Property Equity Term Loan 101

Mortgage Withdrawal Home Equity Loan - Property Cash Out Refinancing Term Loan

What is a Property Term Loan / Cash Out Equity Term Loan?

A property mortgage can hold five ranking charges to it. The mortgage or housing loan itself holds the primary 1st charge. Cashing out an additional new loan in addition to the original mortgage or housing loan is a cash out equity term loan or property term loan. Some other terms like home equity loan or mortgage equity withdrawal pretty much meant the same thing.

So what is this 1st charge thingy?

This is to say that in the event of a default and foreclosure, proceeds from the sale of your property will first be used to pay off the outstanding 1st charge mortgage or housing loan owned to the bank or lender.

The remaining proceeds after paying off the 1st charge mortgage loan will then used to pay off the remaining secondary charges.

Please see below for a full list of the total five ranking charges:

1st charge:

- Mortgage Loan (Banks / FIs / HDB)

2nd charge:

- CPF principal sum up to 100% of Valuation Limit plus CPF used to pay the legal and stamp fees in the purchase, and cost of upgrading under the HDB Main Upgrading Programme.

3rd charge (Equal ranking):

- CPF principal sum beyond the 100% Valuation Limit plus accrued interest.

- Repayment of outstanding balance of the housing loan interests.

4th charge (Equal ranking):

- CPF legal costs and expenses

- Financier's legal costs and expenses

5th Charge:

- Cash out Equity Term Loan / Property Term Loan / Mortgage Equity Withdrawal Loan

When can you cash out equity from your property?

A cash out on your property can be considered once there is significant accural of excess equity in your property, subject to total CPF usage including accured interest and credit considerations like income, age, etc.

How much equity can you cash out from your property?

Let’s use an example for illustration. David owns a private property and has an outstanding mortgage of about $300,000 with Bank A. The property valuation of his house has risen over the years and is now worth about $1,200,000. He has used about $100,000 of CPF monies including accured interest to date. David does not own any other properties in Singapore.

David has intention to start a new business with a friend and needs capital for it. He is considering doing a cash out equity term loan on his property.

Banks typically have lending limits of between 70% to 80% max for cashing out equity from a property. Assuming Bank A allows David to apply for an equity cash out term loan of up to 80% of the property value, kindly see the mathematical illustration below:

(Up to 80% LTV)
$1,200,000 * 0.8 = $960,000
Net of outstanding mortgage loan $300,000
Net of CPF monies used $100,000
Max property term loan eligibility = < $560,000 subject to meeting total debt servicing ratio requirements and bank approval.

The indicative max amount that David can cash out from his property is about $560,000 subject to prevailing regulatory regulations and credit considerations. 

 

Types of properties eligible for home equity loan or mortgage equity withdrawal

- Private Residential Properties
- Commercial Properties
- Industrial Properties
- International Overseas Properties (*Limited to Australia and UK)

 

**All HDB flats are not eligible for home equity loan or mortgage equity withdrawal.

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