In 2012 and 2013, the rules regarding home loans changed a lot. One of the biggest is the rule regarding age, and how much you can borrow. It’s no longer just about your loan tenure, but how old you’ll be at the end of the loan tenure — cross a certain threshold, and suddenly your downpayment balloons to 40% or more. Here’s something to clear up the confusion:

What is the relationship between loan tenure and age?

In October 2012, the Monetary Authority of Singapore (MAS) passed two new loan restrictions.

First, your loan tenure can never exceed 35 years. Also, if the loan tenure would go beyond 30 years, the amount you can borrow falls to 60% of your property value (or 40%, if you also have an outstanding home loan).

Second — and this is the big one- if your loan tenure plus your age exceeds 65, you can also only borrow 60% of your property value (or 40%, if you also have an outstanding home loan. 

For example:

Say you are 45 years old this year, and you want to buy a condo for $1.6 million. You ask for a loan tenure of 25 years. This would take you past the age threshold (45 + 25 = 70), so the maximum you can borrow for the condo would be S$960,000. That means you face a down payment of S$640,000.

This rule was put in place to prevent over-leveraging. MAS doesn’t want a lot of Singaporeans who are past the retirement age (65), who are still saddled with mortgages.

What happens if more than one person is borrowing?

Yup, that’s pretty much what everyone started shouting about. So in 2013, this issue was also cleared up, with a new system to determine the average age of all the borrowers.

(Before you ask, no, it’s not adding all the ages together and dividing it by the number of people. We wish it were that easy).

When there’s going to be more than one borrower, the first thing to do is eliminate the borrower(s) with no income. No matter how much cash they might have, they can’t factor into the equation if they have no income.

When that’s done, the remaining borrowers use an Income Weighted Average Age (IWAA). 

Here’s what the formula looks like, assuming there are two borrowers:

IWAA = (Age of borrower A x monthly income of borrower A) + (Age of borrower B x monthly income of borrower B) / combined income of both borrowers

For example, let’s say there are two co-borrowers for a condo. This is James, and his wife Anne.

James is 37 years old, with an income of S$4,000 per month. Anne is 41 years old, with an income of S$5,500 per month. So we get:

(37 x 4000) + (41 x 5500) / 9500 = 39.3

The IWAA of James and Anne is 39. To get the maximum possible loan for their condo*, the longest loan tenure they can have is 26 years.

(*80% of property value or price, whichever is lower)

I need a shorter loan tenure, and it’s driving up the monthly repayments!

First, look on the bright side. We know it’s unpleasant, but at least you’ll be done paying for your house sooner.

Second, you can still try to keep the price low, by finding the best interest rates. For example, Standard Chartered’s 3-Month SIBOR loan is only 1.26% for the first year. A lower interest rate means smaller monthly repayments; so if you’re stuck with a shorter loan tenure, compare loans on gobear.com/sg to lower your costs.

This article was first published on GoBear Singapore blog.