Property Inheritance in Singapore: Tax & Mortgage Choices
Although Singapore abolished inheritance tax along with estate duties in 2008, individuals inheriting property may still have to contend with home mortgages and loans. If you are inheriting private property, the home mortgage stays within the estate of the deceased. It is then managed by the executor or administrator, unless you co-signed or guaranteed the home mortgage. In the case of home loans, co-borrowers will assume all responsibility for the mortgage.
In this article, we lay out various options available to inheritors of properties with existing mortgages, so you can make informed decisions that align with your financial goals and future plans.
Before determining the best course of action for the existing mortgage, you need to thoroughly understand its terms. Firstly, you will need details on the property’s value, and the potential costs associated with maintaining or selling it. You will have to engage a licensed valuer for property valuation, understand your tax obligations, and calculate potential selling costs.
Your Options as the Inheritor
Once you have a clear grasp of the mortgage terms, it’s time to consider which of the following paths will be most financially beneficial for you.
1. Taking Over the Existing Mortgage
One option is to assume control of the existing loan. This means stepping into the shoes of the previous owner and continuing with their mortgage terms. However, this is typically subject to the lender’s approval and your own eligibility checks. A potential benefit here could be retaining a favourable existing interest rate, especially if it’s lower than current market rates. The main drawback, however, is that the original loan terms may not align with your current financial situation or long-term goals.
2. Refinancing the Mortgage
Alternatively, you could opt for house loan refinancing, either with the same lender or a different one, under your own name. Refinancing can offer significant benefits, such as potentially securing lower interest rates or adjusting the loan terms (like tenure) to better suit your financial capacity. If you do decide to refinance your loan, be mindful of incurring administrative fees or legal charges. On the other hand, if you are on favourable terms with the current lender, you may prefer repricing your home loan instead.
3. Selling the Property
Sometimes, the most practical solution is to sell the inherited property. This can be a straightforward way to pay off the outstanding mortgage and access the equity, providing you with capital that you can then utilise for investments or savings. For private property, it’s worth checking if the deceased had Mortgage Reducing Term Assurance (MRTA) before selling or taking out a private house loan.
Key Considerations and Challenges
As you weigh your options, consider these essential factors, which may have significant financial implications:
- Eligibility for New Loans/Refinancing: Lenders will assess your financial situation thoroughly by examining a number of key factors. They will look at your income stability, existing debt, credit score, and Total Debt Servicing Ratio (TDSR) to determine your eligibility for assuming or refinancing a loan. This applies especially to inheritors of properties with existing bank loans. Note that the lender may terminate the loan if they assess that the surviving co-borrower does not meet the Total Debt Servicing Ratio (TDSR) requirements.
- Stamp Duty Implications: Although stamp duty is not applicable to individuals who have acquired property through inheritance, you will have to pay stamp duty if you decide to sell. If you’ve ever wondered if you need to pay ABSD for inherited property, the answer is no. However, your new home will now factor into your ABSD rates, so be mindful of that if you decide to purchase a subsequent property.
- CPF Usage: If you are inheriting your parent’s HDB flat, check if they had an HDB loan. If they did, they had mortgage insurance through the Home Protection Scheme (HPS). Under the terms of the loan, the CPF board will pay the outstanding home loan in case of the policyholder’s death, or if they become terminally ill or permanently disabled. This means you won’t have to worry about HDB home loan refinancing if you’ve inherited a flat from a family member.
Navigating Stamp Duty and Legalities
As the new owner of an inherited property, you might become subject to new legal and tax obligations. You might face Buyer’s Stamp Duty (BSD) if there’s a direct transfer of ownership shares, or potentially Seller’s Stamp Duty (SSD) if you decide to sell the property within certain holding periods. Given the complexities involved in property transfer and mortgage arrangements, engaging a qualified lawyer is not just advisable, but often necessary to ensure all legal procedures are correctly handled.
Consider Your Long-Term Needs
Beyond the immediate financial and legal aspects, it’s wise to think about your future housing plans and overall financial situation. Do you intend to live in the inherited property? Could it be a viable investment opportunity? Review the possibility of renting out the property if immediate occupancy isn’t your plan, as this can generate passive income. Your long-term vision should heavily influence your decision to keep, refinance, or sell.
Get Professional Advice On Your Mortgage
Inheriting a property with a mortgage is undoubtedly a significant financial commitment. Navigate this process confidently and make choices that are truly best for your circumstances with professional advice from a mortgage specialist or a probate lawyer. Their tailored guidance can help you assess your situation and make informed decisions that can maximise your advantages and assist in avoiding any legal pitfalls.
Contact The Loan Connection today to get started.
