Total Debt Servicing Ratio: TDSR Calculator and how it affects you

The Total Debt Servicing Ratio (TDSR) acts like a financial advisor that limits the amount of money you can borrow so that you don’t spend more than you can afford.

The framework helps calculate how much percentage of income that you get monthly can be used to serve the secured loans that you can take out from the bank.

Currently, the TDSR limit is set at 60%, which means that whatever debt obligations you might have, such as credit limit, revolving loan, personal loan repayments, student loans, Overseas Property Business Loans, bank home loan, among others, cannot cross the 60% mark of your total gross income.

These guidelines include all residential property purchase loans provided by banks and other financial institutions, which are not necessarily banks.

In simple words, you can think of TDSR as the portion of your income that can be spent on your debt repayment.

Although, at first glance, it might look like a limitation on the home buyer, it is a safeguard that ensures that the borrower of the loan is adequate financially to repay the Maximum bank loan they have taken.

Failure to repay debts to banks and other financial institutions may lead to legal problems, which is what the TDSR is trying to prevent from happening to the borrower.

In case you have any outstanding debts that you still have to repay, then the amount that you can borrow will be reduced according to the TDSR.

This means that even if the limit set by TDSR currently stands at 60% of your gross monthly income, if you have outstanding debt obligations, the actual amount you can borrow will be put up against these obligations and will result in a lower amount that you can borrow from the loan providers.

Hence, the only way for you to enjoy the total 60% limit on your loan is to pay off any outstanding non-mortgage loans you may have.

This includes credit cards that you might be paying off in installation, monthly car loan payments, personal loans, student loans, etc.

Variable income haircuts:

Note that in some cases, there may be a haircut regarding variable income.

So, if you are someone with a fixed monthly salary without any outstanding debts you have to repay, you can enjoy the total TDSR limit, which is 60% of your monthly income.

Whereas, if you are an individual with variable income, this includes people who work as freelancers or are in business like self-employment, the lenders see these borrowers as a potential high risk loans when it comes to repayment.

Because of their risk, these individuals are granted just 70% of their total income access when calculating the TDSR.

To explain this in an example, you can take the case of someone who earned a fixed salary of $50,000 in a year.

When this individual applies for a loan and checks the loan eligibility for the full 60% TDSR, they will get 60% multiplied by $50,000/12 months.

This means that they will be paying $2500 as part of the Max Loan repayment servicing.

On the other hand, if the same individual is a businessman, self-employed, or a freelancer with variable income, then only 70% of their monthly payment will be counted as their actual income.

This means that even if the person earned $50,000 in a given year, only 70% of this total amount would be counted as their total income, which is $35,000 in this example.

Hence, the TDSR will also change accordingly.

Now with just $35,000 being counted, their 60% TDSR will amount to 60% x $35,000/12 months.

This means their loan Monthly repayment servicing will cost only $1750.

Rental income haircut:

Like variable income haircuts, the rental income haircuts so consider just 70% of the total income when calculating the TDSR.

In cases where haircuts might lower your TDSR, you can use your assets to increase the TDSR for a larger loan payments totals.

If you are an active investor, you have even more ways of boosting your TDSR.

According to the Monetary Authority of Singapore, if you have any kind of debentures or bonds, business trusts, foreign currency deposits, stocks, gold, structured deposits, and unit trusts, they are considered liquid assets.

These liquid assets can be counted and added to your total monthly income.

As long as you can show the lender proof of your ownership of these assets, you have a chance of getting a higher TDSR and even obtaining a higher amount of loan.

Even if you do not qualify as a fixed salary individual who can avail of the 60% cap TDSR, as long as you pledge these assets to the lender, you can get your maximum loan tenor.

Typically, these individuals pledge their liquid assets to the bank or the financial institution for a fixed period, such as 3 years or 4 years.

However, this is not a method that most prospective buyers would go for but use as a last resort.

Buying HDB flats or Executive Condos:

If you are planning on buying Executive Condominiums or Housing & Development Board flats, there is a different list of criteria you need to pass in addition to the TDSR.

The Mortgage Servicing Ratio (MSR) has set additional stringent guidelines for HDB flat and EC buyers. The monthly mortgage repayments for their properties should not be more than 30% of the household income.

According to this rule, even if you qualify for the 60% TDSR, you can use just half of the 60% for your mortgage loan repayment. So, if the fixed household income is $10,000, only $300 can be sued for this repayment purpose.

The rest of the amount can be used for other debt servicing in case you have any other outstanding debt payments to be done, such as a car or student loans.

TDSR Framework: 

Under the TDSR framework, there’s no such thing as refinancing of housing loans except for cases of investment in housing loan measures.

Ever since the implementation of the TDSR in 2013, homeowners who were looking to refinance their overpriced home loans at cheap interest rates could not do so.

After a few years down the line, in 2016, the MAS rewrote its rules and guidelines regarding refinancing for homeowners.

After revalidating the guidelines, homeowners were allowed to refinance their homes and be excused from the TDSR framework.

The only condition for these homeowners is that they should get through the credit assessments according to their respective financial institutions or banks.

Regarding refinancing for investment housing loans, the TDSR framework is still relevant.

There are some things that the house owner needs to keep in mind before refinancing their property above the 60% limit.

They will only be allowed to refinance their homes if they commit to a plan from their respective financial institution for a debt reduction.

This means they will only have to pay at least 3% of the outstanding balance under their name within 3 years.

They should also fulfill all the credit check assessments that are already set up by their financial institution/ bank.

The reason behind rewriting the rules regarding the TDSR and its framework was to allow homeowners some flexibility when refinancing their private properties.

The MAS also went through this process to encourage homeowners and borrowers to make informed decisions regarding taking property-related loans.

According to these new additions in the guidelines, they reduce the financial risk of the borrower having to pay high amounts in interest rates.

They are also less likely to be faced with interest rate increments in the future and lose money in the process.

If you want, you can remortgage the home you have prepaid for within the 50% mark of your actual property’s value.

This can be done without the involvement of any kind of TDSR limitation.

Back in March 20217, the government announced in Singapore that TDSR guidelines would not apply to mortgage equity withdrawal loans (MWLs) loans.

These kinds of loans allow the borrower to take the loan against the already paid property’s value.

The only condition for this loan is that your outstanding mortgage, if you have any, should not be more than 45% of the actual property’s value.

This means that your loan-to-value ratio should be less than or equal to 45%.

This exception allows homeowners to monetize their properties in the best way.

There is a formula that you can follow to calculate the TDSR correctly.

The simplest way to do this is by considering the monthly debt repayments you have to make and dividing that by the gross monthly income.

After this, multiply the answer by 100%.

If your answer is below 55%, you have an accurate answer.

You can also use a TDSR loan calculator to do this for you.

You just have to add user inputs into the text boxes, and the website will do it for you.

If you’re manually calculating, ensure your final figure does not exceed 55%.

However, there are certain exceptions to this 55% rule.

It is recommended that your monthly debt repayments do not exceed the 30% or 40% mark regardless of your limit.

Keep in mind that if your number is near the TDSR limit, chances are that you might be able to afford the property, but it might be too expensive for you.

In case, even after all these adjustments, you still are unable to reach the maximum loan eligibility to meet the TDSR for your loan, you can do the following:

Make your loan tenure longer:

For example, if you are thinking of a 4-year plan, stretch it out to 6-8 years so you have more time to make up for the loan, and your lower TDSR can qualify for the loan.

Pay a big chunk of the payment and take a smaller loan:

Making a more significant downpayment and leaving the minor part of the total payment for a loan could help you get the loan you want based on your low TDSR.

Look for a property you can afford:

Most of the time, your TDSR is not enough for a loan because you might be looking at properties that are too expensive for you, and the lender will assume that you are a risk factor when it comes to unsecured loans repayment process.

The monthly debt repayment mentioned in the formula includes all the outstanding debts you might have like renovation loans, car loans, personal loans, or credit card loans.

Be aware that if you are an individual with variable or rental income, only 70% of your actual level of income will be considered as your total gross income when calculating the TDSR.

Hence, keeping this in mind, even if you have the same total income as another individual with a fixed income, your TDSR will be lower than theirs because they fulfil the loan eligibility criteria for 60% of their total income, unlike your 70% cap.

The factors that go into your TDSR:

Monthly Debt Obligations

The total monthly debt obligations mentioned in the formula include all your debts, which require you to make Monthly repayment instalments.

These can be your car, personal, renovation, and other things like credit card loans.

Gross Monthly Income

This is the monthly income of the borrower.

The total amount is calculated before paying off your income before tax and any CPF contributions.

Under this factor, you should remember that most banks and financial institutions will apply a haircut to safeguard the loan rate packages.

The haircut will be 30%, resulting in a much lower TDSR.

This applies only to those individuals with variable or rental income.

The reason behind this is that variable-income individuals don’t come with the guarantee to be able to pay all their dues on time as a salaried individual would.

The Mortgage Servicing Ratio (MSR), unlike the TDSR, only applies to the housing loans that are for Executive Condominiums and HDB flats.

Although the MSR is less standard than the TDSR, it is just as important.

The MSR works similar to the TDSR framework and sets a limit on the amount of money a borrower can spend to repay deep debts.

The cap is set at 30% of the borrower’s total monthly income.

Take, for example, if you are an individual earning about $7,000 every month, the mortgage loan refinancing installments you will be paying the lender is $2,100.

How did the Mortgage Servicing Ratio (MSR) start?

After the introduction of the Mortgage Servicing Ratio, initially, this body’s limit on home buyers was set at 40%. This meant that whoever wanted to buy an HDB flat or an EC had to pay 40% of their gross monthly income.

In January of 2013, this limit was lowered to 35%.

Simultaneously, the Monetary Association of Singapore (MAS) imposed a new limit of 30% for loans taken by homeowners to buy HDB flats.

In August of the same year, the MSR cap for HDB-issued loans was lowered again to 30%, bringing it into line with the banks.

The following months saw a decrease of 30% in MSR for buying ECs from property developers.

So currently, all HDB flats and ECs loans enjoy an MSR of 30%.

MSR’s core principle is that you cannot exceed the 30% mark when considering your total income.

This is also only applicable for HDB flats and ECs.

How to calculate MSR:

You can calculate the MSR by dividing the total gross household income of the borrower by the borrower’s monthly mortgage obligations, which include all the debts secured by the property.

Suppose you are not an individual borrower but a part of a joint loan borrowers’ group. In that case, the calculation will be done by taking the accumulated total monthly mortgage price and dividing that by the total gross monthly income.

MSR Formula:

Monthly repayment installments for all property loans / Gross Monthly Income) x 100% ≤ 30%

You can also make sure of the Affordability calculator to get an idea about different amounts of loans you can afford. It acts as a debt service for those who are looking for affordable loan services.

Things to consider before calculating your MSR:

• It is essential to be aware of the nature of property loans rates of the borrower, which are currently ongoing.
• Consider a minimum payments of 20% of the total monthly loan obligations for your mortgage for property loans where you, as a borrower, are also playing the role of a guarantor.

When it comes to bank repayments, you need to consider the following:

If you are applying for bank loans, you need to know the loan interest rates.

For all bank loan applications, a medium rate at typically 3 to 4 percent is  considered for the loan repayments, while individuals with variable income have only 70% of their total income considered.

You also have to pledge all your liquid assets to the bank if you wish to increase the amount you are eligible to loan from the bank.

These pledges have to be done for a minimum of 4 years or a maximum of 30 years.

But this is also only possible if the maximum Loan-to-Value ratio amount is the amount that is being borrowed.

Regarding HDB loans, the loan repayment tenure is 25 years.

In some cases, the bank will take 65 years minus the borrower’s age, and the answer will be how long the loan tenure will be for the person.

They might even calculate both and take the one that is the lower number.

The loan itself is calculated by considering the HDB concessionary interest rate with a loan ceiling of 90%.

If your MSR shows a number higher than 30%, you can try to stretch out your loan tenure to become eligible.

If this is not an option for you, you can also consider reducing the repayments of other properties in your name.

Another way to work around this is by increasing your down payment so that your monthly payments decrease.

Mortgage Servicing Ratio (MSR) Exemptions:

The only exemption for MSR is for HDB flats and ECs are owner-occupied housing loans.

It also does not apply to properties purchased before January 12th, 2013, for all HDB flats and December 10th, 2013, for ECs which were directly bought from property developers.

What factors need to be considered in TDSR calculation?

The main factors to consider before conducting a TDSR calculation are:

The stress test:

All banks will initiate a stress test for all categories of borrowers with an interest rate of 3.50%. This calculation will ensure that you are safe within all TDSR constraints.

Employment status:

If you are self-employed or freelancing, this will significantly affect your TDSR.

Your eligibility for home loans is lower when you are self-employed with variable income than fixed-salary job holders.

If you are a fixed-salary individual, you have a better chance of scoring higher for your TDSR.

Income weighted average age (IWAA):

The IWAA is applied to more than one in a number of borrowers, also known as joint borrowers.

The IWAA will also affect the loan tenure and the amount of loan you can take.

Outstanding loans:

If you already have existing outstanding loans, TDSR will make it harder for you to invest in more properties by taking out a loan from a bank or an FI.

Refinancing:

When refinancing your properties, the TDSR makes it harder for you to do so because there are so many criteria that you need to pass to get the loan you are looking for.

The interest rates of home loans are also subject to rising and falling without any certainty.

If you have already taken a loan out of the TDSR framework, you will find it challenging to repay the loan amount you have taken because you don’t meet the 60% threshold of the TDSR.

Rules for loan tenure:

With the TDSR framework in place, it is harder for individuals to extend their loan tenure if they want.

If you want o get a property through joint application borrowing, the TDSR requires the weighted average of both borrowers to determine the loan tenure.

It is also necessary for both borrowers to have guaranteed sources of income.

Proof with statements:

The TDSR requires you to provide the authorities with every kind of bank statement.

Banks require you to submit all receipts, from credit card statements to gym memberships.

Again, for variable-income individuals, there are more documents you need to submit, such as proof of rent payments, tenancy agreement and commissions from work.

As discussed above, the TDSR is a significant factor in determining how much loan you can actually borrow from a financial institution or a bank.

The amount of loan you qualify for will significantly depend on the already established TDSR framework, such as the limits at 60% for fixed salary individuals and 70% for variable income individuals.

Plus, the more loan obligations you have against your name, the harder it will be for you to take out a loan.

How much loan you qualify for will depend on the following:

Haircuts for variable income individuals

Variable income individuals are subject to haircuts since they are considered risky borrowers.

Plus, there’s only 70% of their gross monthly operating income is factored in for the TDSR.

Therefore, it affects their total income that gets calculated for the loan.

Loan-to-Value limits

If you already have a different home loan, this can contribute to the LTV limit. From 80%, the maximum can become a lot lower. This is, of course, to ensure that you do not add to your overall debt by adding another refinancing or home loan.

The proportion of the property’s value of which you’re allowed to borrow to finance the property

Age/Loan tenure

Loan tenure for all HDB properties is set at 30 years for all HDB properties, while non-HDB properties are set at 35 years loan tenure.

Hence, the age of borrowers is not as significant as it used to be.

With the introduction of TDSR, only those who earn an income are eligible to be co-borrowers when you have to take out a loan.

So the income-weighted average age for joint borrowers is considered when determining the loan tenure.

Stress test interest rate

Banks use a stress-test interest rate of 3.5% for all residential properties and 4.5% for industrial and commercial properties while also maintaining the 60% TDSR threshold.

This affects the total amount of money that a borrower can take out of the bank or FI, regardless of the loan quantum.

The amount of loan you can borrow is greatly affected by the LTV ratio.

This system defines how much the maximum home loan amount a person can get from a bank or FI.

According to the rules, you can take out a 75% LTV loan limit.

The loan tenure for this can last up to 30 years.

The TDSR limits the amount you can borrow by ensuring that your monthly repayments are 60% or less of your monthly income streams.

If you have any outstanding debts, the loan limit will decrease accordingly.

Certain factors come into play to determine how much loan you can borrow:

Income:

If you are a variable income job holder, your TDSR will factor in only 70% of your gross monthly income.

Hence, the amount you can borrow will decrease accordingly.

Stress test:

The banks will conduct a stress test for all residential properties with an interest rate of 3.5%.

You still have to maintain the 60% threshold for TDSR whether the interest rate increases or not.

Loan-to-Value ratio:

You are only allowed to borrow the amount of money that the property is worth in terms of the value set by the current property market.

Regarding HDB flats, the highest LTV is set at 90%.

On the other hand, bank loans are limited to 75% for the LTV ratio.

Loan tenure:

For all HDB properties, the maximum loan tenure is up to 30 years, while non HDB properties, the maximum years is set at 35 years.

Suppose your monthly debt situation or monthly home loan repayment process exceed the 60% TDSR limit; you can try the following options:

• Go for the longest loan tenure to reduce the monthly payments to fit the 60% limit.
• If you have outstanding payments to be made, focus on one or two that you can quickly pay off so you can focus on the one that requires the most attention for the TDSR threshold.
• Request your bank or financial institution for an exemption, but it is not guaranteed that your case will be approved under this condition.
• Submit pledges of liquid financial assets so that the FI or bank can qualify you for the loan even if you pass the 60% mark.

When it comes to exceptional cases, the MAS needs to be informed of them, and they will cross-check with the FIs if they are eligible under certain conditions:

• Documented details of the loan applicant from the start.
• Details of the loan that was granted by the FI or bank in the first place
• Subject the cases for enhanced credit evaluation.
• Set a debt reduction plan with these borrowers
• Valid reasons why it came under the exception case.

Debt servicing ratio like TDSRs applies to any individual applying for a loan from any financial institution or bank.

There isn’t much difference between FI loan vs bank loans.

If the loan is being offered to a company, then these TDSR guidelines are not applicable and will be dealt with under a different set of criteria.

However, all financial institutions and banks are supposed to apply all the guidelines laid out by the TDSR framework to whoever the borrower is.

The only criterion is that the borrower should be an individual looking to buy property or business with a sole proprietorship.

The existence of the TDSR ensures that all individuals and businesses who take current home loans can repay them on time in the right amount.

When it comes to finances, there are always many things you need to look out for so that you don’t accidentally land in trouble.

Hence, the TDSR acts as a safeguard for these financial institutions to make sure that they are lending their money only to borrowers who can actually repay whatever they have borrowed.

Not only this, but it also assures these institutions that their borrowers are capable of guaranteeing that they will have the money they need to repay every month.

For the borrowers as well, it is a way for them to make sure that they know how much they are spending and that they can afford whatever residential property they are looking to buy.

When the TDSR calculation is done, the borrower will get an idea of whether they can buy the particular property or need to look for cheaper properties.

If the TDSR falls below the limit, it is usually a tell-tale sign that they probably cannot afford the property or that they might be buried in debt because of this decision.

Hence, it acts as a safeguard for the borrowers as well.

Additionally, the TDSR keeps a good check on market interest rates and keeps them from rising above the purchase price.

Before introducing the most recent cooling measures in Singapore, the price of properties was experiencing an all-time high.

With revisions to the TDSR, homeowners and sellers can no longer charge sky-high prices for their properties when they try to refinance the properties they bought under the TDSR.

All in all, the TDSR is an effective way to encourage prudence by making the property market more sustainable.

TDSR exemptions

As stringent as the TDSR rules and guidelines sound, there are a few exceptions to these guidelines which might be helpful to know. The TDSR is not applicable for:

Owner-occupiers who are refinancing their loans for the property:

If you are already an existing borrower looking for a way to refinance your own property, the TDSR does not apply to you.

This is excellent news for those occupying their own homes and paying the loan for the home they are currently living in.

However, there are certain conditions to this exemption:

The owner-occupiers should not own any other property apart from the one that they are currently trying to refinance.

They should not have any other outstanding monthly home loan installments from banks or financial institutions.

Mortgage equity withdrawal loans (MWLs)

The TDSR framework is non-applicable for mortgage equity withdrawal loans which are the loans that property owners take against their prepaid property value.

As long as the LTV ratio of the loan does not cross the 50% threshold, TDSR is inapplicable to these MWLs.

The main reason behind this exemption was to allow homeowners, specifically retirees, to monetize their own properties and earn a living.

Refinancing of investment property loans

Before the passing of new bills regarding TDSR exemptions, people who bought properties for investment purposes could refinance their properties above the current TDSR limits as long as they committed to a debt reduction plan during the refinancing process properties.

Now, borrowers can refinance their investment property loans without worrying about the TDSR limits if they fulfill certain conditions.

This includes committing to debt reduction with the borrower’s bank or financial institution.

This will include the repayment of a minimum of 3% of the total outstanding rate within 3 years.

In addition to this, the financial institution’s credit assessment should be fulfilled by the borrower.

Some exceptional cases

Under the TDSR framework, financial institutions enjoy specific provisions like granting property loans that exceed the 60% limit set by the TDSR.

The criteria to pass for “exceptional cases” are:

• The case should be documented and kept by the financial institution in question.
• The institution set up some kind of debt reduction plan with the borrowers.
• The financial institution uses these cases as means to enhance credit evaluation.
• The case should be sent to the MAS and made aware.

If you are considering purchasing homes and properties in Singapore, the TDSR will definitely be a cause of concern.

It is one of the essential steps you must consider before deciding to buy a house because it is quite a huge commitment.

What the TDSR does is that it limits your ability to borrow a certain amount of money from a bank or a financial institution.

It does not block you from getting a loan but caps how much you can borrow by calculating how quickly you can process the maximum repayment of loans.

In other words, the TDSR works as a system to check how reliable you are in repaying the loan you have already taken from them.

It is a way for these institutions to ensure that you are not at risk of losing money or being unable to repay what you owe and possibly landing in jail for failing to see this obligation through.

Using a TDSR will ensure that you can set a small percentage of your monthly salary aside to repay your loan.

This step is quite crucial in determining how much of a loan you can actually afford to take.

If you fall short of the minimum requirement, it might indicate that the loan you are planning on taking is too high for you.

You may want to reconsider paying back the loan or look for other properties you can afford.

With the help of TDSR calculators, you can do a self-assessment of this ratio before you go to a financial advisor for professional service.

Ever since the 2017 cooling measures introduction in Singapore, the TDSR has also been affected in specific ways.

TDSR framework has been revised accordingly.  

Some of the changes include exemption of the 60% TDSR limit for mortgage equity withdrawal loans in which the LTV ratio is less than or equal to 50%.

The LTV refers to the loan-to-value ratio of the current market property’s value to the

monthly home loan repayment.

Ever since this new revision, homeowners have enjoyed certain benefits where they can monetize on the properties that they already own.

2018 also saw a few changes in the LTV scene in Singapore.

The LTV limits were brought to a tight 5% for all loans provided by financial institutions for housing loans.

This reduced the loan a borrower could take from a lender.

Before the revision, they could take up to 80% over a period according to the loan tenure rules but now they can only borrow 75%.

This also comes with certain conditions, like if the loan tenure is more than 30 years or exceeds the 65 years mark, then the LTV limit falls to 55%.

This is the limit for loan tenure.

These new changes have made it difficult for investors and potential borrower to purchase properties in Singapore.

The point of this action was to cool down the surge in property prices in the nation, where people were finding it hard to pay for basic housing needs.