By MoneyBees
MAS bans interest-only loans for buying a home in Singapore, bridging loans aside. Compare interest-only with amortising repayment: monthly cost, interest, the balance still owed and the jump when interest-only ends.
No, not to buy a home. MAS Notice 632 says a bank must not grant credit to buy residential property where only interest is payable for a period. MAS disallowed these loans from 14 Sep 2009.
MAS said in 2009 that interest-only loans and interest absorption schemes remove or lower a buyer's instalments in the first few years. It disallowed both to keep the property market stable and sustainable.
A bridging loan is exempt from the ban. DBS's terms have bridging loan interest paid monthly in cash, with the loan repaid in full at the end of its term or from your sale proceeds, whichever comes first. DBS lends up to 20% of the price for up to 6 months.
Multiply the loan by the yearly rate and divide by 12. S$500,000 at 3.6% is S$1,500 a month, and the S$500,000 is still owed at the end.
You start repaying the loan with fewer years left, so the instalment jumps. On S$500,000 at 3.6%, five years of interest only on a 25-year term pushes the later instalment to about S$2,926, against S$2,530 amortising from the start.
Paragraph 3 of MAS Notice 632 is about credit to buy residential property. For other loans, the bank's own terms apply, so ask the bank.
MAS caps housing loans at 30 years for HDB flats and 35 years for other property.
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