To apply for a housing loan in Singapore, you must understand TDSR. In this article, you will find the TDSR meaning, calculation and implications for your housing loan application.
What is TDSR?
A borrower’s entire monthly income dedicated for loan repayment cannot exceed 55% of their whole income. This includes the housing loan itself, a car loan, credit card debts, personal loan, etc. In 2013, the government of Singapore introduced the TDSR framework so that the borrower does not take up more than he can afford. It also promotes responsible lending by financial institutions. This mechanism also prevents people from borrowing excessively to purchase property which ultimately helps reduce speculation.
All financial institutions and banks have to adhere to TDSR when evaluating the eligibility of a candidate.
When assessing a candidate’s eligibility, all financial institutions and banks must comply with TDSR.
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Housing loans
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Refinancing of housing loans
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Loans secured by property
TDSR Exemptions
Some situations may exempt individuals from TDSR, such as
- A property loan can be refinanced later on owner-occupied properties.
- Getting a little loan on lots of properties that take less than 50% of the market value of the properties.
- Getting a bridge loan that must be paid back in six months
- To procure a loan on property having loan to value ratio lesser than 50%.
How TDSR Influences Your Housing Loan
The TDSR will determine the maximum loan amount you can receive. TDSR restricts the amount you can loan, by capping your monthly debt repayment not exceeding 55% of your income. Having loans such as student loans, credit card bills will also reduce your borrowing capacity.
Calculating TDSR
The TDSR formula is as follows:
Calculation: (Monthly debt obligations of all loans/gross monthly income) x 100%
To derive the TDSR for joint borrowers, the borrower’s total gross monthly income and debt obligation are used, as well as the income-weighted average age of the borrowers.
Factors influencing TDSR calculations include
- The maximum loan term for HDB properties is 30 years and for non-HDB properties is 35 years.
- The stress-test interest rate which is in place for residential properties is at 4%. This means that the applicant must be able to sustain a TDSR of 55% under the 4% interest rate.
- If freelancer or self-employed, only 70% of your variable income will be included in your monthly income. A portion of rental income is considered too
Examples of TDSR Calculation
If the monthly income is $10,000, the maximum debt repayment amount is $5,500. With a loan on your car of $2000 and credit card debt of $1000, the amount available for your home loan would be $2500.
If you have a fixed pay of $7,000 and receive $3,000 in rent, your monthly income is $7,000. These are based on a fixed pay of $7,000 However, only $2,100 (70% of rent) are your total monthly income to consider. Consequently, your total income per month is $9,100 Since your total debts are $3,000, your TDSR is 33%
Joint Applications: For instance, your total income is $3,000 with total debts of $1,000 and your partner’s income is $5,000 with total debts of $2,000. The joint application would result in a TDSR of 37.5%.
TDSR vs MSR
TDSR applies for all residential property buys But, the MSR (Mortgage Servicing Ratio) only applies for a HDB flat and Executive Condominium (EC). The MSR is a limitation on the share of a person’s income that may be utilized for housing loan repayments. The maximum limit is 30% If your monthly salary is $10,000, you can afford a housing loan repayment of only $3,000.
The MSR considers your income while the TDSR analyzes your debts. When you get a HDB or EC, the MSR is calculated first. Then, the TDSR looks to check all the debts are affordable.
Strategies to Improve TDSR and MSR
If your TDSR and MSR are elevated, the following strategies may be employed.
- Repay existing debts to enhance your borrowing capacity
- You can lower your monthly payments by refinancing loans with a lower interest rate.
- Look for ways to make more money through freelancing or renting.
- Consider purchasing smaller or more affordable properties
For further inquiries regarding bank housing loans, including eligibility, processing procedures, and interest rates, explore our services.
