By: Siow Li Sen
50-year housing loans will cost the borrowers more, besides imposing a longer-term financial burden
[SINGAPORE] The government said yesterday that a novel 50-year mortgage is unlikely to be popular and will not have significant impact on the public housing market.
The 50-year housing loans will cost the borrowers more, besides imposing a longer-term financial burden on them, said the Ministry of National Development (MND) yesterday.
"While such loans offer lower monthly instalments, the borrowers will end up paying higher interest in total, and servicing the loan past their retirement when they no longer have a steady income," said MND in a written response to Member of Parliament Chen Show Mao.
Mr Chen had asked the Minister for National Development what likely effect 50-year home mortgage bank loans would have on the prices, financing and affordability of HDB flats.
Since the United Overseas Bank (UOB) launched its 50-year mortgage last month - the longest loan in the market - the government has criticised the product, and warned borrowers not to fall for it and overextend themselves.
MND said: "While some borrowers may be attracted by the lower monthly instalments, we do not expect 50-year housing loans to be popular."
It added: "Their impact on the public housing market is unlikely to be significant."
HDB does not offer 50-year loans as they are not necessary and BTO (build to order) flats are priced to be affordable, well within one working lifetime, said MND. "There is no need for working couples to take 50-year mortgages to buy HDB flats."
The maximum loan tenure for HDB housing loans is 30 years, with an age ceiling of 65. In practice, the average loan tenure taken up is lower, at 24 years. At this loan tenure, the monthly housing loan instalment constitutes about a quarter of the monthly household income, and can be mostly paid for using CPF contributions with zero or minimum cash outlay, said MND.
CIMB head of research Kenneth Ng said the product is a marketing gimmick by banks to gain some loan volume in an environment where loan growth is diminishing. "Mortgage is one of the lowest loss history products and it is no wonder banks want to hold on to their loan share.
"If you do the sums, the monthly mortgage does not change materially from a 40-year to a 50-year mortgage. It does not make things a lot more attractive for the buyer, though it will slow the payoff on the existing loan book for a bank - a point that is useful when loan growth is slowing," said Mr Ng.
For a 30-year-old borrower taking out a $200,000 loan, the first- year monthly instalment based on today's interest rates are $664, $527 and $445 for tenures of 30, 40 and 50 years respectively, said one banker.
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