Total Debt Servicing Ratio

Borrowing requirements ratio required by Monetary Authority Singapore

1) Total Debt Servicing Ratio (TDSR):

The rules demand that lenders consider a borrower’s total debt obligations, including other mortgages and loans for cars, before granting a new home loan.

Banks will not be able to approve a loan if the monthly repayments of a buyer’s total debt obligations exceed 60% of his gross monthly income.

Take a property buyer who has a fixed monthly income of $10,000 and debt obligations, including his car, credit card and other such loans, of $3,000.

If the new mortgage’s monthly repayment exceeds $3,000, that would bring his total repayments to over $6,000 – and total debt obligations to over 60%.

Banks would then have to relook how much they can lend to him under the new Total Debt Servicing Ratio framework – which applies to loans for all property types.

In the case of a buyer who is earning a variable income, banks will take a haircut of 30% off the mortgagor’s variable income. For example, a mortgagor who is earning an annual variable income of $120,000, applying a haircut of 30%, the mortgagor’s TDSR will be calculated based on an annual salary of $84,000. The monthly salary of the mortgagor will then be assumed to be $7,000 instead of $12,000. Therefore, this buyer’s total debt obligations cannot exceed $4,200 per month.

MAS also requires bank to calculate TDSR using a ‘stress test’ interest rate of 3.5% for residential property.

2) Mortgage Servicing Ratio (MSR):

As required by MAS, banks are required to enforce a mortgage servicing ratio of 40% – 50% for private home loan borrowers. This is to mean that a borrower’s monthly home loan mortgage repayments cannot be more than 50% of the borrower’s gross monthly income.