The Covid-19 pandemic has hit people hard, and some sectors have taken the biggest hits, resulting in retrenchments. It has also resulted in the deepest recession Singapore has ever faced since independence – its impact on the property market will depend on how long the outbreak lasts and when it will be contained.
According to Dr Tan Tee Khoon, Country Manager for PropertyGuru Singapore, the property market will keep afloat as long as unemployment remains low and people are able to service their mortgages.
But what if you have had to cut down on work hours due to the lockdown, or worse, even lost your job or income stream? Not only will you be cash-strapped day-to-day, but you may face difficulties paying off debts like your mortgage.
What should you do? Should you seek payment relief or restructure existing loans? Or should you sell your property and purchase one with a smaller mortgage debt? We talk to property experts to glean their best tips for managing a mortgage in tough times.
First, take control of your finances by listing of all your financial commitments, advises Paul Wee, Managing Director of Fintech at the PropertyGuru Group.
“You cannot make any sound decisions without knowing where your true financial standing is,” he says. “Be realistic and honest when you are making this list.”
Next, work on reducing or eliminating all non-essential expenses. Start by breaking your list into two columns: Essential vs Non-Essential.
“A gym membership is an example of a non-essential commitment,” says Paul, “while your essential commitments are things like rent, internet charges and insurance.”
Another way to reduce your debt is to approach your bank to negotiate interest rates and repayment terms on your credit card or line of credit.
In April 2020, the Monetary Authority of Singapore (MAS) released a relief measure that allows Singaporeans or PRs who have lost at least 25 per cent of their income to convert their unsecured loan into a term loan. This term loan will have an interest rate capped at 8 per cent up to five years, which is about one-third of an average credit card’s interest rate. By converting to a loan with lower interest rate, you can effectively reduce your debt burden, says Paul.
(Read also “How Not To Let Covid-19 Ruin Your Financial Health“)
Rhonda Wong, CEO and Co-Founder of Ohmyhome, suggests paying off your mortgage with partial CPF and partial cash.
“It is advisable to keep some funds in your CPF account and not use all of it to pay down the mortgage, as you will not know when you may stop working,” she says. “Effective financial planning is important so that you will not over-leverage yourself.”
She also points out that if you notice an increase in your interest or mortgage installments, you should check whether you are out of the penalty period.
“An increase in interest would happen if the floating index has gone up due to market conditions or if you are out of the lock-in period, which means there is no more teaser rate,” she explains.
To help ease the financial burden brought about by Covid-19, MAS announced in March 2020 that individuals with outstanding mortgages can apply for up to nine months deferment on principal payments or/and interest payments on their housing loan repayments.
“However, given that loan deferment can only provide short-term relief to cashflow difficulties, mortgage-holders should weigh their options carefully before deciding on deferment,” cautions Paul. “Homeowners who can afford to pay for their mortgage repayment during this time should continue to do so.”
You can consider reducing your monthly repayments by taking advantage of the lower interest rates that have fallen substantially over the last few months. Make use of online mortgage calculators to help determine whether it makes financial sense to switch home loan packages.
According to Paul, the three-month SIBOR (Singapore Interbank Offered Rate, or the rate at which banks lend each other) has dropped from over 2 per cent to just above 0.5 per cent.
“This presents an opportunity for mortgage holders to explore refinancing their housing loans to gain favourable interest rates and reduce their monthly mortgage repayments,” he says. “Refinancing is something that all homeowners need to be aware of and explore once they are eligible to do so. It is prudent to re-evaluate periodically to ensure the mortgage is serving your needs optimally.”
Rhonda agrees that refinancing is an important practice that helps you to save on interest, but she warns that when doing so, there are legal and valuation costs which may add up in the thousands.
“New banks will usually subsidise the majority of these costs, depending on the size of the loan,” she says, “but you still need to ascertain the total savings for two to three years with this switch, compared to the current rate or repricing with the same bank.”
- Be frank with your lender
There’s no need to be intimidated by these figures, reassures Paul, as refinancing decisions have to be made with a cost-benefit analysis. At times, it may still make sense to refinance even when there are costs upfront. However, if you still find the monthly mortgage commitments challenging, approach the lender directly and have a candid conversation.
“It is important to be upfront about your financial circumstances,” says Paul. “In most cases, banks will work closely with borrowers to help them through this challenging period. No matter what you do, it beats doing nothing about your mortgage debt as your credit score will be affected and may lower your chances of getting a loan in the future.”
The last resort is to have to sell your home. Paul suggests first looking for alternate sources of income to help pay off the mortgage.
“Consider bringing in some side income by renting out extra rooms,” he suggests. “This is another way to maximise the earning potential of your existing property without having to sacrifice a great deal of your lifestyle.”
However, if you are still unable to handle the debt obligation, Rhonda says it may be more beneficial to sell the property and pay off the debt rather than to incur penalties and high interest costs indefinitely.
Paul agrees that if the overall financial commitments are overwhelming, it may make sense to sell your existing property and move into a smaller unit, be it a purchase or a rental. “Once the short-term financial issues are resolved, you can always move into a bigger home again later,” he says.
Impressions matter. While property value is associated with location and its surrounding amenities, the condition of the home can be a tie-breaker as well, says Dr Tan Tee Khoon.
“Make your home look bigger than it actually is,” he says. “Decluttering is a good way to make your space appear bigger. A neat and tidy house without a ton of furniture is less intimidating to prospective buyers. It also allows them to visualise how they can utilise the space and make it their own, helping to improve the odds of a sale.”
- Use the right furnishings
He also suggests installing a set of day and night curtains to allow light in when it is needed to create an inviting atmosphere while calculated use of mirrors and reflective surfaces will help bounce light around the room and visually double the space.
If you are putting your property on the market, a fresh coat of paint is a cost-effective measure that goes a long way in making your home look new and refreshed, adds Rhonda. Lighter and more neutral colours like white, cream and pastel are classic and timeless while naturally opening up the space.
In addition, Rhonda recommends investing in staging your home. “It may cost more, but it beautifies your space and makes a good impression with potential buyers,” says Rhonda. “Not only does it help to tidy up, but it also creates an inspiring, ‘show-room’-like home, which helps prospective buyers imagine a life in the property.”
- Fix any defects
Meanwhile, do not forget to make a list of minor defects and get them repaired pronto. For the property-seeker, a well-maintained house rates more highly than one that looks unkempt, says Dr Tan.
“Seemingly small issues like a toilet door with creaky hinges or a leaking faucet can impact the resale value of your home,” he points out. “Worn carpets, stained sofa cushions, rusty appliances, dirty grout and general clutter all make the property seem ill-maintained. Potential buyers will find it difficult to imagine themselves living there. First impressions count.”
This article was first published in The Singapore Women’s Weekly.