Mortgage Glossary

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Accrued Interest

Interest calculated and added to the interest amount payable, but which is not yet paid.

Amortization

Scheduled repayment of a loan through regular instalments over a period of time (e.g. weekly, fortnightly or monthly repayments over a 30 year term). The borrower pays the interest and part of the principal in each repayment.

Annual Value

Annual Value (AV) of a property is the estimated annual rent of the property, excluding the rent for furniture, fittings and service charge. The Income Revenue Authority of Singapore (IRAS) determines the AV of the property by analysing rents of comparable properties.

Approval-In-Principle (AIP)

Approval-In-Principle (AIP) is an approved loan amount given by the Bank based on the credit report and affordability of the borrower. It is not a binding document and is subject to the property valuation and other checks in the application process. It is typically valid for 30 days.

It is advisable to know your AIP loan amount before committing to a property.

Arrears

The total of over-due loan repayments.

Borrower

Borrower(s) refers to the person(s) that is/are taking the home loan from the Bank. All owner(s) of the pledged property (mortgage) is/are borrowers. However, not every borrower is a mortgagor. A non-owner may be included in the loan application as a co-borrower to fulfil the loan requirements.

Bridging Loan

A short term loan that covers a financial gap between the purchase of a property and the sale of a current property. Bridging Loan can be taken for the required cash down-payment for the new property before cash proceeds is received from the sale of the existing property. A bridging loan can be used for the payment of stamp duty and legal fees as well.

Cancellation Fee

Cancellation Fee is payable when the loan is cancelled before it is disbursed.

Cash-back

“Cash-back” arrangements occur when the buyers, sellers and housing agents agree to increase the declared purchase price so as to enable the buyers to take a higher housing loan and/or to withdraw more CPF savings. These arrangements are supported by valuation reports, which are also on the high side.

Such “cash-back” arrangements are illegal. We do not advise this as it is not beneficial for both buyers and sellers. For buyers, they have to take a larger loan and this means larger monthly instalments which will affect both their cash and CPF savings (if they are using CPF funds to pay). The buyers are also subjected to higher stamp/legal fees which are computed based on the purchase price. Sellers are liable for a higher resale levy based on the declared resale price if they subsequently purchase another subsidized flat directly from HDB.

Caveat

A caveat is a notice of a claim in interest to the property. Once the buyer has paid the deposit for the property, his/ her lawyer will lodge a caveat with the Singapore Land Authority (SLA). On occasions where there is more than one claim to the same property, the time when the caveat is lodged is crucial because it shows who the first claimant to the property is.

Certificate of Statutory Completion (CSC) / Temporary Occupancy Permit (TOP)

Certificate of Statutory Completion (CSC) / Temporary Occupancy Permit (TOP) is issued by the Commissioner of Building Control to a building project when the building works are completed. The building can only be occupied when a CSC or TOP is granted. Application may be made directly for a CSC when all the requirements have been complied with. Otherwise when only certain requisites are complied with, application for a TOP may be made first before finally complying with all requirements and obtaining CSC. CSC is usually issued one year after TOP.

Claw-back / Refund Period

Claw-back / Refund period refers to a predetermined number of years the borrower is liable to refund the Bank for the cost of subsidies received from the Bank if the borrower cancels the loan. These would usually be the legal subsidy valuation fees and fire insurance premiums.

Collateral

Collateral is the property you secure against your home loan.

Completion of sale and purchase

Completion of the sale and purchase of a property takes place when the seller / developer conveys legal title of the property to the buyer.

Construction Loan

Construction Loan is a short-term loan for financing the construction of a new property, reconstruction, addition or alteration of your existing property.

Conversion/ Reprice

Conversion refers to the act of transferring your existing loan package to another within the same Bank.

Covenant

Imposes conditions on the use of, or the nature of the dwellings erected on, a parcel of land.

CPF Housing Withdrawal Limit

CPF Housing Withdrawal Limit involves two types of limits, Valuation Limit (VL) and Withdrawal Limit (WL).

Valuation Limit (VL)

Valuation Limit (VL) is the lower of the purchase price of the property, and the value of the property at the time of purchase. Owner(s) can use the Ordinary Account (OA) savings up to the VL to buy the property and/or pay the monthly instalments of the home loan, without having to meet any condition on the CPF balances.

It is possible for your housing loan to be outstanding when your CPF withdrawal has reached the 100% VL. This is largely because you are using CPF to pay both the home loan’s principal amount as well as the interest charges. The higher the interest on the home loan, the faster the 100% VL will be reached.

Withdrawal Limit (WL)

Withdrawal Limit (WL) is the maximum amount of CPF beyond the VL that the owner(s) can use for the property. Once the WL is reached, no further withdrawal of CPF is allowed. From 2008 onwards, the WL is 120% of VL.

The WL is the available CPF OA balances less the prevailing Minimum Sum cash component.

Credit Report

Credit Report is the information provided by Credit Bureau (Singapore) Pte Ltd based on the borrower’s credit payment history. The Bank will check the credit report to assess the borrower’s credit-worthiness before deciding whether and/or how much to lend.

A good credit repayment history will make it easier for you to obtain credit and qualify for loans. For a fee, it is possible to obtain a listing that details your credit history.

Debt Service Ratio (DSR)

Debt Service Ratio is the ratio-of-debt over take-home income, expressed in percentage. The lower the ratio, the healthier is your finances. Depending on the type of property, employment and income level, the loan will be rejected if the DSR is too high. The DSR recommended by the CPF Board is 35%.

DSR = Debts / Take-home Income

Default

Default refers to the failure of the borrower to meet the requirements of the home loan or to repay the monthly instalments on time for more than a few months (depending on the conditions of the loan). Once a Notice of Default is issued, the property that was pledged as collateral may be re-possessed by the Bank.

Delinquent

Delinquent refers to the failure of the borrower to make payments by the due date. The Bank may issue a Notice of Default after the borrower is delinquent for a few months.

Once a Notice of Default is issued, the property that is pledged as collateral may be re-possessed by the Bank.

Down-payment

Down-payment refers to the upfront lump sum payment that is paid when you purchase the property.

Early Redemption (Partial or Full)

Early redemption refers to the repayment of the loan (principal and interest) before the maturity of the loan. There are two main types of loan redemption, partial redemption and full redemption.

Before taking a loan, please check with bank the fees and charges that are attached to the loan.

Equity

The amount of an asset not subject to any Lender’s interest e.g. property worth $300,000, with a mortgage loan of $150,000 – equity is $150,000.

Equity Loan

Equity Loan is a second loan taken on your existing private property that has appreciated in value. There are no restrictions on how you use the funds. CPF monies cannot be used for repayment and the loan will only be released after the mortgage has been registered (i.e. it will not be released together with your home loan).

Please note that it does not apply to HDB.

Fire Insurance

Fire Insurance typically provides insurance cover for loss and damages to your property caused by fire. It is compulsory for Housing Development Board (HDB) flat owners to purchase fire insurance. Although it is not compulsory for private property owners to purchase fire insurance (unless taking a home loan from the Bank), it is advisable that they do so to protect their property.

Before committing to an insurer, do make sure the terms in the policy provide adequate coverage for your property.

Guarantor

Guarantor refers to the person who agrees to be responsible for another person’s mortgage in case of default.

Home Insurance / Mortgage Reducing Term Assurance (MRTA)

Home Insurance protects the borrower’s family from losing the home should the borrower becomes mentally/physically disabled or pass away before the home loan is fully repaid. The Central Provident Fund Board (CPF) Home Protection Scheme is compulsory for all HDB flat owners who are using their CPF to repay their housing loans. Although it is not compulsory for private property owners to purchase mortgage insurance, it is advisable to do so in case of unfortunate events so that your families are financially protected.

Home Loan / Mortgage Loan

Home Loan / Mortgage Loan is a loan secured by the borrower’s property. Failure to make repayments on the loan could result in losing the property that is secured against the loan.

Interest-Only Payment Scheme

Interest-Only payment scheme is one of the flexible repayment schemes that allows the borrower(s) to pay the interest on the home loan for a specified period, instead of the full monthly instalment, which is inclusive of the principal and interest. Upon the expiry of the scheme, the outstanding loan will be re-amortized over the remaining loan tenor and the new monthly instalment will include the principal and interest.

This scheme is recommended for customers who need extra cash in the next 6 or 12 months (period may vary depending on the Bank you take the loan with).

Interest Rate

Interest Rate is the rate of interest that is charged on the loan. It can be fixed, variable, or a combination of both over the loan period/ tenure.

Fixed Rate Loan

A fixed rate loan charges the same rate of interest throughout the duration of the loan.

Floating (Variable) Rate Loan

A variable rate loan is usually benchmarked against the Bank’s reference rate. The reference rate can be the Prime Lending Rate, SIBOR, SOR or rates offered by the CPF Board.

Combination of Fixed and Variable Rate Loan

This loan usually begins with a fixed interest rate for a number of years before switching to a variable interest rate.

Joint Tenancy

Joint Tenancy refers to the manner of ownership in a property. All the owners have an equal interest in the property regardless of the amount of money each co-owner had contributed towards the purchase of the property. The property is passed on to the surviving co-owner(s) when one owner passes away.

Married couples usually opt for joint tenancy when they buy a property. A joint tenancy overrides any will, and the survivor always gets the automatic right to assume ownership of the deceased’s share.

Late Charge

Late Charge is a fee payable when the monthly instalment is not received by due date.

Legal Fee / Conveyance Fee

Legal Fee refers to the fee incurred for hiring a lawyer to handle all the legal paperwork for your property purchase and taking up a home loan. It includes the Conveyance Fee that is incurred for all the legal and administrative work associated with transferring the ownership of land or buildings from one owner to another. Your lawyer is responsible for checking the details of the contract, ensuring it contains nothing detrimental to the purchase or intended use of the property, e.g. title restrictions.

If you are using CPF funds to pay for the property, you can pay the fees with CPF funds. However, please set aside cash for it as CPF may take longer to release the funds, which may result in late payment charges.

Letter of Offer (LO) / Facility Letter

Letter of Offer (LO) is given by the Bank upon acceptance of the loan application. It is a contract that states the terms of the loan package offered to the borrower. The borrower will sign the LO if he/she accepts the terms and both parties are bound by the contract from there on.

Loan Amount

Loan amount is the total amount the borrower agrees to repay the Bank, in accordance to the terms and conditions of the loan agreement.

Loan Tenure

Loan Term is the number of years you plan to repay the loan, usually up to 35 years.

Loan-to-Value (LTV)

Loan-to-Value (LTV) is the amount of money you can borrow as a percentage of the market value or purchase price of the property (whichever is lower). It is usually up to 80% (subject to borrower’s credit-worthiness and affordability).

Lock-in Period

Lock-in Period refers to a predetermined number of years that the borrower is penalised for if he/she changes the terms of the contract (either by cancellation, prepayment or conversion). As every loan package has different terms and conditions, it is advisable to consult the Bank before making changes.

Mortgagee

The creditor or lender in a Mortgage Agreement, usually the Bank.

Mortgagor

The borrower (owner) in a Mortgage Agreement.

Option to Purchase

An Option to Purchase is a right or option given by the seller of the property to the buyer to buy the property at a specified price within a specified period of time (the validity period of the option). If the buyer decides to buy the property, he/she has to exercise the Option to Purchase within its validity period by signing the Sale & Purchase Agreement and paying the down payment. The buyer must pay a booking / option fee for this right or option, which will be forfeited if the Option is not exercised within its validity period. Please check with your lawyer on the time of closure as well.

Prime Lending Rate / Board Rate

Prime Lending Rate / Board Rate is the interest rate charged by the bank to its best and most credit-worthy customers [usually large, conservatively financed businesses]. It is usually used as a benchmark for loans.

Property Tax

Property tax is a government tax payable annually, computed based on a percentage of the annual value of the property. The annual value is the estimated annual rent that your property can fetch, regardless of whether you are able to rent it out or not.

If you own and occupy the property, the tax rate is 4% of the annual assessed value. If your property is rented out, the tax is currently 10% of the annual assessed value of the property.

Refinancing

Refinancing refers to going to a different bank to apply a new loan to replace the existing loan. It is usually done to lower the monthly repayments by taking a lower interest rate package.

Before refinancing your loan, you should check on the penalties you may incur (e.g. lock-in period, claw-back period) if you cancel/ terminate your existing loan.

Repricing

Repricing serves the same purpose as refinancing. However, instead of going to a different bank, you go to the same bank you took the home loan to request for a reduction in rates.

Sale & Purchase Agreement

Sale & Purchase Agreement refers to a private contract between the seller and the buyer for the sale and purchase of a property.

Short Term Loan

Short Term Loan can be taken to pay the difference between the purchase price and the valuation limit. However, it can only be taken after the minimum down payment (10% of Valuation Limit) is made.

Singapore Interbank Offer Rate (SIBOR)

Singapore Interbank Offer Rate (SIBOR) refers to the rate that financial institutions in Singapore lend / borrow unsecured funds to / from each other. Your loan can be based on the 3-month or 12-month SIBOR. If your loan is based on the 3-month SIBOR, your interest rate will be 3-month SIBOR plus a margin for the Bank and repriced every 3 months. This rate is transparent and published daily in The Business Times or you can search on major banks’ websites.

Stamp Duty

Stamp Duty is a government tax on certain legal documents and financial contracts which validates the documents or contracts legally. It is payable by a buyer who buys a property in Singapore. There are 2 different types of stamp duty payable relating to property, the Purchase Stamp Duty and the Mortgage Stamp Duty.

Purchase Stamp Duty

1% on the first $180,000
2% on the next $180,000
and 3% thereafter

Alternative Calculation Method:

Stamp Duty = (Property Price X 3%) less S$5,400

Mortgage Stamp Duty

0.4% of the loan amount (subject to a maximum of $500)

If you are using CPF funds to pay for the property, you can pay the fees with CPF funds. However, please set aside cash for it first as CPF may take longer to release the funds, which may result in late payment charges.

Resource Link: http://www.iras.gov.sg/irasHome/page.aspx?id=1832

Swap Offer Rate (SOR)

Swap Offer Rate (SOR) is SIBOR plus lending costs incurred by the banks. It is as transparent as SIBOR that reflects market conditions. If your loan is based on the 3-month SOR, your interest rate will be 3-month SOR plus a margin for the Bank and repriced every 3 months. This rate is transparent and published daily in The Business Times.

Tenancy-in-Common

Tenancy-in-Common refers to the manner of ownership in a property. The property will form part of the deceased owner’s estate when he/she passes away. In other words, unlike a joint-tenancy, the deceased’s interest does not pass automatically to the remaining co-owners.

This arrangement is more common where the owners are not related to each other, e.g. friends buying a property together for investment.

Title Deed

Title Deed is document that contains evidence of a person’s legal right or title to the property.

Valuation Fee

Valuation Fee is payable for the process of determining the market value of the property. The bank will require a valuation of the property to calculate the maximum amount of loan they can lend. The valuation is done by an independent valuer. Factors taken into consideration in assessing the property include location, size, condition of building, availability of facilities, etc.

Disclaimer:

The glossary is designed for general information purposes only. Definitions in this glossary are subject to change without prior notice. Under no circumstances should this glossary be taken as advice to purchase any property.

Before entering into a transaction, please seek advice from your lawyer and/or banker. You should also refer to the relevant authorities for the latest guidelines and regulations regarding property purchase.

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