Demystifying the Total Debt Servicing Ratio (TDSR): Exploring Housing Loans, Gross Income, and Financial Factors

by | Jun 5, 2023

Table of Contents

Latest Launches

New Launch Condo Banner

total debt servicing ratio intro

Understanding the Total Debt Servicing Ratio (TDSR) is crucial to secure your dream home.

TDSR, also known as Total Debt Servicing Ratio, is a key factor that lenders use to assess your eligibility for a mortgage.

In this article, we will delve into TDSR and its significance, ensuring you’re well-equipped to navigate the home buying process.

Key Takeaways

Topic Key Takeaway
TDSR Definition TDSR is a financial calculation that determines the maximum amount of a borrower’s gross monthly income for debt repayments.
Importance of TDSR in Mortgage Applications TDSR is used by banks to assess a borrower’s ability to repay a loan, ensuring they have enough funds for daily expenses.
Exceptions to TDSR Rules Borrowers with variable income or substantial assets may be exempted from TDSR limitations, but lender discretion applies.
MSR Definition and Differences from TDSR MSR measures the portion of a borrower’s income for mortgage payments only and has a threshold of 30% in Singapore.
Importance of MSR in Mortgage Applications MSR is primarily used for Housing and Development Board (HDB) flats to limit the monthly housing loan repayment percentage.
Exceptions to MSR Rules MSR rules may be relaxed for borrowers with shorter lease periods or lower income, facilitating easier home loan approval.
Calculation of TDSR TDSR is calculated by dividing the sum of monthly debt obligations by gross monthly income and multiplying by 100%.
Factors Impacting TDSR Calculation Loan repayment tenure, interest rate, and caps can affect TDSR, with longer tenures and higher rates increasing the ratio.
TDSR and MSR’s Role in Loan Eligibility Financial institutions consider TDSR and MSR ratios to assess a borrower’s eligibility for a loan.
Role of Gross Monthly Income in Loan Eligibility Sufficient gross monthly income is necessary to support loan repayments while meeting other financial obligations.
Impact of Cooling Measures on TDSR and MSR Government cooling measures directly impact TDSR and MSR calculations, affecting borrowers’ borrowing capabilities.
Loan Repayment and Monthly Repayment for TDSR Financial institutions evaluate loan applications based on upcoming loan repayments and the borrower’s cash flow.
Refinancing and Borrowing within TDSR Limits Borrowers need to manage finances carefully to remain within TDSR limits, including refinancing, reducing debt, and budgeting.
Exemptions from TDSR Certain borrowers, such as those purchasing HDB flats with CPF or cash savings and refinancing existing loans, are exempt from TDSR.
Impact of Loan Tenure on TDSR and Loan Affordability Longer loan tenures increase loan affordability but also raise TDSR, affecting the portion of income for debt repayment.
Challenges of Variable Income in Loan Applications Variable income poses challenges in loan applications, and lenders require consistent evidence to assess repayment capacity.
Relationship between TDSR and MSR TDSR and MSR are both debt servicing ratios, but TDSR considers all debts while MSR focuses solely on mortgage payments.
Tips for Calculating and Managing TDSR Borrowers can improve their TDSR by reducing monthly expenses, opting for longer loan tenures, and paying off outstanding debts.
TDSR Rules and Regulations TDSR rules set by the Singaporean government aim to ensure borrowers buy only what they can afford based on income and debt.
Consequences of not meeting TDSR requirements Failure to meet TDSR requirements may limit loan eligibility or result in higher interest rates for property buyers.
MSR Application and Borrowing Capacity MSR restricts the maximum loan amount for investment purposes based on income levels, ensuring borrowers’ repayment ability.

What is TDSR and how does it affect mortgage applications?

What is TDSR and how does it affect mortgage applications

Definition of TDSR

TDSR is a financial calculation that determines the maximum amount of a borrower’s gross monthly income that can go towards debt repayments.

This includes mortgage loans, car loans, personal loans, student loans, and other financial obligations that a borrower has.

 

Importance of TDSR in Mortgage Applications

Banks and financial institutions use TDSR as a benchmark to assess the borrower’s ability to repay their loan.

If a borrowers’ monthly debt obligations exceed 60% of their gross monthly income, their loan application may be rejected.

This is to prevent borrowers from being overburdened with debt and ensure that they have enough funds for their daily expenses and unforeseen emergencies.

 

Exceptions to TDSR Rules

There are exceptions to the TDSR rules, such as for borrowers with a variable income or substantial financial assets.

For instance, if a borrower has rental income or financial assets that can cover their loan repayments, financial institutions may grant them a loan even if their TDSR exceeds 60%.

However, this is entirely at the lender’s discretion, and borrowers should be cautious when taking on additional debt.

Exploring the Mortgage Servicing Ratio (MSR) and How It Differs from TDSR in Singapore

Definition of MSR and How it Differs from TDSR

Another commonly used financial calculation in property buying is the Mortgage Servicing Ratio (MSR).

MSR measures the amount of a borrower’s monthly income that can be used to pay for the mortgage loan.

Unlike TDSR, MSR only includes the mortgage loan and not other financial obligations.

 

Importance of MSR in Mortgage Applications

MSR is used primarily for Housing and Development Board (HDB) flats.

In Singapore, the MSR limit is capped at 30%, meaning that a borrower’s monthly housing loan repayment cannot exceed 30% of their gross monthly income.

 

Exceptions to MSR Rules

There are also exceptions to MSR rules, such as for borrowers who are buying an HDB flat with a short lease or those who have a lower income.

In such cases, the MSR limits may be relaxed to make it easier for them to obtain a home loan.

The Calculation of TDSR: How to Determine Your Total Debt Servicing Ratio

The Calculation of TDSR

Calculating Gross Monthly Income and Debt Obligation

To calculate your TDSR, you first need to determine your gross monthly income and monthly debt obligation.

Gross monthly income includes all sources of income, such as salary, bonuses, and rental income.

Monthly debt obligation includes your mortgage loan, car loan, personal loan, student loan, and other financial obligations that you have.

 

Inclusion of Property Loan, Car Loan, Student Loan, and

Personal Loan

It’s essential to note that property loans are the most significant contributing factor to TDSR calculations among all financial obligations, as it is typically the largest monthly repayment.

Car loans, personal loans, and student loans also factor into the calculation but to a lesser extent.

 

Impact of Loan Repayment Tenure, Interest Rate, and Caps

on TDSR

The loan repayment tenure, interest rate, and caps also have an impact on the TDSR calculation.

Borrowers should be mindful that a longer loan repayment tenure may result in a lower monthly repayment, but it also increases the total interest paid over time.

Similarly, a loan with a higher interest rate can lead to more substantial monthly repayments and a higher TDSR ratio.

TDSR and MSR: Key Factors in Assessing Loan Eligibility for Property Buyers in Singapore

Application of TDSR and MSR in Property Buying

TDSR and MSR are crucial factors that banks and financial institutions consider when assessing a borrower’s loan eligibility.

Financial institutions may grant a loan only if a borrower’s TDSR and MSR ratios fall within the stipulated limits.

 

Role of Gross Monthly Income in Determining Loan

Eligibility

Gross monthly income that goes towards debt repayments reduces the amount available for daily expenses, such as food and transport expenses and may significantly impact a borrower’s quality of life.

Financial institutions need to ensure that borrowers have enough income to manage their loan repayments and meet their financial obligations.

Typically, financial institutions would judge the loan application from the borrower’s monthly income and repayment capacity to support his or her loan application.

 

Impact of Cooling Measures on TDSR and MSR

Singapore’s government has introduced several cooling measures to regulate the property market and prevent price bubbles.

These measures have a direct impact on TDSR and MSR calculations, and it’s essential for borrowers to be aware of them.

For example, if the government introduces new measures to tighten credit, it could result in a decrease in borrowing capability and therefore, increase the impact on the TDSR and MSR ratios.

TDSR Guidelines: What Financial Institutions Consider in Loan Applications

What Financial Institutions Consider in Loan Applications

Loan Repayment and Monthly Repayment for TDSR

Financial institutions typically consider upcoming loan repayments and the borrower’s ability to meet them when assessing loan applications.

They look at monthly repayments and the borrower’s cash flow to ensure that the borrower has enough resources to repay the loan.

 

How Financial Institutions Assess Loan Eligibility Using TDSR

and MSR

Financial institutions evaluate a borrower’s loan eligibility using both TDSR and MSR ratios.

They look not only at the ratios but also at the borrower’s income, credit score, financial assets, and history of loan repayments, among other factors.

 

Refinancing and Borrowing While Adhering to TDSR Limits

Refinancing and borrowing while adhering to TDSR limits isn’t easy.

Borrowers need to manage their finances carefully to ensure that they remain within the limits set by financial institutions.

This might require refinancing their loans, reducing their debt obligations, or adjusting their lifestyles to manage their debt repayments effectively.

Exemptions from TDSR: When Are You Not Required to Comply with the Ratio?

Understanding the Exceptions to TDSR

Not all borrowers have to comply with TDSR regulations.

In certain situations, the Monetary Authority of Singapore (MAS) exempts borrowers from this measure.

For instance, if you’re buying an HDB, please note that TDSR applies only if you’re financing your property purchase with a bank loan.

If the loan amount is fully paid through your CPF and/or cash savings, you are exempted from TDSR.

Additionally, if you’re looking to refinance your existing home loan, you would qualify for TDSR exemption if your outstanding home loans do not exceed the prevailing loan quantum limit announced by the MAS.

 

Eligibility Requirements for Exemption

To be considered eligible for exemption by MAS, borrowers must meet several requirements.

One of them is that the remaining loan tenure cannot exceed 30 years.

Also, TDSR would not apply to borrowers if they have an outstanding balance of less than $500 on all their unsecured loans or credit card debts.

 

Examples of Exempted Situations

One example of exemption from TDSR is the purchase of Executive Condominium (EC) units.

In this case, TDSR applies only if you are purchasing an EC unit that is in its initial launch period.

After the initial launch period, you are exempted from TDSR.

Another example is when refinancing an existing residential property loan, not exceeding the outstanding loan amount that was disbursed before the implementation of TDSR in June 2013.

Understanding the Impact of Loan Tenure on TDSR and Loan Affordability

understanding

What is Loan Tenure and How Does it Affect TDSR?

Loan tenure refers to the duration of the loan package – the period over which borrowers will be required to repay their loan.

It affects the loan affordability and, consequently, the TDSR.

A shorter loan tenure means heavier monthly loan repayments; thus, the portion of income that goes towards repaying the monthly debt obligation increases.

As a result, TDSR increases as well.

 

Managing Loan Affordability with Loan Tenure

Managing loan affordability is one of the most critical aspects of loan applications.

Lenders and borrowers should work together to find a suitable loan tenure that would enable borrowers to maintain their desired standard of living while not breaching the TDSR.

Borrowers can help improve their TDSR by choosing a more extended loan tenure that reduces their monthly loan repayments.

 

Factors to Consider When Choosing Loan Tenure

When choosing a suitable loan tenure, borrowers should consider several factors, including their monthly expenses, gross income, and other outstanding loans.

Bear in mind that choosing a more extended loan tenure could result in higher accumulated interest rates over the loan duration.

Variable Income and TDSR: How to Manage Fluctuating Earnings in Loan Applications

Challenges of Applying for Loans with Variable Income

Variable income poses a significant challenge to loan applicants.

Lenders may not be able to assess a borrower’s capacity to service loans and may require additional documentation to support the application.

As a result, lenders would need consistent evidence to determine whether a borrower is capable of repaying the loan.

 

Strategies for Calculating TDSR with Variable Income

You may be wondering how to calculate your TDSR if you earn variable income.

Lenders would take an average of your monthly income over the past 12 months to determine your loan eligibility.

Additionally, lenders may also account for a higher margin of safety by reducing the amount of variable income counted towards TDSR.

 

Documenting Variable Income for Loan Applications

For loan applications, borrowers must provide documentation of their variable income, including bank statements and supporting documents like invoices or contracts.

It would be best to provide a clear breakdown of your income sources to help the bank assess your TDSR accurately.

TDSR and MSR: Examining the Relationship between the Two Debt Servicing Ratios

TDSR and MSR: Examining the Relationship between the Two Debt Servicing Ratios

What is Mortgage Servicing Ratio (MSR)?

Mortgage Servicing Ratio (MSR) refers to the portion of your gross monthly income that goes towards repaying your monthly mortgage.

MSR and TDSR have several similarities, but they have different thresholds and eligibility requirements.

The MSR threshold cannot exceed 30%, while the TDSR threshold cannot exceed 60%.

 

Differences and Similarities between TDSR and MSR

While TDSR and MSR assess borrower’s repayment capabilities, they differ in the way they consider expenses.

TDSR takes into account monthly credit card balances, other outstanding loans, and other types of debt.

In contrast, MSR only considers monthly mortgage repayments.

Both ratios add up all the monthly debt repayments, including the requested loan and other outstanding loans, but have different thresholds.

Furthermore, both ratios have eligibility requirements, including outstanding loan limits and loan tenure restrictions.

 

How Both Ratios Affect Your Loan Eligibility

Both TDSR and MSR affect your loan eligibility by limiting the maximum loan quantum that you can apply for.

By keeping both ratios within the prescribed limits, borrowers may be able to boost their chances of having a successful loan application.

In contrast, exceeding the ratios could limit your eligibility for a specific loan amount or lead to overpriced home loans.

Ensuring TDSR Compliance: Tips for Calculating and Managing Your Total Debt Servicing Ratio

Calculating Your TDSR: Step-by-Step Guide

To calculate your TDSR, first determine your monthly gross income, followed by the portion of income that goes towards repaying the monthly debt obligations.

Next, determine your monthly loan payments for proposed loans and outstanding loans.

Finally, divide the sum of the monthly debt obligations by your monthly gross income and multiply by 100% to determine your TDSR.

 

Ways to Improve Your TDSR

If your TDSR is too high, several strategies can improve it.

One of them is to reduce monthly expenses to increase your disposable income.

Borrowers can also opt for a more extended loan tenure to reduce their monthly loan repayments.

Finally, borrowers may opt to pay off outstanding loans and credit card debts in full, reducing their outstanding balance and TDSR.

 

Managing Debt to Stay Compliant with TDSR

It’s crucial to manage debts to stay compliant with TDSR.

One of the most effective ways to achieve this is to monitor your TDSR regularly and proactively manage your debts.

Borrowers should also consider the type of loan and its maximum loan quantum when applying for loans.

Additionally, understanding the eligibility criteria and restrictions on loan measures can help borrowers stay compliant with TDSR.

TDSR Rules and Regulations: Important Considerations for Property Buyers

TDSR Rules and Regulations

What is TDSR and why is it important for property buyers?

TDSR is a standard financial calculation used by mortgage lenders to calculate the maximum loan amount an individual can borrow based on their income levels, repayment obligations, and liquid assets.

The TDSR considers all debt payments, including but not limited to, credit card loans, renovation loans, and owner-occupied housing loans.

For most property buyers in Singapore, TDSR has become a crucial part of the home-buying process.

The TDSR rules help buyers determine how much they can afford to spend on a home, based on their income, outstanding debt, and other financial obligations.

The rules are designed to protect homeowners from financial risk and ensure that they buy only what they can afford in the long run.

 

What are the TDSR rules and regulations set by the

Singaporean government?

TDSR (Total Debt Servicing Ratio) bank lending requirements were first introduced by the Singaporean government on June 29, 2013.

Under these regulations, financial institutions must calculate total debt by factoring in all loan obligations like credit card loans, property loans, and car loans.

TDSR applies to all home loans for all types of property, including private property and HDB flats.

Homebuyers must provide documentary proof of their income streams, liquid assets, and any outstanding debt.

A homebuyer’s TDSR cannot exceed 60% of their gross monthly income, while their MSR (Mortgage Servicing Ratio) threshold for property loans extended by financial institutions cannot exceed 30%.

Financial institutions have to account for all of the borrower’s loan obligations when calculating the borrower’s total debt.

 

What are the consequences of not meeting the TDSR

requirements when buying an HDB?

Homebuyers who fail to meet TDSR requirements may not be eligible for the maximum home loan for a property or may receive loan rates with higher interest.

The TDSR is one of the ways through which financial institutions evaluate financing risk.

For some aspiring homeowners, the TDSR rules may come across as an additional challenge to their home-buying plans.

However, TDSR is a standard practice in many countries, and it’s designed to help homeowners avoid financial risks and ensure that they buy only what they can afford.

Therefore, homebuyers need to pass the criteria and meet the TDSR requirements to get the home that they can afford in the long run.

MSR Application: When and How the Mortgage Servicing Ratio Applies

What is MSR, and when does it apply?

The Mortgage Servicing Ratio (MSR) is another property loan rule set by the Singaporean government, and it applies to loans primarily used for investment purposes.

However, it’s only part of HDB financing policy for properties that meet specific criteria.

MSR applies to loans for credit card payments, mortgage payments, renovation loans, and other loan obligations.

The MSR threshold for property loans extended by financial institutions cannot exceed 30% of a borrower’s gross monthly income.

 

How does the MSR affect the borrowing capacity?

The MSR rule restricts the maximum loan amount an individual can borrow based on income levels.

The income will only be counted towards the MSR if the property is for investment purposes.

Investors can maximize their borrowing capacity by having an existing rental income stream.

 

How can individuals maximize their borrowing capacity

under MSR?

Individuals can use the MSR by applying for pre-approved properties under the scheme.

Additionally, individuals can maximize their borrowing capacity by taking on more debt on an existing property with a higher rental yield.

For self-employed individuals, a portion of the gross rental income generated from the property can be used to support their income stream, thereby increasing their borrowing capacity up to a point.

 

Maximizing Your Borrowing Capacity: Understanding the Maximum Loan Amount under TDSR

What is the maximum loan amount an individual can

borrow under TDSR?

An individual’s maximum loan amount under TDSR cannot exceed 60% of their gross monthly income.

 

How is the maximum loan amount calculated?

The maximum loan amount a person can borrow is calculated using the TDSR formula that factors in the individual’s income levels, repayment obligations (including credit card loans), remaining debt contributions, and other liquid assets.

 

What are the factors that affect the maximum loan

amount?

The primary factors affecting the maximum loan amount are the income level, outstanding debt, and obligations like credit card payments and mortgage payments.

Other factors include the cost of the property itself and any renovation plans that come with it.

TDSR and Existing Debt: How Outstanding Loans Impact Your Total Debt Servicing Ratio

TDSR and Existing Debt

How does outstanding debt impact TDSR?

Outstanding debt is a vital factor that affects TDSR.

To calculate the TDSR, financial institutions will factor in a person’s existing debt, including credit card loans, car loans, and other types of loans.

The higher the outstanding debt, the lower the TDSR and the maximum loan amount the individual can borrow for a new property.

 

What types of loans are considered part of the outstanding

debt when calculating TDSR?

The types of loans considered as part of the outstanding debt when calculating TDSR include credit card loans, renovation loans, personal loans, car loans, and special housing loans.

 

What are the consequences of having high outstanding

debt when applying for a housing loan?

Individuals with high outstanding debt may not be eligible for the desired housing loan.

Financial institutions may impose higher loan restrictions, higher loan interest rates, or even refuse to extend credit.

Working with a Mortgage Broker: How They Can Help You Navigate TDSR and Loan Applications

What is a mortgage broker, and how can they help

A mortgage broker is a licensed professional who can assist property buyers in home-buying.

They can help identify suitable properties, navigate TDSR and MSR requirements, and apply for a housing loan.

Mortgage brokers primarily work to help prospective homeowners secure mortgages efficiently.

 

What are the benefits of working with a mortgage broker?

Working with a mortgage broker can provide prospective buyers with a range of benefits, such as an improved chance of getting the loan amount they require, lower interest rates, shorter loan processing times, and professional assistance in the loan application process.

 

What are the criteria for choosing a reputable mortgage

broker?

When selecting a mortgage broker, consider their experience in the industry, their reputation, and their level of expertise.

It’s also crucial that you look at their licensing credentials and their fees for services rendered.

With the right mortgage broker, buyers can easily and confidently navigate TDSR and MSR requirements.

Conclusion

In conclusion, understanding property caveats is crucial for a successful property transaction.

Whether you are buying or selling a property, having a deep understanding of the legal implications of caveats and the requirements for lodgment and withdrawal is essential.

By working with a conveyancing firm and making use of the URA transactions portal, buyers can gain insight into the ownership history of the property and make informed decisions based on actual data.

Selling your property can also be smoother when you lodge a URA caveat and get legal help from a conveyancing firm to handle any problems that may arise.

Lodging a property caveat is of utmost importance for buyers in Singapore.

It serves as a legal safeguard, protecting their interest in the property and preventing unauthorized transactions.

Without a caveat, buyers risk losing their rights to the property and facing disputes.

The URA caveat system and the Transactions Portal provide transparency and vital information for buyers to make informed decisions.

To ensure a smooth transaction, engaging a conveyancing lawyer and following the proper lodging process is crucial.

Buyers should understand the significance of caveats, and their requirements, and utilize resources like URA caveat data.

Frequently Asked Questions

What is Total Debt Servicing Ratio (TDSR)?

Total Debt Servicing Ratio (TDSR) is a measure used by financial institutions to assess a borrower’s ability to manage their debt obligations based on their gross income and monthly payments.

How is TDSR calculated?

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

What is exempted from TDSR?

Certain types of loans, such as car and education loans, are exempted from TDSR calculations.

What is MSR?

Mortgage Servicing Ratio (MSR) is a measure used to assess borrowers’ ability to manage their housing loan payments based on their gross income and monthly mortgage payments.

Does MSR apply to all types of loans?

No.

MSR only applies to home loans for purchasing HDB flats and Executive Condominiums.

How is MSR calculated?

MSR is calculated by dividing the borrower’s monthly mortgage payments by their gross monthly income.

The resulting percentage should not exceed 30%.

Can the TDSR threshold exceed 60%?

No.

The maximum TDSR threshold allowed is 60%.

Can the MSR threshold exceed 30%?

No.

The maximum MSR threshold allowed is 30% for HDB flats and Executive Condominiums and 35% for private properties.

How do I calculate my total debt?

To calculate your total debt, you need to account for all your loans, including housing, car, education, and credit card debts.

How do I determine the maximum home loan I can borrow?

To determine the maximum home loan you can borrow, consider your gross income, the cost of the property you intend to purchase, and the TDSR and MSR thresholds that apply to your situation.

Where can I find information on home loan rates?

You can find information on home loan rates from various financial institutions and online comparison websites.

It’s important to compare rates and terms before committing to a home loan.

You May Also Like