Most of us take up a home loan prior to buying properties in Singapore but there are some rather technical terms we may see from time-to-time, such as TDSR and MSR, which play a significant role in determining your eligibility for a home loan.
Both TDSR (Total Debt Servicing Ratio) and MSR (Mortgage Servicing Ratio) are crucial benchmarks used by banks to assess your ability to manage mortgage payments.
In this blog post, we’ll delve into the intricacies of TDSR and MSR, exploring their definitions, calculations, and implications on your property purchase journey.
Total Debt Servicing Ratio (TDSR)
TDSR is used to assess the proportion of your monthly income that goes towards servicing all your debts.
These obligations include not only your mortgage payments but also other debts like car loans, personal loans, and credit card debts.
The Monetary Authority of Singapore (MAS) introduced TDSR as a safeguard to ensure that borrowers do not overextend themselves financially.
Formula to calculate TDSR: (Borrower’s total monthly debt obligations / Borrower’s gross monthly income*) x 100%
*Use 70% of your gross monthly income to compute you earn a variable income.
Key Points about TDSR:
Threshold Limit: The current TDSR limit is set at 55%. This means that your total monthly debt obligations, including the prospective mortgage, should not exceed 55% of your gross monthly income.
Inclusions and Exclusions: TDSR includes all your existing debts and future potential debts, such as the new mortgage you’re applying for. However, it excludes certain obligations like rent, and it also considers an average interest rate for your mortgage to account for potential interest rate fluctuations.
Mortgage Servicing Ratio (MSR)
MSR, focuses specifically on your mortgage payment. It calculates the percentage of your monthly income that goes toward servicing your mortgage loan.
MSR is used for home loans when purchasing HDB (Housing and Development Board) flats and new executive condominiums (ECs).
MSR Calculation Formula: (Monthly Mortgage Payment / Gross Monthly Income*) x 100%
*Use 70% of your gross monthly income to compute you earn a variable income.
Key Points about MSR:
Threshold Limit: The MSR limit is currently set at 30%. This means that your monthly mortgage payment should not exceed 30% of your gross monthly income.
Applicability: MSR is mainly applicable to HDB flat purchases, resale flats with remaining lease of less than 30 years, and newly launched ECs.
When will TDSR and MSR apply to me?
If you purchasing a HDB flat or a new EC with a home loan, you will need to look at MSR, followed by TDSR.
For home loans on private properties and resale ECs, you will only need to look at TDSR.