Credit Management Flashcards
Why does borrowed money comes with a price?
No free lunch –> INTEREST
What are the 5 Rules of Credit?
- Understand your financial situation
- Incur debt when necessary –> Good Debt
- Repayment is a must and it carries a price (interest)
- Borrow the amount needed
- Consider ability to repay the debt
What is a Secured Loan?
An Asset is provided as collateral or security.
What kinds of assets serve as collaterals for secured loan?
- Real Estate
- Stocks
- Vehicles
What happens when the borrower fails to meet repayment obligations?
Lender has the right to:
- Seize & Sell the asset
- Ask for more security
- Work out a repayment schedule
What is an unsecured loan?
Lender does not hold any collateral from the borrower.
What are 3 examples of unsecured loans?
- Credit Cards
- Credit Lines
- Overdraft (Lets you borrow money through your current account by taking out more money than you have in the account)
What are the 4 types of loan?
- Home
- Car
- Personal
- Study
What are the 2 types of revolving credit?
- Credit cards
- Credit lines
Which has a higher interest rate? Unsecured or Secured Loans?
Unsecured loans
What kind of loans have a fixed repayment period?
Term loans
What kind of loans are repaid based on usage?
Revolving loans
How long is interest-free credit if bank receives full payment on or before the due date?
20-25 days
How much is the charges if you have rollover balance for your credit card?
24% (HIGH INTEREST)
How much is the late payment charge if a bank does not receive the minimum payment by due date for credit card bills?
- 3-5% of unpaid balance
- OR $50
What happens if I am unable to pay my credit card bill in full?
Pay at least the minimum sum by the due date
Will my remaining credit card bill incur interest charges?
Yes. (Including new purchases)
How many individuals have aggregated outstanding unsecured debts > annual income at the end of Feb 2019?
58,000
4 yrs ago: 85,000
What were the outstanding debts at the end of Feb 2019?
$5.2 billion
4 yrs ago: $7.5 billion
How many individuals incurred debts exceeding 24 times their monthly income at the end of Feb 2019?
10k out of 58k
4 yrs ago: 70% drop, 32k
How often is the credit card interest charged for the outstanding amount?
On a daily basis
What are the 4 uses of credit card?
- Cash Management tool
- Reward points to redeem essential expenses
- Cards that offer cash rebates
- Match spending habits
What are the 4 uses of credit card (as a form of credit)?
- Settle payment due in full
- Keep account of card expenses
- Pay on time
- Avoid rollovers
What are the 2 types of personal loan?
- Personal Credit Line
- Pawnshops
What are the 3 characteristics of a Personal Credit Line?
- Revolving Credit & Overdrafts
- High interest rate
- Only pay during the time you borrow
What are the 3 characteristics of Pawnshops?
- Collaterised loan with 20% interest
- Loan 60% to 80% of the value of the collateral (mostly jewelery)
- If fail to repay, collateral is sold, excess refund to borrower
What are the 4 application requirements for DBS Cashline?
- Personal Credit Line -
- SC or SGPR
- 21 years and above
- 29.8% i/r for income of $20k to $30k
- OR 19.8% for income of $30k and above
How much is the minimum monthly repayment for DBS Cashline?
(in percentage)
2.5% of outstanding balance or $50 whichever is higher
What is the minimum interest charge for DBS Cashline?
(in dollars)
$10
What is the late payment fee for DBS Cashline?
$105
What is the additional late payment interest adjustment for DBS Cashline?
(percentage)
Additional 6% above effective interest rate
What is the annual fee for DBS Cashline?
$100 (Waived for the first year)
What is the overlimit fee for DBS Cashline?
$40
How much personal loans and overdraft balances for those < 30 rise?
23%
What is the exact increase in value of personal loan and overdraft balance for borrowers age 21-29 in 2021?
$49,689
- 42% higher than the average of $34,941 in 2020
What are some reasons causing younger adults to take up personal loans?
- Unemployment
- Lower earnings
What were the borrowing limit in the PAST?
(4 points)
- Borrow up to 48 times his monthly salary on an unsecured basis
- Chalk up to 4 years of debts by applying for new cards to pay existing debts
- No limit to number of credit cards
- No consolidated limit on unsecured debts
What is the borrowing limit NOW from 1 June 2019?
12 times of monthly income
What happens when your total interest-bearing outstanding balances on all credit cards and other unsecured credit facilities in Singapore exceed the industry-wide borrowing limit for 3 consecutive months?
(3 points)
- Cannot charge new amounts to other cards
- Cannot obtain credit limit increases for existing cards
- Cannot obtain new cards
When was the Credit Limit Management Measure created?
2018
What does the Credit Limit Management Measure do?
Sets a limit on how much outstanding debt you can have on unsecured loans across all FIs.
Who is the target audience for Credit Limit Management?
Borrowers with unsecured debt that exceeds 6 times their monthly income.
Can you buy a credit bureau report to check your outstanding balances and credit limits with all the banks?
Yes.
What debts does the Credit Limit Management cover?
Unsecured debts with no collateral. (Except for business, medical and education spending)
Who are exempted from the industry-wide borrowing limit?
Those with an annual income of at least $120k
OR
Net personal assets exceeding 2 million
When was the Debt Consolidation Plan introduced?
2017
What does the Debt Consolidation Plan do?
(5 points)
- Help reduce debt
- Consolidate existing unsecured credit balances under a single entity
- Offer effective interest rates LOWER than credit card and line rates
- Lower monthly repayments
- Make repayments to a single bank
What is the duration of the loan tenure for Debt consolidation customers of Citibank Singapore?
Up to 7 years
What is the credit card limit for debt consolidation customers?
(number of months)
1 month income
How much is the complimentary insurance coverage for accidental death, TPD, Involuntary employment disruption?
Up to $160,000
When is the Debt Management Plan created?
2004 (offered by Credit Counselling Singapore)
What does the Debt Management Plan come from?
A CHARITY and AGENCY that assists people with unsecured debt problems.
What is the difference between DMP and DCP?
Debts are not consolidated under one institution under DMP.
How does Debt Management Plan work?
- A monthly installment plan that gradually repay debts to all creditors over a period of time.
- Conducts a 1 hr debt advisory session with eligible applicants to help them work out how much they need to spend per month before working out a payment proposal that creditors can approve.
What does the Debt Repayment Scheme do?
(4 points)
- An Alternative to bankruptcy
- Triggered by a bankruptcy application made in court
- And when debts do not exceed $150k
- Court may refer debtor to the Insolvency Office for the Official Assignee to assess debtor’s eligibility and suitability for DRS
What is the strict eligibility criteria for Debt Repayment Scheme?
Debtor must be gainfully employed with debts under $150k
How long does it take for debtors to complete their repayments under the Debt Repayment Scheme?
5 years
How do DCP, DMP, DRS compare?
Refer to slide 34
What is the income ceiling for New HDB for families?
$14k
What is the income ceiling for New HDB for singles?
$7k
What is the income ceiling for New EC?
$16k
What is the difference between the naming of rooms for HDB and condo?
HDB: 5-room (3 bedrooms, 1 living room and 1 dinin room)
Condo: 3-room (3 bedrooms etc.)
What is the income ceiling for HDB resale, EC resale and private properties?
No income ceiling
When was the Enhanced CPF Housing Grant established?
11 Sept 2019.
What is the maximum amount under the Enhanced CPF Housing Grant?
Up to $80k for eligible buyers
- Includes resale flat buyers who did not get the Special CPF Housing Grant before
What is the CPF Housing Grant for 1st-timer families?
[4-room or smaller flats]
$80k (up from $30k)
What is the CPF Housing Grant for 1st-timer families?
[5-room or larger flats]
$50k (up from $10k)
What is the TOTAL grant amount under the CPF Housing Grant, Enhanced CPF Housing Grant, and Proximity Housing Grant?
$190k (up from $160k)
What does the total grant amount of $190k comprise of for housing?
- $80k CPF Housing Grant (Income ceiling $14k)
- $80k Enhanced CPF Housing Grant (Income ceiling $9k)
- $30k Proximity Housing Grant
What is application fee for housing?
(New Flats & Resale)
$10
- Resale ($40-$80)
What is the option fee (part of the downpayment) for New HDB?
(A range)
$500 to $2000 (dependent on the size)
What is the option fee (part of the downpayment) for DBSS/EC?
5% of purchase price
What is the option fee (part of the downpayment) for resale flats?
(2 components)
- One time payment $1 to $1000
- Exercise fee (max $5000)
What do you pay when you sign the agreement of the lease for HDB? (3 components)
- Stamp duty (house)
- Legal fees (conveyance and caveat)
- Downpayment
What do you pay when you collect the keys for HDB? (5 components)
- Stamp duty (mortgage)
- Legal fees (Survey fee and registration fee)
- Home Protection Scheme
- Fire insurance
- Balance of the purchase price
What 2 misc fees are there when buying a house?
- Valuation fee (if CPF are used for financing or taking bank loan)
- Agent fee (resale): 2% for sellers, 1% for buyers
What is the buyer’s stamp duty for RESIDENTIAL & NON-RESIDENTIAL property for first $180k?
1% of purchase price or market value of property whichever is higher
What is the buyer’s stamp duty for RESIDENTIAL & NON-RESIDENTIAL property for second $180k?
2% of purchase price or market value of property whichever is higher
What is the buyer’s stamp duty for RESIDENTIAL & NON-RESIDENTIAL property for next $640k?
3% of purchase price or market value of property whichever is higher
What is the buyer’s stamp duty for RESIDENTIAL & NON-RESIDENTIAL property for next $500k?
4% of purchase price or market value of property whichever is higher
What is the buyer’s stamp duty for RESIDENTIAL & NON-RESIDENTIAL property for next $1.5mil?
5% of purchase price or market value of property whichever is higher
What is the buyer’s stamp duty for RESIDENTIAL & NON-RESIDENTIAL property for amount exceeding $3mil ?
R: 6%
NR: 5%
- Purchase price or market value of property whichever is higher
What is the Additional Buyer’s Stamp Duty for SC on their 1st property?
0%
What is the Additional Buyer’s Stamp Duty for SC on their 2nd property?
17%
What is the Additional Buyer’s Stamp Duty for SC on their 3rd and subsequent property?
25%
What is the Additional Buyer’s Stamp Duty for SGPR on their 1st property?
5%
What is the Additional Buyer’s Stamp Duty for SGPR on their 2nd property?
25%
What is the Additional Buyer’s Stamp Duty for SGPR on their 3rd and subsequent property?
30%
What is the Additional Buyer’s Stamp Duty for foreigners on their property?
30%
What is the change made to the Total Debt Servicing Ratio (TDSR) limit?
55% (down from 60%)
- Tightening means smaller home loans
- New mortgages cannot cause borrowers total monthly loan repayments to exceed 55% of their monthly income
What is the change made to the Loan-To-Value Limit for HDB loans?
80% (down from 90%) of a property’s purchase price
- Reduces the maximum amount that potential home buyers can borrow from HDB
- Applies to new and resale flats
- Remaining amount can be paid through CPF OA or cash or a mixture of both
What is the Loan-To-Value Limit for FI loans?
75%
- Remaining 20% can be paid by either cash, CPF OA, or a mixture of both
- Last 5% has to be paid in cash
Can you decouple for HDB flat ownership?
NO
- Only when divorce
- Only when married
- Death of owner
- financial hardship
- renunciation of citizenship
- medical reasons
Can you decouple for private property?
YES
- But only if it makes financial sense
- Individuals have to be able to support the mortgage loan by himself/herself
- Individuals become the sole-owner
2 Pro on Decoupling
- Avoid ABSD
- Upon completion of Minimum Occupancy Period (MOP), occupier can purchase a private propety without incurring ABSD
5 Cons on Decoupling
- Lack of legal rights as an occupier (even though you are recognised as family members in the HDB flat)
- In the event of any legal dispute (e.g. divorce), things can get messy if you try to lay claims to the property - You are merely an occupier even though you contributed to repaying the mortgage
- You are not a co-owner
- Cannot use an occupier’s income assessment for loan application (Occupier CPF cannot be used)
- Occupier need to fulfil the minimum occupation period (MOP)
How does Decoupling succeed?
- Complete trust in the other party
- Sole legal purchaser has sufficient income and CPF to meet DOWNPAYMENT and LOAN
How much is the clawback clause upon resale of a prime location HDB?
(percentage)
6%
What is the minimum occupancy period (MOP) for prime location housing?
10 years
Can you rent your house if you are under the Prime Location Public Housing Model?
No
What is the income restrictions on resale buyers?
up to $14k combined monthly household income
What is the comparison between PLH and resale flats?
Refer to Slide 55 and 56
What is the wait-out period for private residential property owners after selling their property for a non-subsidised HDB resale flat?
15 months (age 55 and above not affected)
What is the LTV limit for a loan tenure of 30 years or less?
75%
What is the LTV limit for a loan tenure of 30 years or more or extend past 65 years?
55%
What is the LTV cap on my 2nd loan if I have 1 outstanding home loan?
- 45% for tenure of 30 years and less
- 25% for tenure of more than 30 years or extend past the age of 65
What is the LTV cap on my 3rd loan if I have 2 outstanding home loans?
- 35% for tenure of 30 years and less
- 15% for tenure of 30 years and more or extend past the age of 65
What is the mortgage servicing ratio for housing?
less than 30% of your gross monthly income
What does the Home Protection Scheme protect?
- Death
- TPD
- Terminal Illness
Support housing loan repayments
Can I use CPF for the 2nd/subsequent property if I have at least 1 property till age 95?
Need to set aside BRS in OA, SA/RA
Can I use CPF for the 2nd/subsequent property if I have no property till age 95?
Need to set aside FRS in OA, SA/RA
How much CPF refund can I get from sale of my house when i am below the age of 55?
(not a number, 2 components)
- Principal amount
- Accrued interest
- Goes to OA
How much CPF refund can I get from sale of my house when i am above the age of 55?
- Principal amount
- Accrued interest
- Goes to RA if not up to FRS
- If not, it goes to OA
What happens if I have a negative sale?
Shortfall do not need to top up
What is the voluntary housing refund?
- Start earning prevailing interest rates in the CPF account in the folowing amount.
- Goes into OA
- Refund any amount capped at the full principal amount you have withdrawn for the property with the accrued interest
How to unlock the value of my flat for retirement?
- Rent out spare rooms
- Lease Buyback scheme (Aged 65 and above)
- Silver Housing Bonus (Aged 55 and above)
How does the Silver Housing Bonus work?
- Right size to a smaller flat
- sale proceeds used to top up RA
- and then u will get cash bonus
How does the Lease Buyback Scheme works?
Sell the tail-end lease to HDB
How does the DBS Home Equity Loan works?
Refer to slide 97
What are the 4 types of Bank Loans?
- Fixed rate loans (usually for 3 years)
- Fixed deposit rate-pegged loans
- Floating rates pegged to SIBOR or SOR
- Board rate (determined by individual banks)
What does FHR8 mean?
Bank’s prevailing interest rate per annum for a 8-month Singapore dollar time deposit within $1k to $9.99k
What is inside the 2 in 1 Home Loan?
- Part of it under a fixed rate package
- Part of it under a floating rate amount
What is prepayment and refinancing?
Refer to slide 105
What are the 8 tips to avoid Debt Trap?
- Curb Overspending
- Sticking to a budget
- Picking a suitable credit card
- Maintain a good credit history
- Avoid relying on future income
- Understanding financing options
- Pay off debts with high interest rates first
- Paying off debts
