Forever a loan?

MAS has expressed concerns that some borrowers may be overstretched, and have since introduced a new measure in which property buyer’s monthly payment do not exceed 60% of their income.

The introduction of the Total Debt Servicing Ratio (TDSR) framework might leave you asking yourself, what is an IVA? Will it take into consideration borrowers’ other outstanding debt obligations when granting property loans.

That means the banks will need to take into account all personal loans, outstanding credit card balances, other property loans, overdrafts, car loans and perhaps even loans from third parties such as paydayloansnow.co.uk though that remains to be seen.

With last month’s home sales at its highest since the March record, it’s not surprising that MAS is concerned about whether people can comfortably service their loan without putting a dent in their regular livelihood.

In this time and age, Singaporeans can easily end up spending beyond their means – COE for cars, down-payments for BTO, not to mention luxuries for which we may not think twice about swiping our credit cards without considering whether we can make the total monthly payment with interest.

A friend recently shared that she took up a 3k loan to finance her night classes, and upon the deadline of the first payment, a representative from the bank had been calling her incessantly to check if she was going to be able to make the payment.

Not to forget CPF deduction and tax, which means less cash flow will be available for miscellaneous payments such as bills and daily expenses – and on top of servicing heavy loans – this potentially means that the average earning person in Singapore can barely save for a rainy day!

With the median national income at approximately $3k, it would be advisable to be prudent and go easy on the Guccis. But is it enough to live?

Take a typical Singaporean, for instance. Assuming that he has no study loan to repay and is staying with his parents, I’d say he has enough moving funds to play with.

But is it enough to make his BTO down payment in his late 20s? Perhaps not.

More often than not, it’s a loan from FAMA – Father & Mother Loan. And if a new family is in the picture, the financial responsibilities add up from there.

No wonder our generations now are not keen on settling down too soon!

And with banks constantly waving innovative credit card offers, it’s tempting to succumb and spiral into a credit card debt, which is no joke seeing as how it goes into official records and may negatively impact future loan opportunities when they’re really needed!

It’s easy to not think about all these because most of us are still in our prime earning power, but if there’s anything that remains constant, is that a debt does not go away just because you say so – especially when credit rating agency Moody’s expects interest rates to keep increasing…

As my grandmother used to say: “I only spend the money I have”.

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Samantha Wong

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