TDSR, or the Total Debt Servicing Ratio (TDSR) in Singapore, is a term you must know if you’re applying for a home loan. As if home loans aren’t complicated enough, you now have to understand how to calculate TDSR and how the TDSR affects your home loan.
The thing is, TDSR is here for good reasons – from helping borrowers manage their debt to keeping the Singapore property market healthy. In this article, we dive into the definition of TDSR, how to calculate TDSR using the TDSR formula, and how it affects how much you can borrow to finance your dream home.
Trying to figure out the TDSR formula and how to calculate TDSR? Want to see how much home loan you can get? Speak to our Mortgage Experts.
What Is TDSR?
In a nutshell, the TDSR limits the amount that you can spend on your monthly debt repayments (student loans, car loans, personal loans, etc.) to 55% of your gross monthly income.
Why Was the TDSR Introduced?
The Singapore government introduced the TDSR framework in 2013. The framework seeks to ensure that borrowers don’t take on more debt than they can handle and that financial institutions lend responsibly. It aims to ensure loans are only issued to borrowers who can afford them and help borrowers consider the true budgetary impact of a mortgage.
All banks and financial institutions must follow the existing TDSR stipulations when assessing the following:
- Housing loans
- Refinancing of housing loans
- Loans secured by property
More notably, the TDSR was introduced to curb property speculation in Singapore. In the past, many individuals borrowed large sums to purchase properties with the intention of flipping them for profit.
All in all, the TDSR helps prevent high-risk loans from being issued and standardises the framework banks use when assessing borrowers’ capacity to make loan repayments.
How the TDSR Affects Your Home Loan
The TDSR limits the amount you can borrow – your loan quantum – by ensuring your monthly debt repayments account for less than 55% of your gross monthly income.
The more debt obligations you have – things like student loans, car loans, credit card bills, personal loans, and other miscellaneous financial commitments – the less you might be able to borrow from the bank for your home loan. You might also have to stretch out the repayment period of your home loan to keep within the TDSR limits.
Apart from TDSR, do note that the following regulations also apply to your home loan:
- Loan-to-Value (LTV) ratio: The proportion of the property’s value of which you’re allowed to borrow to finance the property
- Loan tenure rules: The loan tenure is capped at 30 years for HDB properties, and 35 years for non-HDB properties
- A stress-test interest rate, currently 4% for residential properties, will be used.
- This means that home loan applicants must still be able to maintain a TDSR of 55% or below, even if the interest rate increases to 4%.
- Variable income and certain financial assets, such as rental income, are subject to a ‘haircut’.
- This ‘haircut’ applies to individuals who have variable income, such as freelancers or those who are self-employed. As they are considered more risky borrowers, only 70% of their total assessed income is factored in for the TDSR.
- Guarantors, mortgagors, and borrowers are now effectively one and the same.
What Is the TDSR Formula?
If you’re wondering how to calculate TDSR, you’re in the right place. The TDSR is calculated by dividing a borrower’s total monthly debt obligations by gross monthly income. The TDSR formula is as follows:
(Borrower’s total monthly debt obligations / Borrower’s gross monthly income) x 100%
If you’re taking out a loan with someone else as a joint borrower, then the TDSR will be calculated based on the following:
- Aggregate gross monthly income of both borrowers
- The debt obligations of both borrowers
- The loan tenure, which is determined by the income-weighted average age of borrowers
The easiest way to work out your TDSR and see how much you can loan is to use our TDSR calculator. Simply input your income and other financial obligations, and the TDSR calculator will do the rest.
However, to get a fuller picture of your affordability and loan eligibility, use our loan pre-qualification tool below.
Examples on How to Calculate TDSR
Fixed Income:
Ben earns a fixed income of $10,000 per month. His credit card, car loan, and personal loan repayments are $4,500 per month.
- TDSR = (Total monthly debt obligations)/(Gross monthly income) = $4,500/$10,000 = 45%
- His TDSR threshold is $5,500 (55% of $10,000).
- If Ben wants to apply for a property loan, the maximum repayment he can make each month will be $1,000 ($5,500 – $4,500) under the TDSR rules.
If he wants a larger loan, he’ll need to pay off his outstanding debts.
Variable Income:
Chris earns a fixed income of $7,000 per month plus a rental income of $3,000 per month. His variable income is subject to a 30% ‘haircut’, so his gross monthly income is $9,100 ($7,000 + $2,100). His existing debt obligations total $4,500.
- TDSR = (Total monthly debt obligations)/(Gross monthly income) = $4,500/$9,100 = 49%
Joint Applications:
Shirley has a fixed income of $2,500 per month and debt repayments of $1,000. Her husband’s gross monthly income is $5,000, and his debt repayments total $3,000.
- TDSR = (Total monthly debt obligations)/(Gross monthly income) = $4,000/$7,500 = 54%
Does TDSR Take Into Account Investment Assets?
Fortunately, they do! If you have financial assets like stocks, unit trusts, bonds, gold, foreign currency deposits, and other liquid assets, you can use them to count toward your monthly income.
Budgeting for your monthly mortgage repayments? Estimate how much you can expect to pay for your desired property.
Who Needs to Know How to Calculate TDSR?
You must consider TDSR and the TDSR formula if you are taking out a bank loan to finance any type of property.
But if you’re buying an HDB flat or a new executive condominium (EC) that has not fulfilled its MOP and financing the purchase with a bank loan, you must consider both the TDSR and Mortgage Servicing Ratio (MSR).
Under the MSR framework, the monthly mortgage payments for your HDB flat or EC cannot exceed 30% of your household income.
TDSR Vs Mortgage Servicing Ratio (MSR)
| TDSR | MSR |
|
(Monthly debt repayments)/(Gross monthly income) |
(Home loan repayments)/(Gross monthly income) |
| The figure that cannot be exceeded
55% |
The figure that cannot be exceeded
30% |
|
Applicable for all properties |
Applicable for HDB flats and ECs which have not yet fulfilled their MOP |
TDSR Exemptions
As with most rules and frameworks in Singapore, exemptions exist to allow certain individuals and situations leeway.
1. Owner-occupiers Refinancing the Loan for Their Property
An existing borrower looking to refinance his property loan will be exempted from the TDSR framework if he is an owner-occupier.
This is essentially a concession for those repaying the loan for the home they live in.
2. Refinancing of Investment Property Loans
In addition, borrowers can refinance their investment property loans beyond the TDSR limit if these conditions are fulfilled:
- At the point of refinancing, the borrower commits to a debt reduction plan with the financial institution to repay minimally 3% of the outstanding balance over not more than 3 years.
- The financial institution’s credit assessment is fulfilled.
3. Mortgage Equity Withdrawal Loans (MWLs)
Furthermore, the TDSR framework doesn’t apply to mortgage equity withdrawal loans (MWLs), which are loans in which property owners borrow cash against their property’s paid-up value.
The TDSR rules will not apply to these MWLs as long as the loan’s LTV does not exceed 50% when aggregated with other loans secured on the same property.
MAS created this provision so that homeowners, especially those who are retired, can monetise their property.
4. Exceptional Cases
The TDSR framework also includes provisions for financial institutions to grant property loans exceeding the 55% threshold for exceptional cases, provided these conditions are met:
- The exceptional reasons are clearly documented by the financial institution.
- The financial institution subjects these cases to enhanced credit evaluation.
- The financial institution implements a debt reduction plan with these borrowers.
- The case is reported to MAS.
Have Home Financing Questions? Ask PropertyGuru Finance
If you have more questions on how to calculate TDSR or how to finance your property purchase, speak to our friendly and knowledgeable Mortgage Experts.
They can provide you tailored home financing advice, walk you through using a TDSR calculator, and guide you towards choosing the best home loan for you. Best of all? It’s free!
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