Continuing with the last article, this week we will be sharing about Mortgage Servicing Ratio (MSR) and Total Debt Servicing Ratio (TDSR).  These two ratios are a measurement of individual’s credit repayment ability and rating.

The Mortgage Servicing Ratio (MSR) is a percentage measurement of borrower’s income to the amount of repayment for all mortgage loans, inclusive of the loan being applied for. Currently it is being capped at 30% of borrower’s gross monthly income and the MSR only applies to housing loan for the purchase of an HDB flat, or an executive condominium whereby the minimum occupancy period of the executive condominium had not been met. This is put in placed to ensure that the borrower’s financial is not over stretched with a huge portion being used for mortgage repayment.

Financial Institutions will take into consideration these factors when calculating MSR:

1. All of borrower’s property loans.
2. If the borrower is a guarantor to any property loan, a minimum of 20% of the monthly debt obligation for any property loan.

The formula for calculating the borrower’s MSR are as below:

(Monthly repayment instalments for all property loans / Gross monthly income) x 100% = lesser than 30%

The Total Debt Servicing Ratio (TDSR) refers to the percentage of the borrower’s gross monthly income that goes towards repaying of monthly debt repayment for all loan obligations inclusive of the loan being applied for. A borrower’s TDSR should not exceed 60%, as that is maximum threshold set by MAS. Borrowers whose TDSR exceeds the threshold may still be granted property loans by the FI on an exceptional basis which will be subjected to enhanced credit evaluation.

TDSR is put in placed to ensure that borrowers are not over-leveraged for property purchase which are likely to be large long-term liability for most individuals. This guideline helps to encourage financial prudence among borrowers, while strengthening the underwriting practices of FI which will ensure the long-term sustainability in the property market.

As property purchase are large tickets purchase and usually requires long-term commitment, it would be wise to exercise more caution in planning your finances before committing to a property. Should you feel lost and need professional advice on your personal finances, you may book a session with our consultant for an in-depth understanding of your financial foundation before you make any life long decision.

Reference: https://www.mas.gov.sg/regulation/explainers/new-housing-loans/msr-and-tdsr-rules

Disclaimer:  All information are for informational purposes only and should not be relied upon as financial advice.

Many often wonder what a person should possess during retirement or pre-retirement. I would like to share with you some treasures which you should have. I have to admit the list below is not exhaustive and it may vary according to individual’s unique circumstance, but can serve as a framework for you to work out a list to suits your lifestyle and circumstances.

1. Fully Paid-Up Home

You will not have to worry about a roof over your head. You may argue you can rent. Unless you rent direct from HDB which comes with a host of conditions and restrictions, you would have to consider the probability of your landlord revising the rental upward regularly which will affect your budget.

2. Stable retirement income

a.      Important to plan your CPF. You should try to top up as much as you can, so you can have the highest CPF Life pay out possible. How much you have in your CPF is intentional, it does not happen accidentally;

b.      Layer your retirement with other sources of income apart from CPF Life. If you are before 50-year-old, you may consider investing in an annuity to give you a better outcome, just to name one. At the same time, you should avoid low liquidity and/or high volatility investments when you are in retirement. Low liquidity means it takes time to liquidate your investment, and high volatility means your investment could be under water when you need to divest. As a result, the former will result in not having the money on time and the latter means you will have to take losses when you divest.

3.      Emergency Money

There will be occasions when your household appliances will need replacement, or you need to fix a leak in your house. Your regular income from CPF, and annuity may or may not be enough for you to buy a replacement or to fix a leak. Emergency cash is a place where you can draw down to finance your purchases/expenses.

 4.      Protection

a.      If you can afford, try to have an entry level Integrated Private shield plan and a rider to cover as much out of pocket hospitalisation expenses as possible like co-insurances. You will be amazed how much out of pocket expenses you have to pay if you are not eligible for Pioneer or Medeka Generation subsidies;

b.      Do not surrender your existing life insurances if you have them. This is so that your loved ones can be taken care of when you leave them prematurely during retirement and to finance your afterlife arrangement.

c.      Long term care insurance like Care Shield and Eldershield. Although their pay-out is not much, they can help to soften the impact of long term care expenses.

5.      Younger friends and exercises/work place friends

a.      It is inevitable that you will find your peers leaving you one by one during retirement and it would be very depressing to find your social circle shrinking as you grow older. This will take a toll on your mental health. Join social/exercises clubs, churches fellowships and make friends with younger people. Keep making new friends so that your social circle will not shrink. Imagine you have a pool of 6 mah-jong kakis and they leave you one by one. Soon, you will find that you cannot have the numbers to start a game without new additions constantly. Sounds morbid but it is real;

b.      Keep yourself engage physically. It will improve your mental and physical health. It will also help you fill your days with activities. Don’t do this alone, do it with friends and get your friends’ friends to join too. You will overcome the reality of shrinking pool of friends. 

6. Budget

You should have a budget to keep tab on your incomings and outgoings. You must remember you no longer have a salary to rely on. Whatever extra you are spending beyond your CPF and annuity (if you have one) pay out or other investment income, they will have to come from your cash hoard or reserve. With the current low interest rate environment, they can be depleted more quickly than you realise.

7. Knowledge

Keep yourself curious, learn new skills and acquire new knowledge. It will keep your mind sharp, and you are less likely becoming a successful target for con artistes.

8.      Finally, have your Will, Living Power of Attorney (LPA) and Advance Medical Directive (AMD) done. They are actual quite simple to do.

a.      A Will is to make sure you distribute your assets to the people you want and do not subject your loved ones to the process of intestacy which can be very time consuming and tedious;

b.      LPA will enable your trusted one to take care of you and your assets when you are no longer mentally capable;

c.      AMD is to “give legal effect to, advance directives to medical practitioners against artificial prolongation of the dying process….” (ADVANCE MEDICAL DIRECTIVE ACT (CHAPTER 4A) It is also to relief your loved ones the burden that comes with making medical decisions during those difficult moment. I am very sure no one wants to hear “you should have tried and let him live, maybe a miracle could happen…………….” if you must make the decision to flip the ventilator’s switch.

Please WhatsApp me at 8750 8966 if you wish to speak with me how to plan your finances before retirement.

Ray Ng 30^th September 2021.

Disclaimer:  All information are for informational purposes only and should not be relied upon as financial advice.

The recent Evergrande saga had send fear not only within China but also out of China. It also serve as a timely reminder to many the impact of over-leveraging. This incident does highlight the general inclination towards property buying. Buying a property has to be one of the biggest ticket item that most Singaporean would buy in their lifetime.

Thankfully in Singapore there are guidelines set in place by the authorities to ensure that we do not over-stretched our finances in the process of house buying. Apart from that, the objectives of the guidelines are also to strengthen credit underwriting standards of Financial Institutions so as to ensure the long term stability of the property market.

The few guidelines that we would be sharing for this article is Loan Tenure and Loan-to-Value (LTV).

The maximum loan tenure for housing loan is capped at 30 years for HDB flats and 35 years for non-HDB properties. This is to ensure that the borrower’s ability to repay the loan is well within their means and preferably does not extend beyond the borrower’s productive years where they have financial income. For would-be house buyer if a property purchase requires you to take on a housing loan that exceeds 30 years for HDB flats or 35 years for non-HDB properties, you could review your finances and see if you are able to fork out a higher down payment so that your housing loan is within the loan quantum and loan tenure. If you are having difficulties striking a balance in this aspect, chances are you are stretching your finances and might run into difficulties in the future by over-leveraging.

Loan-to-Value (LTV) limits help to ensure a borrower does not over-leverage by borrowing for few property with low down payment. For a borrower that has no outstanding housing loan, they have a LTV or 55% or 75% with minimum cash down payment of 10% or 5% respectively. For a borrower that have 1 outstanding loan, they have a LTV of 25% or 45% with minimum cash down payment of 25%. While a borrower that have 2 or more outstanding loan, they have a LTV of 15% or 35% with minimum cash down payment of 25%. If the loan tenure exceeds 30 years (or 25 years for HDB flats) and or the loan tenure extends beyond the borrower’s age of 65 years, the lower LTV will be applied in each of the qualifying situation. This helps ensure that the borrower that purchase more than 1 property for investment purposes do not over leverage and expose themselves to any unnecessary risk. The LTV limit is capped at 15% if the borrower is not an individual or a shell company.

There are few other guidelines that we will be sharing in the next article. While there are many financial decisions that we will have to make in our journey of life, you are not alone on this path. There will be people before us who have similar experience or peers who are currently walking this path unknown to us, as a matter of fact you are not alone and if you are feeling lost you could reach out to us for an enriching session as we have peeps who are in their 30s, 40s and 50s. One of us are either your peers and are on similar progress as you or have walked the path before and had accumulated their own experience.

Reference: https://www.mas.gov.sg/regulation/explainers/new-housing-loans/loan-tenure-and-loan-to-value-limits

Disclaimer:  All information are for informational purposes only and should not be relied upon as financial advice.

Any one of us could be hit with a major negative event that could affect our finances. This includes job loss or severe pay cut, a major illness, a car accident, or even a pandemic that we are experiencing now. Planning and managing our personal finances correctly can help us to tide through any crisis with less stress. The following should be done even before any crisis hits.

1. Reduce expenses

A) Pay off credit card debt or personal loans with high interest rates as soon as possible. The high interest rates consumes your cash flow faster than you can imagine.

B) Refinance Mortgage. Interest rates are very low at about 1% per annum. You can potentially save thousands of dollars per year when you refinance your mortgage.

C) Have a budget and stick to it. Cut down on unnecessary expenses such as expensive meals at restaurants or gym membership.

D) Reduce taxes by contributing voluntarily to CPFSA and/or Supplementary Retirement Scheme (SRS). These can save you thousands of dollars in taxes every year.

E) Not committing more than 50% of your monthly surplus to financial products that require long term commitment. This principle, coupled with other expense reduction strategies, has helped our clients to sail through the current pandemic without much difficulties in premium payments.

2. Build emergency funds

One of the rules of thumb for financial planning is that we should set aside three to six times of our monthly expenses as emergency funds. Since a few years ago, I have advised some of my female clients to set aside twelve times if they want to. These are the reasons:

A) Female clients are generally more conservative and they feel a greater sense of security when they have more money in their bank accounts. While the bank pays negligible interests, having that sense of security (without having excessive idle money) outweighs the cons of inflation.

B) Employment market was not as rosy and could worsen. Hence it may take more than 6 to 12 months to find another job with similar pay in the event of retrenchment.

C) Rules of financial planning are just a guide. We should adapt according to market conditions and create customized plans based on individual client’s situation and profile.

After setting aside the required emergency funds, the rest of the money should be put to work in savings and investment programs that can earn higher interest rates. This is to accumulate for retirement and other financial goals that you have.

3. Have comprehensive, yet not excessive insurance coverage

Having comprehensive insurance coverage can prevent one crisis from piling on top of another. The last thing we want to worry about during a crisis is finances. It is also important to ensure that coverage is not excessive nor redundant which can result in you making too much for insurance. This can help you to reduce your expenses. Conducting insurance portfolio audits at least once a year ensures that your portfolio is streamlined and efficient.

4. Increase income

There are 2 main approaches to increasing income – pay raise and/or building multiple income streams. If you have a full time job, devote after work hours to improve yourself so as to prepare yourself for bigger roles. This would allow you to command a higher pay. At the same time, you may consider building other income sources through:

A) starting a side gig,

B) selling digital products or items online, 

C) investing for dividend yields.

The list is non-exhaustive. The only limitation is our creativity and mindset.

Our consultants come from diverse backgrounds with unique experiences and wealth management strategies. Arrange a zoom session with one of us to help you build a crisis proof and resilient portfolio.

Disclaimer:  All information are for informational purposes only and should not be relied upon as financial advice.