MAS SFRP II: Can It Help Manage Your Debt?

This is easily a year of unprecedented moves.

With the pandemic far from being over (and out), it got imperative for our government to roll out measures to support Singaporeans every step of the way. 

As part of efforts to help Singaporeans cope with the economic impact of COVID-19, Singapore government announced four budgets in a single year, including the latest Fortitude Budget. Besides that, programmes like the Special Financial Relief Programme (SFRP) are also running in parallel to address our debt obligations. PM Lee Hsieng Loong has made it amply clear that no stone shall be left unturned when it comes to providing support to citizens — whether it’s to do with jobs or small businesses, household spend or elderly care. 

Soon after the initial Special Financial Relief Programme (SFRP), the Monetary Authority of Singapore (MAS) recently announced a follow-up package. The SFRP II is meant to support individuals facing financial difficulties due to the COVID-19 by extending the scope of relief for individuals under the first SFRP. 

Under SFRP II, you can apply for deferment on types of loan including education, car and renovation loans. Additionally, MAS is also allowing the relaxation of total debt servicing ratio (TDSR) so that you can do a home loan refinance with minimal stress.

SFRP II: Removing TDSR limits to refinance your home loan with ease

Announced in 2013, the TDSR was part of the property cooling measures. It limits how much one can borrow based on your monthly income, so that you don’t let debt spiral out of control. But here’s the thing. In current extraordinary times, the TDSR can be a limiting factor to your ability to refinance your home loan and better manage your debt. 

If you aren’t familiar with TDSR, this article helps break down everything you need to know about it.

So, what makes it restrictive? With central banks around the world cutting interest rates to stimulate the economy, there’s an overall plunge in interest rates. This means that home loan rates are going to start falling as well. However, in order to truly enjoy full benefits of lower home loan rates, you will have to refinance your home loan. But with the TDSR limit on your reduced salary (no thanks to COVID-19), you might find it difficult to refinance to a more affordable home loan. And this is why MAS is removing those TDSR limits, so that you can apply to refinance your home loan to lower your monthly mortgage repayment. 

In addition, MAS is also relaxing the industry practice of committing to a debt repayment plan. Under normal circumstances, borrowers need to commit to a debt repayment plan to repay 3% of their outstanding loan amount over three years. However, with SFRP II, this will not be required of homeowners.

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SFRP II: Education, renovation loans are now eligible for deferment

With the introduction of SFRP II, MAS has made the move to allow for deferment of all types of debt. This follows the first SFRP where MAS allowed for the deferment of credit card debt and home loan. 

Under SFRP II, anyone with a renovation or education loan will be able to defer them. If you have either of them, here are some of the things you need to take note of:

• You can choose to defer either the interest only or both interest and principal. If you choose to defer repayment, you will only be charged for the interest accrued on your principal loan amount. Any interest-on-interest will be waived.
• You can defer repayment up to 31 December 2020. After the deferment period, the loan will be fully amortised over the remaining loan tenure. This means that your monthly repayment will go up slightly, post the deferment period.
• Choosing to go for a loan deferment will not affect your credit bureau report. This is, perhaps, the most important point, as having a blemish on your credit bureau report can affect your ability to borrow in the future.
• For education loan, any full-time or part-time programmes at local and foreign private tertiary institutions will be eligible.

SFRP II: Car/motorcycle loan can be deferred if necessary

Another type of loan that you might be financing at the moment is car or motorcycle loan. If you feel that you need a deferment, you can apply for one. However, MAS’ SFRP II isn’t applying a blanket rule to allow anyone to defer your car loan. You will need to discuss suitable repayment plans with your respective banks and finance companies. The bank/finance company will decide the duration of extending your loan tenure.

They will need to assess the following factors to determine whether you are eligible for a deferment:

• Your financial condition
• Your need for the use of a car/motorcycle
• Your car/motorcycle current market value
• Estimated market value of your car/motorcycle after the deferment period (if applicable)

Similar to education and renovation loans, the deferment will also not affect your credit bureau report.

SFRP II: Extension of debt consolidation plan if your income is impacted due to COVID-19

For those who are currently on a debt consolidation plan (DCP), you might find your financial situation being pushed to the limit. That’s why MAS is stepping in with its SFRP II programme to help you manage your debt obligation. Borrowers are allowed to extend the DCP by up to 5 years. This applies for those whose income has been impacted by COVID-19 aftermath. Do bear in mind that your repayments need to be between 30 and 90 days past due at the point of application.

As part of the application process, you will need to show your bank evidence of how your income is impacted. If you are planning to apply for an extension, application for extension of DCP can be done anytime between 18 May 2020 to 31 Dec 2020.

Should you opt for the measures under SFRP II?

Overall, we think that MAS’ SFRP II is a timely programme to help Singaporeans cope with COVID-19’s after-effects. But it is not without its own set of risks. Let’s look at these to help you make a better decision on whether you should take it up or not.

• TDSR Limit: The removal of TDSR limits is a great move by MAS to allow homeowners to take advantage of low interest rates. While MAS has done its part, homeowners also need to play their part to help themselves. As a homeowner, you need to make the effort to search for a new low interest rate home loan package on your own. If you need assistance in comparing the best rates, try SingSaver’s home loan comparison tool.

• Education, Renovation Loan: The temptation to jump onto SFRP II to extend your loan is real. But don’t jump onto it just because you can. Instead, make sure that you are really in need of it before extending your loan. You need to bear in mind that the longer you take to pay off your loan, the more you will end up paying as interest.

• Car Loan: A car/motorcycle is often considered a depreciating asset. Unless you require one for your job. But if you can no longer afford it, it might be wiser to consider giving it up while it is still valuable rather than piling up more debt especially during these testing times.

• Extension Of DCP: If you are already under a DCP, having your income impacted because of COVID-19 is a double whammy. Luckily, MAS is helping you by allowing you to extend your DCP. But do consider extending it for as short a period as possible, so that you don’t end up paying more interest than you really need to.

Read these next:
COVID-19 Special Financial Relief: Can It Help Manage Your Debt?
What is a Debt Consolidation Plan and How Does it Work in Singapore?
4 Ways to Pay Off Credit Card Debt in Singapore
Best Debt Consolidation Plans in Singapore 2020
Best Personal Loans In Singapore With The Lowest Interest Rates (2020)