What you need to know about TDSR and MSR

What is TDSR ?

TDSR also know as Total Debt Servicing Ratio is a framework to make sure you can afford the property you desire without stretching beyond your financial means. Basically, TDSR restrict the Financial Institutions (FIs) on how much they can loan you. A maximum of 60% of your gross monthly income can be use to repay all your outstanding loan.

Gross Monthly Income refer to your gross monthly salary including employee’s CPF contribution but exclude employer’s CPF contribution.

Outstanding loans refer to

  • Credit card loan (include installment plans)
  • Car loans
  • Personal loans
  • Student loans
  • Other Housing Mortgage

Do take note that, for variable income earner, e.g. Property agents, Insurance agents or company owners, there will be a 30% “hair cut” on your gross monthly income. This rule also applied to variable income like bonuses.

 

Example of TDSR calculation

 

Example 1 :

John has a gross monthly income of S$10,000 with no outstanding loans.

His maximum monthly housing mortgage will be S$10,000 * 60% = S$6,000

 

Example 2 :

John has a gross monthly income of S$10,000 with a car loan of $1,500.

His maximum monthly housing mortgage will be S$10,000 * 60% = S$6,000 - S$1,500 = S$4,500

 

Example 3 :

John is a property agent with a variable gross monthly income of S$10,000 with no outstanding loans.

His maximum monthly housing mortgage will be S$10,000 * 70% = S$7,000 * 60% = S$4,200

 

Example 4 :

John is a property agent with a variable gross monthly income of S$10,000 with a car loan of S$1,500.

His maximum monthly housing mortgage will be S$10,000 * 70% = S$7,000 * 60% = S$4,200 – S$1,500 = S$2,700

 

Monetary Authority of Singapore (MAS) also required all FIs to use 3.5% interest rate as a stress test to compute the maximum loan. This stress test is a safety net to ensure that you can withstand a hike in interest rates without crossing the 60% TDSR limit. Currently interest rate is at around 2%.

TDSR applied to all properties in Singapore, however if you are purchasing a Housing Development Board (HDB) unit or Executive Condominium (i.e. Parc Canberra EC), another framework call Mortgage Servicing Ratio (MSR) will be applicable on top of TDSR.

What is MSR ?

MSR framework only applied to HDB unit and Executive Condominium. It is similar to TDSR except that instead of 60% of your gross monthly income can be use for repayment of monthly instalment, only 30% of your gross monthly income can be use for repayment of monthly housing mortgage.

Example of MSR calculation

 

Example 1

John has a gross monthly income of S$10,000 with no outstanding loans and wish to purchase Parc Canberra EC.

His maximum monthly housing mortgage will be S$10,000 * 30% = S$3,000 (MSR). As

his TDSR is S$6,000, he is still within the TDSR limit.

 

Example 2

John has a gross monthly income of S$10,000 with a car loan of $1,500 and wish to purchase Parc Canberra EC.

His maximum monthly housing mortgage will be S$10,000 * 30% = S$3,000 (MSR).

John’s total debt will be S$3,000 + S$1,500 = S$4,500.

His TDSR is will be S$6,000, he is still within the TDSR limit.

 

Example 3

John is a property agent with a variable gross monthly income of S$10,000 with no outstanding loans and wish to purchase Parc Canberra EC.

His maximum monthly housing mortgage will be S$10,000 * 70% = S$7,000 * 30% = S$2,100 (MSR).

As his TDSR is S$4,200, he is still within the TDSR limit.

 

Example 4

John is a property agent with a variable gross monthly income of S$10,000 with a car loan of $2,500 and wish to purchase Parc Canberra EC.

His maximum monthly housing mortgage will be S$10,000 * 70% = S$7,000 * 30% = S$2,100 (MSR).

John’s total debt will be S$2,100 + S$2,500 = S$4,600.

His TDSR is will be S$4,200, he is not within the TDSR limit, hence he needs to lower his total debt or increase his gross monthly income to qualify for the loan.

 

On the side note, there are legal ways to increase the shortfall of the loan amount. Contact our experience consultants to understand on how we can leverage to overcome the loan shortfall.

In summary, TDSR will determine your total monthly loan repayments does not exceed 60% of your gross monthly income. MSR will only determine your total monthly housing mortgage for HDB property or executive condominium does not exceed 30% of your gross monthly income. However, HDB property and executive condominium not only have to pass MSR but also TDSR.

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