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2 Key Things on Income Weighted Average Age (IWAA)


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Income Weighted Average Age (IWAA)


Introduction

The income weighted average age is a less commonly heard real estate term as compared to terms like ABSD, TDSR, LTV limit etc. We recall that when taking a loan, the income of mortgagor is considered for the monthly income. The mortgagor’s number of housing loan and age determine the Loan-to-Valuation limit. Last but not least, the income weighted average age determines the maximum loan tenure. It applies when there are multiple owners that take the same mortgage to pay for a house.

Please note that the income weighted average age is only applicable for multiple buyers taking a bank loan. For HDB loan, the youngest owner age is used for calculating maximum loan tenure instead. While there is no information on whether HDB loan uses income weighted average age, we went ahead to test by submitting multiple HLE application. We realised that the youngest owner’s age is used for HLE application.


Formula

The formula to calculate the income weighted average age is stated as below:


iwaa formula

IWAA Formula


The income weighted average age is rounded up for ease of calculation across the industry.


Application

When there are multiple owners, we do not know whose age to use. If the older owner’s age is used, it may be unfair to the younger owner. If we use the younger owner’s age, the older owner may be stretched beyond his limit. Especially for cases when a parent and a child co-own a property, the age gap may be huge and the income weighted average age is more applicable. Therefore, the income weighted average age is applied as a standard to factor in age of a buyer so that we can determine the maximum loan tenure.

If the weighted income average age of owners is 36.35, the banks will take it as 37 years old. The maximum loan tenure will be 28 years to take a maximum LTV limit as far as age is concern (maximum age for a loan is up till 65 years old for a maximum LTV limit).


Conclusion

It is a simple concept yet many people omit this or only find out when taking a mortgage at a bank. This article aims to equip you with the knowledge of this concept so that you can plan ahead. For related article like LTV limit, please click here.



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Income Weighted Average Age (IWAA)


Introduction

The income weighted average age is a less commonly heard real estate term as compared to terms like ABSD, TDSR, LTV limit etc. We recall that when taking a loan, the income of mortgagor is considered for the monthly income. The mortgagor’s number of housing loan and age determine the Loan-to-Valuation limit. Last but not least, the income weighted average age determines the maximum loan tenure. It applies when there are multiple owners that take the same mortgage to pay for a house.

Please note that the income weighted average age is only applicable for multiple buyers taking a bank loan. For HDB loan, the youngest owner age is used for calculating maximum loan tenure instead. While there is no information on whether HDB loan uses income weighted average age, we went ahead to test by submitting multiple HLE application. We realised that the youngest owner’s age is used for HLE application.


Formula

The formula to calculate the income weighted average age is stated as below:


iwaa formula

IWAA Formula


The income weighted average age is rounded up for ease of calculation across the industry.


Application

When there are multiple owners, we do not know whose age to use. If the older owner’s age is used, it may be unfair to the younger owner. If we use the younger owner’s age, the older owner may be stretched beyond his limit. Especially for cases when a parent and a child co-own a property, the age gap may be huge and the income weighted average age is more applicable. Therefore, the income weighted average age is applied as a standard to factor in age of a buyer so that we can determine the maximum loan tenure.

If the weighted income average age of owners is 36.35, the banks will take it as 37 years old. The maximum loan tenure will be 28 years to take a maximum LTV limit as far as age is concern (maximum age for a loan is up till 65 years old for a maximum LTV limit).


Abusing the Old System

The income weighted average age is also a measure against older buyers, like a parent, who take a mortgage to buy and co-own a house for a child who has no income. Before the policy came into play, buyers could abuse the old system to maximise the loan tenure by using the child’s age. This scenario is especially bad if the child does not have any income. People took the younger owner’s age and the older owner’s income. This is not very wise because older people should reduce their loan for their retirement years and children should have the income to take up the mortgage. The weighted income average age aims to prevent this.

There are also older buyers who want to abuse the previous system to buy a 2nd property but want to evade ABSD in the past. Before the system was introduced, the borrower need not be the owner. The older buyer will buy a property in the name of the younger buyer (like his children) to avoid ABSD because the younger owner does not have a 2nd property. At the same time, the older buyer can also take a much longer loan tenure based on the younger owner while the parent is the one servicing the loan.

Currently, the borrower must be the owner and the income weighted average age has to be used in order to prevent abuses like those explained. With that in mind, even the essential occupier is not included in the equation because they are also not the owner of the HDB flat. For HDB loan, occupiers and essential occupiers are also not included in calculating the owner's loan. However, occupiers and essential occupiers incomes are included as part of the total household income. Buyers cannot take a HDB loan if their household income exceeds $12,000.

As we can see, if we substitute a zero to one of the owner’s income, the maximum loan tenure is scaled back to the owner who has income. In other words, the current system applies to borrowers with an income only.

While some people may think that they can still abuse the system by applying for HDB loan, HDB has strict requirements for application of HDB loan and HDB officers will ensure the HDB loan can be serviced by the buyers. Getting the HLE Letter does not guarantee the approval of the HDB loan.


Conclusion

It is a simple concept yet many people omit this or only find out when taking a mortgage at a bank. This article aims to equip you with the knowledge of this concept so that you can plan ahead. For related article like LTV limit, please click here.



Date first posted on 18 June 2019; Last Edited on 18 June 2019

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