Total Debt Servicing Ratio (TDSR)

 

The TDSR was implemented on 29 June 2013 by the Monetary Authority of Singapore to prevent private property buyers from over-extending themselves and getting into excessive debt through risky financial behavior such as property speculation.

 

If you are intending to buy a private property such as a condominium, apartment or landed home, the TDSR limits your loan quantum such that all your monthly repayments for your debt obligations should not exceed 60% of your gross monthly income. Debts included in this 60% are:

 

  • Mortgage loans
  • Car loans
  • Student loans
  • Personal loans
  • Renovation loans
  • Credit facilities/installments from retailers

 

The TDSR also applies to the purchase of commercial properties. Read more about purchasing a commercial or industrial property HERE.

 

Example:        

 

Mr Tan earns $5000 a month

TDSR 60% of $5000 = $3000

Car and personal loans = $1000

Monthly loan amount for private properties: $3000 - $1000 = $2000

 

 

Mortgage Servicing Ratio (MSR)

 

The MSR applies to HDB and Executive Condominiums (EC) purchases. The MSR ratio is 30%.

The MSR limits your loan quantum such that the repayment of your monthly mortgage loan should not exceed 30% of your monthly income.

 

That means that even if you have no outstanding debts and can borrow 60% of your gross monthly income under the TDSR, if you want to buy an HDB flat or EC, the most you can borrow is only 30% of your gross monthly income.

 

Example:        

 

Mr Tan earns $5000 a month

MSR 30% of $5000 = $1500

Monthly loan amount for HDB/EC properties: $1500

 

 

What constitutes Gross Monthly Income?

 

  • If you have a fixed income, it is 100% of your monthly income.
  • If you have a variable income (such as commission, bonus, overtime pay), only 70% is considered. There is a 30% ‘haircut’ factored in.
  • Financial assets such as fixed deposit that are pledged with the bank for 4 years

 

Below is an example of how the TDSR works:

 

  Employed/Fixed salary Self-employed/Variable Salary
     
Gross Monthly Income $5,000 $5,000 (average)
     
TDSR Income  $5,000 $3,500 (30% haircut)
     
Subject to 60% $3,000 $2,100
     
Debt Obligations $1,500 $1,500
     
Monthly Mortgage Loan $1,500 $600

 

 

How does the TDSR affect your affordability?

 

Financial institutions calculate your monthly loan repayment amount based on a medium term rate of 3.5% for residential properties and 4.5% for commercial properties. These are the “stress test” interest rates which determines whether you can afford a rise in interest rates without busting the 60% limit. This is a safeguard put in place to ensure that you can afford your mortgage repayments even when interest rates rise.

 

 

What if you need a higher TDSR to afford your desired property?

 

There are a few ways to increase your 60% ratio:

 

  • Reduce your debt: Pay off some of your debts so that you can free up your monthly income for repayment of your home loan
  • Lower the loan quantum that you borrow and pay a higher downpayment instead
  • Ask the bank for an exemption. This will be reviewed on a case-by-case basis

 

For homeowners with existing property loans who need to refinance their properties, the MAS has made some exemptions to the TDSR. Read more about it here.

 

 

What if I am a joint borrower with my wife?

 

When you purchase a property with another party, the Income Weighted Average Age formula kicks in for the calculation of the loan tenure. It affects joint applicants for a loan and gives a gauge of their combined ability to repay it. It is calculated by taking the average age of the borrows, weighted by their respective gross income.

 

Example:     

  

Mr Koh, 43 years old earns $7300 per month
 
Mrs Koh, 32 years old earns $6900 a month
 
Their combined monthly income = $7300 + $6900 = $14200
 
Income-weighted average weight = (7300 / 14200 x 43 years old) + (6900 / 14200 x 32 years old)
   
  = 37.76
   
  = 38 (rounded up)

 

Therefore, the loan tenure (up to a maximum of 65 years old) is (65 - 38) 27 years.

 

 

Conclusion

 

If your salary consists of a variable component such as bonuses and overtime pay, the calculations will be more complex as these variables are subject to a 30% haircut even though your monthly salary isn’t.

 

If you are unsure about your TDSR, do contact our HomeReward representatives here. We will be pleased to help you check your loan eligibility and/or link you up with our banking partners.

 

Disclaimer : This article serves as a guide only, and you should not make your decision based solely on this article. You are advised to seek professional advice from a licensed real estate salesperson to assist you in planning your real estate portfolio.