The all-monies mortgage: Interest rate hikes are not the only risk

By guest contributor Natasha Goh

If you own private property in Singapore, it’s highly likely that you took up a mortgage loan when you first purchased it. Given the widespread use of mortgage loans here, I find it rather alarming that the vast majority of people who have taken up mortgages in the past are unclear on even the basic terminology used in mortgage loans.

A common mistake laypersons make is using the terms “mortgagor” and “borrower” interchangeably. In simple situations, where for example a home is bought by a single person and the loan is similarly taken in single name, the borrower and mortgagor would indeed be the same person. However, the term “mortgagor” specifically relates to an owner of the property that is being mortgaged, whereas “borrower” refers to any parties that are contracting with the lender bank (the mortgagee) to pay back the mortgage loan granted. By necessity, all owners of a mortgaged property are required to contract as borrowers, thus all mortgagors are borrowers, but not all borrowers are mortgagors.

The distinction between the two becomes relevant when non-owner borrowers are included as co-borrowers to support loan applications. Due to the rise in property prices and the various cooling measures introduced, some property purchasers have resorted to adding non-owner parties as co-borrowers, or buying properties together with parties who are either younger in age or able to provide stronger income documents (or both) in order to obtain larger loans, or loans of longer tenure.

It all seems quite easy and convenient, however the legal implications of including multiple co-borrowers or co-owners is that your personal risk exposure is increased too, as most if not all of the retail banks that grant housing loans in Singapore include an “All Monies” or “Open Mortgage” clause in their mortgage loan documents. To exacerbate the situation, such clauses do not have to be specifically highlighted, thus it’s not enough to just scan through your loan documents for a clause explicitly labeled “All Monies”. To illustrate, let me give you an example of how such a clause might be phrased, and tucked away in the depths of your mortgage documents:-

“…The Mortgagor hereby acknowledges:-

(a) ...

(b) …

(c) …

(d) that this Mortgage expressly authorizes the Mortgagee to grant further Banking facilities in instalments or on a current, revolving or continuing account or otherwise or any other banking or credit facilities or accommodation whatsoever from time to time to the Mortgagor/Borrower(s) whether alone or jointly or jointly with any other person and all other monies and liabilities owing to the Mortgagee from time to time in connection therewith shall form part of the Secured Debt and be secured by this Mortgage…

(e) …”

Did you catch that? In simple terms, what this means is that when you mortgage your property, in the event of default, the bank has a right to foreclose and use the sales proceeds to pay off not only the original housing loan granted, but also any other outstanding debts that any of the co-borrowers/mortgagors might incur during the duration of the mortgage loan. And mind you, an “event of default” is not limited to simply not paying your loan installments in a timely fashion, but includes a wide range of possible events, many of which will not be within your personal control.

During my time as a real estate lawyer, the all-monies clause was probably one of the common clauses that surprised even veteran property investors when it came to running through the legal implications of the documents they were signing before me. I was again reminded of my previous experiences when I recently attended a property investment seminar, and similar misinformation resurfaced.

Perhaps it’s a throwback to my legal background, but in spite of my frequent affirmations on the benefits of using leverage to improve property investment returns, I err on the side of caution when it comes to leveraging on third parties. Property investors should conduct a personal risk assessment, based on their own financial standing and preferences, before determining whether a particular venture is worth entering. Such an assessment can only be done when you equip yourself with the right information. I would thus urge would-be investors considering alternative vehicles of property investment to seek independent legal and financial advice prior to paying any money down.

Natasha Goh has a Bachelors in Law from the National University of Singapore. She regularly contributes to articles and research done by Ascendant Assets Pte Ltd. To find out on what Ascendant Assets does, please visit www.AscendantAssets.com. For those who wish to read more articles from Natasha, please visit http://natashagoh.com/.