TDSR vs MSR

TDSR vs MSR

Home Loan Matters - TDSR vs MSR

What is TDSR?

TDSR also know as Total Debt Servicing Ratio is a safety net to ensure you can afford the real estate (New launch Condo or Resale Properties) you desire by keeping the loan within your financial means. In short, TDSR restricts the Financial Institutions (FIs) on how the total amount they can loan you. Your total monthly installment for all the outstanding loans is kept at a maximum of 60% of your gross monthly income.

Gross Monthly Income refers to your monthly salary including employee’s CPF contribution but excludes the 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, a “hair cut” of 30% on your gross monthly income will be applied. This rule also applied to variable income like bonuses.

Example of TDSR calculation

Example 1 :

Peter has a gross monthly income of S$8,000 with no outstanding loans and he is looking to purchase a unit at One Normanton Park

His maximum monthly housing mortgage will be S$8,000 * 60% = S$4,800

Example 2 :

Peter has a gross monthly income of S$8,000 with a car loan of $1,300.

His maximum monthly housing mortgage will be S$8,000 * 60% = S$4,800 – S$1,300 = S$3,500

Example 3 :

Peter is a property agent with a variable gross monthly income of S$8,000 with no outstanding loans.

His maximum monthly housing mortgage will be S$8,000 * 70% = S$5,600 * 60% = S$3,360

Example 4 :

John is a property agent with a variable gross monthly income of S$8,000 with a car loan of S$1,300.

His maximum monthly housing mortgage will be S$8,000 * 70% = S$5,600 * 60% = S$3,360 – S$1,300 = S$2,060

All Financial Institutions (FIs) also have to follow the Monetary Authority of Singapore (MAS) regulations to use a 3.5% interest rate as a stress test to calculate the maximum home loan. This stress test is another safety net to make sure that a hike in interest rates will less likely to result in your loan to cross over the 60% TDSR limit. Currently the 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 Central Residences EC), a more stringent framework call Mortgage Servicing Ratio (MSR) will be applicable on top of TDSR.

What is MSR?

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

Example of MSR calculation

Example 1

John has a gross monthly income of S$8,000 with no outstanding loans and wishes to purchase Parc Central Residences EC.

His maximum monthly housing mortgage will be S$8,000 * 30% = S$2,400 (MSR).

As his TDSR is S$4,800, he is still within the TDSR limit.

Example 2

John has a gross monthly income of S$8,000 with a car loan of $1,300 and wishes to purchase Parc Central Residences EC.

His maximum monthly housing mortgage will be S$8,000 * 30% = S$2,400 (MSR).

John’s total debt will be S$2,400 + S$1,300 = S$3,700.

His TDSR is will be S$4,800, he is still within the TDSR limit.

Example 3

John is a property agent with a variable gross monthly income of S$8,000 with no outstanding loans and wishes to purchase Parc Central Residences EC.

His maximum monthly housing mortgage will be S$8,000 * 70% = S$5,600 * 30% = S$1,680 (MSR).

As his TDSR is S$3,360, he is still within the TDSR limit.

Example 4

John is a property agent with a variable gross monthly income of S$8,000 with a car loan of $1,800 and wishes to purchase Parc Central Residences EC.

His maximum monthly housing mortgage will be S$8,000 * 70% = S$5,600 * 30% = S$1,680 (MSR).

John’s total debt will be S$1,680 + S$1,800 = S$3,480.

His TDSR is S$3,360, he is not within the TDSR limit, hence he needs to lower his total outstanding loan or increase his gross monthly income to qualify for the loan.

On the side note, there are channels to increase the shortfall of the loan amount legally. Contact our experienced consultants to understand how we can leverage the system to overcome the loan shortfall.

In summary, TDSR will make sure that your total monthly loan repayment does not exceed 60% of your gross monthly income. MSR will only determine your total monthly housing mortgage for HDB or executive condominium does not exceed 30% of your gross monthly income. Therefore, HDB property and executive condominium buyers will have to go through a more stringent test to pass not only MSR but also TDSR. This also means that HDB and executive condominium buyers are more protected than private condominium buyers.

Do make use of our mortgage calculators to help you in planning your finances to purchase a property in Singapore. Our consultants are also readily available to assist and advise you on any property related matters. Do contact us for a non-obligatory session to understand more about property matters in Singapore.

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