TDSR stands for Total Debt Servicing Ratio, a regulatory measure implemented by the Monetary Authority of Singapore (MAS) to promote responsible borrowing among individuals. It limits the amount of debt an individual can take on, ensuring they can comfortably manage their financial obligations.
TDSR plays a vital role in ensuring financial stability for both borrowers and the Singapore property market. By limiting debt levels, TDSR helps individuals avoid over-borrowing and potential financial distress. It also helps maintain a healthy and sustainable property market by preventing excessive leverage.
The TDSR formula is used to calculate the maximum amount of debt an individual can service. It takes into account your monthly income and existing debt obligations, including housing loans, car loans, and credit card debt. The formula is as follows:
In accordance with regulations established by the Monetary Authority of Singapore (MAS), all banks and financial institutions must adhere to the Total Debt Servicing Ratio (TDSR) stipulations when assessing the following types of loans:
The Total Debt Servicing Ratio (TDSR) plays a crucial role in determining your borrowing capacity for a home loan. It limits the amount you can borrow by ensuring your monthly debt repayments, including your mortgage payments, do not exceed 55% of your gross monthly income.
Debt Obligations and Borrowing Capacity:
The more existing debt obligations you have, such as student loans, car loans, credit card bills, personal loans, and other financial commitments, the less you may be able to borrow for your home loan. This is because a higher debt burden reduces your available income for mortgage repayments, impacting your TDSR compliance.
Repayment Period and TDSR:
To comply with TDSR limits, you may need to adjust the repayment period of your home loan. Stretching out the repayment period reduces your monthly mortgage payments, thereby lowering your debt-to-income ratio and ensuring compliance with TDSR regulations. However, this also means paying more interest over the loan's lifetime.
Understanding the impact of TDSR on your borrowing capacity is essential for making informed decisions about your home loan. By carefully assessing your existing debt obligations and considering the trade-offs between loan amount and repayment period, you can secure a home loan that aligns with your financial goals and complies with TDSR regulations.
Jason earns a fixed income of $10,000 per month.
His car loan, credit card, and other loan repayments are $4,500 per month.
Jacky has a fixed income of $7,000 per month and a rental income of $3,000 per month.
Variable income is subject to a 30% ‘haircut’,
Total gross monthly income will be $7,000 + $2,100 = $9,100 .
if his existing debt obligations total $4,500.
Navigating Loan Regulations for Property Purchases: TDSR and MSR
When securing a bank loan to finance any property purchase in Singapore, it's crucial to consider the Total Debt Servicing Ratio (TDSR). TDSR limits your borrowing capacity by ensuring your monthly debt repayments, including your mortgage payments.
However, for purchases of HDB flats or new executive condominiums (ECs) that have not fulfilled their Minimum Occupation Period (MOP) and are financed with a bank loan, an additional regulation comes into play: the Mortgage Servicing Ratio (MSR).
Under the MSR framework, your monthly mortgage payments for your HDB flat or EC cannot exceed 30% of your household income. This regulation aims to ensure affordability and prevent over-borrowing, especially for first-time homebuyers.
Therefore, when purchasing an HDB flat or a new EC with a bank loan, you must comply with both the TDSR and MSR regulations.
| TDSR | MSR |
| Monthly Debt Payment / Gross monthly income | Home loan repayments / Gross monthly income |
| Cannot be more tha 55% | cannot be more than 30% |
| All Properties | All HDB and ECs which have not fullfilled their MOP |
Existing borrowers who are owner-occupiers and wish to refinance their property loan are exempt from the Total Debt Servicing Ratio (TDSR) framework. This exemption applies to individuals who are using the property as their primary residence.
Borrowers can refinance their investment property loans even if they exceed the Total Debt Servicing Ratio (TDSR) limit, provided they meet the following conditions:
Debt Reduction Plan: At the time of refinancing, the borrower must commit to a debt reduction plan with the financial institution. This plan requires the borrower to repay a minimum of 3% of the outstanding loan balance over a maximum period of 3 years.
Credit Assessment: The financial institution must conduct a thorough credit assessment of the borrower to ensure they have the financial capacity to meet the loan repayments and comply with the debt reduction plan.
The Total Debt Servicing Ratio (TDSR) framework does not apply to Mortgage Equity Withdrawal Loans (MWLs). These loans allow homeowners to borrow cash against the paid-up value of their property, providing them with access to funds for various purposes, such as retirement planning, home renovations, or education expenses.
The exclusion of MWLs from TDSR is intended to provide flexibility and financial options for homeowners, particularly those who are retired and may have limited income sources. By allowing homeowners to access their property's equity without being constrained by TDSR limits, they can utilize their asset to improve their financial well-being and meet their evolving needs.
However, it's important to note that while MWLs are exempt from TDSR, they are still subject to other lending regulations and requirements set by individual banks and financial institutions. Additionally, the loan-to-value (LTV) ratio for MWLs cannot exceed 50% when aggregated with other loans secured on the same property. This measure ensures responsible borrowing and mitigates potential risks associated with excessive leverage.
The exemption of MWLs from TDSR demonstrates the government's commitment to supporting homeowners and providing them with access to financial resources that can enhance their well-being and financial security.
The Total Debt Servicing Ratio (TDSR) framework allows financial institutions to grant property loans exceeding the 55% threshold for exceptional cases. However, this flexibility is subject to strict conditions to ensure responsible lending and mitigate potential risks.
To qualify for an exception, the following conditions must be met:
Clearly Documented Reasons: The financial institution must clearly document the exceptional reasons why the borrower requires a loan exceeding the TDSR limit. These reasons could include extenuating circumstances, such as a sudden loss of income or unexpected medical expenses.
Enhanced Credit Evaluation: The financial institution must conduct a thorough and enhanced credit evaluation of the borrower to assess their financial capacity and ability to repay the loan. This evaluation should go beyond the standard credit assessment process to ensure the borrower can manage the higher debt obligations.
Debt Reduction Plan: The financial institution must implement a debt reduction plan with the borrower. This plan should outline a clear strategy for reducing the borrower's debt-to-income ratio over a specified timeframe, ensuring responsible borrowing and a path towards financial stability.
Reporting to MAS: The financial institution must report all exceptional cases exceeding the TDSR limit to the Monetary Authority of Singapore (MAS). This reporting requirement ensures transparency and accountability in the lending process.
