TDSR Guide for Singapore | Home Loans Payments in Singapore

Home Loans | Loans

by Priyadarshini 10 May 2022

The Total Debt Servicing Ratio (TDSR) is a method for the Singaporean government to keep checks and balances on Singaporean borrowers. Allowing people to manage their own money is always a risk. Some people will save and invest, while others will spend their last borrowed dollar. The TDSR is one measure that prevents the latter. In this blog, we give you the TDSR guide for Singapore. 

TDSR guide for Singapore

What exactly is the TDSR framework?

Borrowers are not overleveraged under the Total Debt Servicing Ratio (TDSR) framework. It is a standard that applies to all Singapore house loans given by banking organizations (FIs). The Monetary Authority of Singapore created the TDSR to prevent consumers from overstretching themselves by borrowing too much money to finance property purchases. Even Nevertheless, there is still a trend of Singaporean mortgage defaulters.

Another goal of the TDSR is to discourage property speculation. People used to borrow ridiculous amounts of money to buy a property that they would then flip for a profit. Those days are long gone, thanks to the cooling measures. The TDSR is the percentage of your income that can be used to service your debt. At the moment, the maximum TDSR that FIs are supposed to accept is 55%.

That is, after taking into account all of your repayment commitments (school loans, credit card debts, vehicle loans, personal loans, and so on), your home loan installments cannot exceed 55% of your income.

What distinguishes it from DSR and MSR?

You may be familiar with the phrases Debt Servicing Ratio (DSR) and Mortgage Servicing Ratio (MSR), which appear to be synonymous with TDSR. They aren’t. MSR solely considers your housing loan repayments. So, an MSR of 30% means that 30% of your monthly income can go toward home loan repayments, regardless of your other repayment responsibilities.

Then there’s the old standby, DSR. Certain unsecured loans, such as credit card debt, were not considered by DSR. The TDSR is more stringent than the DSR. The methods for calculating your monthly income and loan repayments vary, as we’ll explain below. Furthermore, the spectrum of indebtedness considered by TDSR is substantially broader.

TDSR Effects:

• Property investing has become much more difficult.
• You can’t borrow as much, even if you don’t have any other loans.
• The risk of refinancing has increased.
• If your income is fluctuating, you will need to borrow less. It will be more difficult to extend the loan tenure.
• Before tackling the paperwork, try meditation.

TDSR guide for Singapore

Property investing has become much more difficult

If you currently have a home loan (or two), it’s unlikely you’ll be able to take on another without exceeding the 55 percent TDSR. Of course, it is dependent on the number of your outstanding house loans. The idea is not so much to keep you from buying (though that is a desire) but to keep you from spending above your means.

You can’t borrow as much, even if you don’t have any other loans

Singapore home loans are susceptible to fluctuating interest rates. When you apply for such a loan, the bank does more than simply utilize the current rate; they also do a “stress test” to check if you can sustain abrupt increases in interest. This “stress test” is currently set at 3.5 percent for residential and 4.5 percent for commercial properties.

In other words, even if borrowing rates rise to 3.5 percent, home purchasers must maintain a TDSR of 55 percent or less (currently, it hovers around 1.7 percent ). Even if there are no ongoing obligations, this has a considerable impact on the loan quantum (i.e. the total amount that can be borrowed).

Financial risk has increased

Most Singapore house loan interest rates are reasonable for three years but skyrocket in the fourth. One-percentage-point increases are not out of the question. At this time, it’s common practice to transfer to a different home loan package with a reduced interest rate. When the TDSR was implemented in June 2013, homebuyers who took out loans prior to the TDSR were concerned about increased financing risk. They couldn’t refinance their house loans if they didn’t reach the then-60 percent TDSR criteria, which meant they were stuck with costly mortgages.

If your income is variable, you will need to borrow less

So your TDSR is 55% of your income. But how should that income be defined? Not everyone is paid on a consistent basis. Because of the advent of the gig economy, there are now more self-employed people than ever before. Consider financial advisors, freelance photographers, and so on.

How much may a self-employed individual borrow?

Commissions, rental income, and other variable sums are classified as variable income under the new TDSR framework. And financial institutions are to treat variable revenue as though it were 30% less than it is.

It is more difficult to extend the loan term

Previously, you may extend the term of your loan by submitting a combined application with a younger borrower (say, your son). Financial institutions would simply use the age of the youngest applicant. That helped since a 25-year-old can receive a 30-year loan, whereas a 55-year-old cannot.

However, the average age of the borrowers will now be utilized; hence, a 25-year-old and a 55-year-old will count as having a combined age of 40. Furthermore, this will only count borrowers who have an income. So you can’t be earning anything, but you can declare yourself as a co-borrower with your parents to reduce the average age.

Before tackling the paperwork, try meditation

The extra paperwork was insane when the TDSR was initially established. Banks would require ALL statements, including credit card debts, commissions, school loans, gym memberships, and the personal loan you took. Furthermore, if you have changeable income, you must provide documentary verification of rent collected, commissions, client fees, and so on.

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