What Is TDSR? Find Out How Much You Can Borrow With TDSR Calculator 

5 Points to help you better understand the new property tax ruling

Points to help you better understand the new property tax ruling 

Owning a house is a lifelong dream for many Singaporeans, but with the ever-rising cost of land prices in prime areas, it has made it even harder for people to own homes. For some saving might be enough but for others, they may require to seek financial assistance from banks and mortgage lenders.

When it comes to money its always a huge risk to let individuals manage their finances especially when it comes to real estate. It’s still a risky situation, and the government came up TDSR to cushion their citizens against financial losses. In this post, we are going to have an in-depth discussion on all matters total debt servicing ratio Singapore and determine how much you can borrow using the Singapore mortgage calculator

What is the TDSR?

The Total Debt Servicing Ratio (TDSR) was introduced in June 2013 by the Monetary Authority of Singapore(MAS). It’s a mechanized framework which ensures that individuals borrow and financial institution lend responsibly. It’s a standard which applies to all property loans given by banks.

In simpler terms, Singapore tdsr limits the amount borrowers can spend servicing the debts to 60% of their total gross monthly income.

As opposed to other cooling measures which are usually temporary, TDSR is a permanent structural reform that banks and other financial institutions must adhere to when accessing the following:

  • loans secured by the property
  • Housing loans
  • Refinancing of housing loans

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Reasons why debt service ratio was introduced

The main reason why the government introduced TDSR was to strengthen and solidify the credit underwriting practices of banks and other financial institutions to ensure loans are offered to only those who can afford them and encourage fiscal responsibility amongst borrowers.

Currently, the TDSR is a standardized framework that banks employ when assessing the credit viability of their clients and assist in preventing high-risk loans being issued.

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How does the TDSR affect you?

TDSR limits the amount that you can borrow (personal loan quantum); it ensures your monthly loan deductions account for less than 60% of your salary.

The only exception is for HDB flats and executive condominiums where mortgage repayments must not account for more than 30 percent of a borrower’s gross monthly income regardless of other debt obligations.

How can TDSR impact your ability to secure a loan

The tdsr calculation is straightforward, we shall talk about that later on. It’s important to note in response to other cooling measures and the tweaks made to seal the loopholes in the original framework; the mortgage calculation process is now much more restrictive and thorough.

  • Guarantors, borrowers, and mortgagors are now regarded as the same
  • Specific financial assets and variable income are now subjected to a haircut
  • The introduction of the stress-test interest rate is being used (currently 3.5 percent for residential properties)
  • The new rules on loan tenure are now in the application (now with a maximum tenure of 35 years)
  • The Loan-to-Value ratio limits (starting from a maximum of 80%, it’s now been reduced to 30%)

For the case of executive condominiums and HDB flats, a Mortgage Servicing Ratio of 30 percent still applies.

In some cases, where there are joint borrowers, the TDSR calculation is based on aggregate gross monthly incomes, and the income-weighted average age of borrowers determines debt obligations and loan tenure.

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How is TDSR calculated?

TDSR is calculated by dividing the borrower’s total monthly debt obligations by gross monthly income.

Consider the following examples of the Singapore mortgage calculator

Variable income

Nemi earns a fixed income of $7,000 per month plus rental income of $3,000 per month. Due to TDSR purposes, his variable income is subject to30 percent haircut. His gross monthly salary is $9,100 ($7,000 + $2,100). Already his debt obligations total up to $4,500
Variable income

Joint applications

Rose has a fixed income of $2,500 per month and debt obligations of $1000. On the other hand, her fiancé’s also has a gross monthly income of $5,000 and debt obligations of $3,000.

Joint applications

Fixed income

Edwin earns a total fixed income of SGD$10,000 per month, the total sum of his loan repayments, credit card, and vehicle loan is SGD$4500 every month, the TDSR formula is

Fixed income

Edwin’s TDSR limit is S$6,000 (60% of S$10,000).

If Edwin applies for a property loan, under the TDSR regulations the maximum amount, he could make as repayment each month will be S$1,500 (S$6,000 – S$4,500). If that’s not enough and he wanted a more substantial loan amount, Edwin would be required to pay all of his outstanding debts.

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Which situation can TDSR Exemptions apply

In specific categories of borrowers whose current loans exceed 60 percent of their gross monthly income, the government has placed exemptions from the TDSR framework

Homeowners are exempted from TDSR in instances where

  • They are not owners of any other property
  • They do not have any other property loans

The government announced beginning from 1 September 2016, all home owned residential properties including those that were purchased after the implementation of TDSR, they may be refinanced above the TDSR limit of 60% if

  • The borrower meets all bank’s credit assessment criteria
  • The borrower must commit to a debt reduction strategy with his/her bank comprising a repayment of at least 3 percent of the outstanding balance over a period of not more than three years

The Original TDSR framework allowed banks and financial institutions to fund property loans exceeding the maximum limit of 60 percent provided

  • They are granted only on an exceptional basis
  • Individual must accept to be subjected through an enhanced and thorough credit evaluation by the financial institution
  • Outline the reasons for financing the loan and all the details about the loan must be submitted to MAS.

Mortgage Service Ratio (MSR) 

For those looking to purchase executive condominiums or HDB resale flat you will be required to factor in the mas tdsr. The MSR limits the buying of HDB flats or executive condominium to 30% of your total gross monthly income

When upgrading how does the TDSR apply

Homeowners wanting to buy executive condos or HDB flats directly from property developers are exempted from total debt servicing ratio as long as

  • They agree to sell their existing property
  • They agree not to own any other property
  • They do not have any other property loans
  • They must satisfy the financial institution’s credit assessment criteria

When looking to purchase any property do not deposit an initial down payment then realizing later that you are not able to meet all of your financial obligations. It’s advisable always to consult a property agent.       

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