On 31 March 2020, Monetary Authority of Singapore (MAS) announced that home owners will be able to apply for a deferment of repayments and premiums for their property loans until 31 December 2020. This opt-in scheme is part of a new package to help to relieve the financial burden of borrowers during COVID-19.
Interest applicants have the option to defer either their principal amount, or both the principal and interest. Simply put, interest will only be charged on the deferred principal amount and not on the deferred interest payments. As long as the applicant is not due for payment for more than 90 days as at 6 April, banks will approve the request for a deferment. Moreover, applicants do not need to provide evidence that they have been impacted by COVID-19 to get the deferment approved by lenders. With this measure comes certain benefits:
Without needing to repay your loans for a few months, the extra cash can go towards immediate financial responsibilities. Debts with a higher interest rate than the property loan can also be repaid earlier to decrease the total repayment amount.
Compared to refinancing the loan, deferment of loan will help to increase the cashflow significantly. Therefore, during this period, deferment is a better option than repricing if you are looking to increase your cashflow.
Possibility of making a profit from investments
If the cashflow is not needed for immediate financial responsibilities, it can be placed in an investment fund to give you a higher return than that of the interest rate of the property loan. This way, you will be able to make a small profit from it. Be sure to note that investment comes with a certain risk and there are no guarantees of return.
Lowered risk of defaulting on loan
Taking up the deferment means that the chances of you being unable to repay the loan later on is lower. This will lower the possibility of you getting a bad credit rating, which will potentially affect your chances of getting a loan in the future.
However, if you are insistent on not wanting to defer your loan repayment, it might possibility lead to a default on loan if the economy still does not improve within months. This will lead to a lower credit score.
Even though a deferment on property loan might sound enticing, be sure to compare your available options before making a decision. Any deferment may incur additional future obligations in terms of additional interest payable and an extended loan tenure (MAS).
Individuals can also withdraw from the loan deferment scheme; subjected to approval from the respective banks. In the event where you do not need to take up a deferment, it would be best to not do so as deferment will result in a higher total loan amount for the property.
Contact Mortgage Consultancy now to get the smartest financial bank loan advice specifically for your home. We are able to provide more than 100 loan packages from 16 banks for you to compare and choose from! Feel free to contact us at +65 8556 5271 so that we will be able to help you make an informed decision, suited to your needs.