,000,000, the LTV is 75%.
|LTV Limit||1st Housing Loan||2nd Housing Loan||3rd Housing Loan|
|LTV Limit for a tenure of 30 years (25 for HDB) or if the borrower’s age is greater than 65 at end of the loan||55%||25%||15%|
|LTV Limit: Non-Individual Borrowers or Shell Company||15%|
Let’s simplify this for you.
The maximum loan term for housing loans determines till what age you can apply for a mortgage. Obtaining a mortgage after the age of 40 is not difficult, although you may be asked more questions than someone younger for bank loan eligibility in Singapore. Standard mortgage products may become more difficult to obtain as you get older.
The standard current rules that are valid for Singapore housing loans are:
- Age Limit for Salaried Individuals: 21 to 65 years
- Maximum loan tenure can stretch to 35 years (applicable on refinancing too)
- There is a penalty for loan packages that are 31 to 35 years long.
Meeting these conditions allows you to get standard loan interest rates and if you break any of the applicable conditions, your loan percentage will be decreased. Here’s a breakdown of the limits in more detail:
1. Age Limit for Salaried Individuals: 21 to 65 years
While the lower age limit is non-negotiable, the cap on the upper mortgage age limit is subject to variable loan amounts depending on the current age.
Simply put, If the borrower is above 65 at the time the loan expires, the bank can only finance 60% of the home’s cost.
If the borrower is over 65 and has an outstanding home loan, the bank will only be able to finance 40% of the home’s cost.
This loan age is only applicable to new house loans, not refinances.
Let’s say if you’re 60 years old, have another home loan to pay off, and want to buy a second property for investment purposes. Any bank will give you a maximum loan term of 5 years if you want to get a 60% loan-to-value (65 less the current age of 60). If you opt for a longer loan term, your loan-to-value ratio will be reduced to 40%.
Again, banks have a maximum age for housing loans in Singapore of 70 or 75 years, implying that the maximum loan term is 15 years (75 less the current age of 60). In this scenario, a 15-year loan term (the absolute maximum) results in a loan-to-value ratio of 40%.
2. Maximum loan tenure can stretch to 35 years (applicable on refinancing too)
No home loan can last more than 35 years. On all loan packages, this is a non-negotiable cap. This is also true when it comes to refinancing.
Assume you took out a 40-year loan from Bank X before this ruling was passed and have been servicing it for the past seven years. Now if you looking to refinance it through Bank X, your new loan package’s maximum term will no longer be 33 years, but rather 28 years (35 minus 7).
Keep in mind that you can refinance past the 65-year retirement age limit or the 30-year loan term limit without paying a penalty. Banks, on the other hand, will still set a “max-age” until which you can service the loan (typically 70 or 75 years of mortgage age limit).
3. There is a penalty for loan packages that are 31 to 35 years long
Limit your loan tenure to 30 years and you can avail all standard loan facilities. But if you want to extend your loan from 31 to 35 years, you will incur a penalty.
What it means is that the bank can only finance 60% of the home’s cost if the loan term is between 31 and 35 years, regardless of the maximum age for a housing loan in Singapore.
The bank can only finance 40% of the home’s cost if the loan term is between 31 and 35 years and there is an outstanding home loan. This is true regardless of what age the borrower is there is no mortgage age limit applicable.
This is only applicable to new house loans, not refinances.
Is it really that simple?
When putting it like that, the rulings appear simple enough. But there are some real-life scenarios especially including refinancing that come in that grey area and require a little more interpretation.
Alternative banks will give you two different interpretations of the refinancing rulings in the following example:
Say you took out a home loan with Bank X two years ago when you were 48 years old, before the ruling. The MAS age restriction did not exist at the time, and Bank X had a bank loan eligibility of 75-year-old age limit.
As a result, you could choose a loan term of up to 27 years (75 less the current age of 48).
So if we calculate it to the present time, you have been repaying Bank X for the past two years (hence the remaining loan tenure is 25 years). Now you want to refinance into Bank Y, which has a 70-year mortgage loan age limit, in order to take advantage of greater interest rates.
The question that arises is: What is the maximum loan tenure you can get when refinancing with Bank Y?
Ideally, Bank Y would arrive at a maximum loan term of 20 years (70: the maximum age restriction minus 50: your present age).
It is sufficient to say that the refinancing is unaffected by the new rules here.
It may be true that you have crossed the age limit but the age restriction only applies to new loans and does not apply to refinancing. Even so, if you count the 2 years already servicing with Bank X, the overall loan term would be 22 years (20 plus 2), far inside the 35-year limit.
This is the strategy that the majority of banks employ for bank loan eligibility in Singapore. This is something we at Home Loan Whiz also agree with. A small number of banks, however, will respond differently.
However, if Bank Y is one of a small number of banks, they may argue that your loan term should be limited to 18 years and not 20. The following is their interpretation:
Age restriction of 70 years minus current age of 50 years equals 20 years. You did, however, previously serve a two-year debt with Bank X. These two years must be removed from the new loan package, leaving you with an 18-year maximum loan term.
The new MAS guidelines are interpreted by these banks as “the loan tenure you qualify for minus the years you’ve already spent servicing it.”
For most individuals and households, property loans can be huge, long-term liabilities. Maximum loan tenures, mortgage age limits, and amounts help to guarantee that borrowers do not overextend themselves while buying a home.
The goals of the housing loan rules are to:
- Encourage borrowers to be financially prudent.
- Prevent borrowers from getting around LTV and TDSR limitations.
- Ensure the financial well-being of the household for the long run.
- FIs should improve their credit underwriting requirements.
- Ensure the property market’s long-term stability.
In conclusion, if you’re looking to refinance your mortgage, don’t be shocked if different banks offer you different maximum loan terms.
To avoid this confusion, our loan experts at Home Loan Whiz will guide you through the complete process and help to negotiate clear terms with the financial institutions that work best for your interest.