MAS 'Stress Test'

[sostenuto]

Hi,
Is it compulsory for banks to use the MAS stress test at 3.5% interest rate to determine how much you can loan from them for housing loan?
Found that even though banks' current interest rate are not as high now, so this test will more or less reduce the loan you can undertake (together with current MSR @ 30%)

Anyone with similar experience?

 

[Elmo82]

Yes, the 3.5% used is mandatory.

The reason for using 3.5% is so that when the time comes for SIBOR/SOR to rise (with Fed raising rates), borrowers have a buffer of 1.5% to 2% (3.5%-(1.5 to 2% current mortgage interest rate) ) and not risk having a situation where they are overstretched financially.

 

[sostenuto]

Haiz.. Just feel that the MSR should have been progressive and not fixed at 30%.
If someone earning 5k, he can use 1.5k for repayment. That would left him with 3.5k.
And imagine, someone who only earns 3k, he can use 0.9k for repayment.
If there are ppl who can survive be with 3k salary, I can't see why ppl earning 5k not allow to use more for their monthly repayment. Just dun get it! How rigid!

 

[Elmo82]

1. It's easier to implement a rule based 30% MSR calculation. Also, this could achieve an effect of tempering the price increase of HDB.
2. people with 5k salary can use a higher proportion of their salary towards the mortgage. A partial redemption can be effected to achieve this effect, but this is best checked with the mortgage officer.

 

[sostenuto]

For exec condo, at which stage do I need to apply for loan?
Option to buy, sales agreement or TOP?

 

[Elmo82]

Ideally, you should have carried out a provision loan eligibility assessment with multiple banks BEFORE OTP