Most consumers are concerned about the economic impact of the novel coronavirus on their finances. Homeowners are no different. These individuals face falling housing prices and the threat of a looming recession. Recently, the government announced that lenders in the country would be offering relief to borrowers. For example, homeowners with mortgages will be able to defer their monthly payments until 2021. So, should you defer your home loan payments? To keep you informed, we've analysed this news and provided some tips that are relevant to homeowners.
Should You Consider Deferring Your Home Loan Payments?
The Monetary Authority of Singapore (MAS) announced that homeowners impacted by COVID-19 will be eligible to defer repayments for their existing mortgages. This programme allows homeowners to either defer their full monthly instalments (and continue to make monthly interest payments) or the principal portion of their monthly payment, through the end of 2020.
Those deferring their entire monthly payments will continue accrue interest on the principal. However, the interest portion of deferred home loans will not accrue additional interest (i.e. "interest-on-interest"). Following the deferral, the loan amount and interest accrued (on deferred principal) will be fully amortised over the mortgage's remaining tenure.
Am I Eligible for Mortgage Payment Deferment?
In order to qualify, homeowners must have repaid their home loan or a mortgage equity withdrawal loan on time. This means that monthly payments were not more than 90 days past due as of April 6, 2020. Those seeking to defer their mortgage repayment must contact their lender. For a full list of contacts, please refer to this ABS page.
Should I Defer My Monthly Payment?
Clearly, this option gives homeowners some financial breathing room. However, it is important to note that while deferment reduces your short-term mortgage expenses, it will actually increase your total interest accrued. For example, MAS estimates that a home loan with an outstanding balance of $200,000, 20 years remaining, and a 2% interest rate, will accrue about:
- S$1,300 in additional interest costs for a principal-only deferment period for 9 months, and S$2,930 if the tenure is also extended by 9 months
- S$1,920 in additional interest costs for a principal and interest deferment period for 9 months, and $3,570 if the tenure is also extended by 9 months
Therefore, we only recommend deferring if you are currently facing significant financial duress. On the other hand, those that are comfortably repaying the home loans may want to consider other options, such as refinancing as a way to save on their mortgages.
Why You Should Consider Refinancing Your Home Loan
As we've covered earlier this spring, the U.S. Federal Reserve has cut interest rates in an effort to mitigate the economic impact of COVID-19. As we've seen before, this has resulted in lower interest rates in Singapore. With this in mind, many homeowners may find that they are currently paying higher interest rates than are currently available to new home loan customers and prospective refinancing candidates.
Aside from the current market dynamics, refinancing is often a good option for homeowners, as banks typically offer competitive introductory refinancing rates in order to attract new customers. Before you decide to refinance, it is important to compare the best refinancing rates available and check to see if your current lender will charge you any fees for refinancing with another bank. For reference, ValueChampion's site offers live interest rate offers for home loans and home loan refinancing, to help keep you informed.
It's natural to get worried based on the news surrounding COVID-19. In many cases, there are reasons for immediate concern. However, homeownership is a long-term investment for most individuals. Thus, market volatility caused by the coronavirus should not yet be a major concern. Still, simple steps such as keeping up to date with government announcements, housing market news and interests rate trends will help you feel informed and empowered.