Taking a joint housing loan means you need at least one co-borrower. A joint mortgage borrower helps a principal borrower pay for a housing loan. In Singapore, being a co-borrower is a major responsibility, and there are certain requirements to be met as well.
If your parent, friend, partner, or relative asks you to be their joint mortgage borrower, we’ve laid out some of the most important things you need to know about this commitment. These include what makes a person eligible to become a co-borrower and how committing to do so may also affect you in the future.
Have more questions on home loans, joint housing loans, or being a mortgage borrower? Ask our friendly and knowledgeable Mortgage Experts.
5 Things to Consider When Becoming a Co-borrower in Singapore
| Can joint mortgage borrowers buy another HDB flat or new EC? | Not while being a co-borrower |
| Can you buy another private property? | Yes, but you will have lower borrowing LTV limits |
| Will your TDSR be affected? | Yes, your joint mortgage will be factored into your TDSR |
| Will your MSR be affected? | No, MSR is irrelevant, as one household can only own one HDB flat at a time. MSR only applies to HDB properties, and if you are already a co-owner of a property, you cannot buy another HDB property |
| Will your credit rating be affected? | Possibly. The algorithm for credit rating is not published, but it likely takes into account the number of loans you have and how timely you make payments for them |
1. The Age and Income of the Co-borrower Matters
The maximum mortgage tenure in Singapore is 25 years for HDB flats financed with HDB loans, 30 years for HDB flats financed with bank loans, and 35 years for private properties.
If the principal borrower’s loan tenure exceeds the age of 65, he/she may want a younger co-borrower to apply for a joint housing loan together. That’s because it would increase the likelihood of their mortgage being approved and allow for the higher Loan-to-value (LTV) limit.
How it works is that the lender would take the average age of both applicants, thereby lowering the borrower’s age for consideration. However, it isn’t just your age that matters. Your income as a joint mortgage borrower also matters because lenders calculate the Income-Weighted Average Age (IWAA) of the principal borrower and the joint mortgage borrower using both their ages and gross monthly incomes.
Income Weighted Average Age (IWAA)
The IWAA allows those intending to apply for a joint housing loan to determine their present age as if they were a single borrower. This is applicable when there are co-borrowers (i.e., more than one borrower) for the joint housing loan.
It determines the LTV limit based on your joint income and age. Additionally, the IWAA is used to gauge the ability of the borrowers to repay the joint housing loan. The formula is as follows:
[(Principal Borrower’s Age x Principal Borrower’s gross monthly income) + [(Joint Borrower’s Age x Joint Borrower’s gross monthly income)] ÷ (Total of Principal Borrower and Joint Borrower’s combined gross monthly incomes)
With the IWAA, your age difference can be outweighed by your income. So, in an extreme example, a co-borrower who is 30 years younger but has just graduated and is drawing a relatively low starting pay may actually not lower the average age by much.
Example of Calculating IWAA When Applying for a Joint Housing Loan
Josh is 59 years old and earns $9,000 in gross monthly income. Because of his age, he is no longer eligible for a 25-year loan with 75% LTV for a house he wants to purchase, so he is considering getting a joint housing loan.
His daughter Rissa is 25 years old and earns a gross monthly income of $13,000. He asked her to be his co-borrower to lower the IWAA and help him get his 25-year loan approved. Using the formula above, let’s compute their IWAA below.
IWAA = [(59*$9,000) + (25*$13,000)] ÷ ($9,000 + $13,000) = 38.91 years old
As a result, Rissa, with her high income and young age, would be able to help her dad, Josh, get approved for a longer loan tenure and higher LTV. That’s because the resulting IWAA allows for a 25-year loan before age 65. In this case, a joint housing loan is helpful.
Case 2 for IWAA Calculation
Instead of asking Rissa, Josh decides to ask her twin brother, his son Benji, instead. Benji is also 25 but earning only $2,000 a month.
IWAA = [(59*$9,000+ (25*$2,000)] ÷ ($9,000 + $2,000) = 52.82 years
Outcome: Because of Benji’s lower income, the IWAA is higher, even though he is the same age as his twin, Rissa. With Benji onboard, Josh would still be unable to get 75% LTV and a 25-year tenure as it would extend far beyond age 65.
Note that the lower your IWAA and the shorter your loan tenure, the higher the maximum amount you can borrow from the bank (a.k.a. your LTV ratio). Meanwhile, the longer the loan tenure you choose for your joint housing loan, the more interest you will incur.
If you need advice in your situation or about taking a joint housing loan, you can contact our Mortgage Experts for tailored home financing advice. Whether it’s about your IWAA, your loan tenure or being a joint mortgage borrower in general, they’re here to help. For those looking for a suitable home loan, get the latest interest rates using our Mortgage Comparison tool.
2. You Have to Be a Co-owner to Be a Co-Borrower
The Monetary Authority of Singapore (MAS) requires all mortgage borrowers to be listed as owners of the property they want to purchase. If you have an HDB flat under your name, you may not be eligible to be a joint mortgage borrower for another HDB flat because you can only own one HDB flat at a time.
Consider Josh and his daughter Rissa, from the example we gave above. For Josh to bring Rissa into the mortgage as a joint mortgage borrower, he must make her a co-owner of his flat.
Now imagine if Rissa is getting married and she and her partner intend to buy a BTO flat or Executive Condo (EC). As Josh’s joint mortgage borrower/co-owner, Rissa will not be able to co-own her own HDB flat with her fiance.
The only way Rissa can put her name on a new flat with her fiance is to sell her share of the property she bought with her dad or ask Josh to buy it back from her. However, this comes with its own set of caveats.
Firstly, for Rissa to sell off her share of her dad’s HDB flat, she must get HDB’s approval first. If Josh’s property were private, then there would be no issue as the transaction would only need to be an agreement between Rissa and Josh, the primary owner.
Secondly, once Rissa sells her share of Josh’s flat, she becomes ineligible to help Josh joint-pay his mortgage. For this transaction to go through, Josh would need to refinance a new mortgage, under his name alone, with a fresh set of rates and terms.
However, since Josh got Rissa on board because he wasn’t eligible for the mortgage he wanted at his current age, Josh would end up facing his original problem of not qualifying for the lower LTV limit as a sole borrower.
If you’re the main owner of a property and looking to refinance your home loan because you are in the situation mentioned above, use our SmartRefi tool to compare your current home loan against the latest, most competitive mortgage packages on the market.
3. Co-borrowers May Be Liable If the Principal Borrower Cannot Pay Up
According to MAS regulations:
- A borrower named on a residential property loan must also be the mortgagor of that property.
- If a borrower’s TDSR exceeds the threshold, any person standing guarantee for the loan has to be brought in as a co-borrower.
This means joint mortgage borrowers are also liable for the mortgage repayment, which banks can claim from the co-borrower even if the principal borrower has not defaulted.
Using the same example above, if Josh cannot afford to pay his share of the joint housing loan, Rissa (assuming she did become a co-owner and joint mortgage borrower) may be liable to pay his share.
4. Your TDSR and LTV Will Be Affected
The Total Debt Servicing Ratio (TDSR) is a threshold set by the MAS to keep people from over-borrowing and to limit the allowed monthly repayments of borrowers to only up to 55% of their gross monthly income.
When you agree to become a joint mortgage borrower, the monthly repayments of the property will consume a part of your TDSR. The amount you can borrow in the future and your monthly repayments, whether for a car loan, a student loan, a personal loan, or a second mortgage (in case you’re planning to buy an additional private property), will be limited to what’s left of your 55%.
Let’s illustrate this with Josh and Rissa as an example again. Imagine that years later, Rissa is now 35. She is still single and still a joint mortgage borrower with her dad, and she wants to buy an HDB flat for herself. As explained above, because she is already an HDB flat owner, she cannot buy another HDB flat.
If she wants to buy a private property, her current mortgage with Josh will ‘eat’ into her TDSR limit.
Let’s say Rissa’s share of the mortgage payment is $2,000 a month. She also has other credit lines and loans, adding up to another $2,000 a month. That means her total debts amount to $4,000 monthly, which translates to a TDSR of $4,000/$13,000 = 30.8%.
Given that it will also be considered her second property, she can only loan up to 45% LTV. This, coupled with the fact that she only has 14.2% of her TDSR remaining, will make it harder for Rissa to finance the property.
If you’re interested in knowing the maximum mortgage you can afford at this point, our easy and instant Pre-qualification tool can help you check your loan eligibility in less than 10 minutes.
5. Your Credit Score Will Be Affected
Banks look at people’s credit scores when approving a loan or issuing a credit card. The total amount you owe and your behaviour towards debt (i.e., the timing of your payments, the number of loan enquiries you have in a short time, the number of credit cards you have, etc.) affect your credit score.
Therefore, being a joint borrower may either increase or decrease your credit score, depending on how you and the principal borrower pay for the monthly repayments. The algorithm for credit ratings in Singapore is not publicly available, but it is possible that servicing multiple loans at once may affect your credit score.
Late payments by either party will lower your credit score, so it’s also something that you have to consider or at least discuss with the principal borrower before you seal the deal. Make sure the other party is financially trustworthy before you commit!
So, Should You Become A Co-borrower?
As mentioned, signing up as a mortgage joint borrower is a huge responsibility. It will likely affect several things in your life, like your finances and eligibility for loans and certain properties in the future.
Whether the principal borrower needs your help to pay the monthly repayments or to get the loan approved, your name will be on the title of the property, which gives you the legal right and obligations to it as well.
Whatever your situation may be, we recommend that you speak with one of our Mortgage Experts. Get professional advice before committing to becoming a mortgage joint borrower. The best part? It’s free!
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