Total Debt Service Ratio & Loan-toValue Limits
Total Debt Service Ratio
The Total Debt Servicing Ratio (TDSR) is a framework implemented in June 2013 by the Monetary Authority of Singapore (MAS), that safeguards borrowers against over-borrowing for their property purchase(s). In essence, the TDSR limits the amount individuals can spend on monthly mortgage debt repayments, based on a percentage of their gross monthly income. All banks and financial institutions in Singapore must adhere to the TDSR rule when granting a property loan.
The TDSR limits the amount you can borrow for a mortgage loan to 60% of your gross monthly income less any outstanding debts you have. These outstanding debts include:
- Credit card balances (including “instalment plans” with retailers)
- Student loans
- Personal loans
- Car loans
- Other home loans (if applicable)
That means your housing loan repayments, after adding all your repayment obligations (student loans, credit card debts, car loans, personal loans, etc.), cannot exceed 60% of your income. Example, James and his fiancée draw a total combined income of $5,000, 60% of that amount would work up to $3,000. Taking into account that they have a student loan of $1,000 every month, this means they would be able to take a home loan with monthly repayments up to $2,000.
What about the Mortgage Service Ratio (MSR)?
If you are buying public housing such as BTOs, resale HDB flats or ECs, you will also be subject to the MSR of 30%. This means that the proportion of your monthly mortgage repayments cannot exceed 30% of your gross monthly income. Example, if an individual borrower draws a montly income of $5000, 30% of the monthly income means the borrower can only take a home loan with monthly repayments up to $1,500 on the MSR.
TDSR Rule on Borrower with Variable Income
For TDSR calculations, a haircut of at least 30% is applied to variable income, and eligible financial assets are amortized into income streams. A mid-term interest rate of 3.5% or the prevailing rate, whichever is higher, will also be used. In addition, guarantors for a loan are now required to be co-borrowers and purchasers of the property purchased.
Under the new TDSR framework, commissions, rental income or other variable sums are lumped under variable income. And Financial Institutions are to treat that variable income as though it’s 30% less than it actually is. Variable income earners are for example, self-employed individuals, Financial Advisors, Freelance Photographers, real estate agents /sales persons etc.
That would also mean if you’re a business owner making $5,000 a month, your income when calculating your TDSR is just $3,500. That, in turn, means a much lower loan quantum to be granted by Financial Institutions.
To protect homebuyers from over-borrowing, the Singapore government has set a loan-to-value (LTV) limit on the maximum loan amount that Singapore mortgage banks and lenders will offer you based on your property’s market value (i.e. its valuation).
In July 2018, Singapore government announced a tightening of LTV limits on residential property loans by 5% across the board. With the new limit, buyers now have to commit to a bigger down payment when buying a property — an additional 5% of the property’s value in cash or CPF funds. Along with the new LTV limit, government have also increased the Additonal Buyer’s Stamp Duty for home purchaser. This would make many homebuyers reconsider their plans, or set their sights lower.
Here’s the quick glance on the new measures announced by Singapore Government on 5 July to curb fast rise in property prices and to ensure sustainability of the property market.
It is important to only engage an expreienced and reliable real estate professional to assist you in your property purchase. There are several complex procedures and key factors to consider before committing to purchase a unit. Rest assured that we are certified, well-trained and committed to deliver.
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