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Most borrowers find the process of applying for a home loan fairly complicated. And to complicate things more, they have to deal with the issue of Singapore’s Total Debt Servicing Ratio (TDSR). Although the TDSR may be confusing, it’s proven to be quite helpful. It does everything from helping borrowers better handle their debt, to making sure the property market in Singapore remains healthy. 

Table of Contents

Total Debt Servicing Ratio (TDSR) Explained 

History of TDSR 

The Purpose of the Total Debt Servicing Ratio (TDSR)

How the TDSR will Impact Your Home Loan

Calculating the TDSR

How does TDSR Handle Investment Assets?

Exemptions from TDSR

What are Mortgage Servicing Ratios (MSRs)?

Overview of the MSR

What is MSR? 

History of Singapore’s MSR

Calculating the MSR

Formula for Calculating the MSR

Exemptions to the MSR

TDSR vs. MSR 

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Total Debt Servicing Ratio (TDSR) Explained 

Simply put, the TDSR puts a limit on the amount of money you can spend paying off your debts. These debts could be car loans, student loans, personal loans, credit card debt, home loan, etc. The TDSR limit is 55% of your gross monthly income. 

History of TDSR 

The TDSR was introduced by the Singapore government in 2013 to ensure that people borrow responsibly, so they don’t end up buried under mountains of debt. 

Unlike certain temporary measures that are taken to cool things down, the TDSR is here to stay. All banks, financial institutions and other lenders are required to comply with this reform when evaluating the following: 

• Home loans
• Refinancing of home loans
• Loans being secured by property

The Purpose of the Total Debt Servicing Ratio (TDSR)

The TDSR was introduced to make sure that borrowers could not assume more debt than they could realistically afford. It also makes sure that financial institutions are responsible in their lending practices. 

The goal of the TDSR is to make sure that loans are only given to borrowers who are able to afford the payments. It also helps borrowers realize how much a mortgage payment will impact them financially. 

More specifically, the TDSR was introduced as a control on property speculation in Singapore. Prior to the implementation of TDSR, a lot of people would borrow large amounts of money to buy property to immediately flip for a profit. 

At the end of the day, the TDSR works to prevent the issuance of high-risk loans. It acts as a standard framework that banks must use when evaluating an applicant’s ability to make repayments on their loan. 

How the TDSR will Impact Your Home Loan

The TDSR puts a limit on how much money you can borrow, so that you would not be spending more than 55% of your monthly income on repaying your debts. 

The more debt you are obligated to pay off for things like car loans, student loans, credit cards, personal loans, and other financial obligations, the less money you will be allowed to borrow for a home loan. You may also be required to spread out the time period for repaying your home loan to stay within the limits of the TDSR. 

This more restrictive framework for mortgages means that the following issues will also impact your home loan: 

• Loan-to-Value ratio: How much of the property’s value that you would be permitted to borrow to finance the purchase of your home
• Loan tenure rules: Loans for HDB properties are capped at 30 years, whereas loans for non-HDB properties are capped at 35 years
• A stress-test rate of interest will be used, which is now 3.5% for residential properties. 

This means that those applying for a home loan must be able to keep a TDSR of 55% or less, should the interest rate go up to 3.5%.

• Variable income and some financial assets, like income from rental property, are subject to being adjusted down. 

This adjustment would apply to people with variable income, like freelancers or other self-employed individuals. These individuals pose more risk for the lenders, so only 70% of their total income will be used for the TDSR. 

• Borrowers, mortgagors, and guarantors are now considered one and the same.

If you and someone else are taking out a loan as joint borrowers, the TDSR will be figured based on the following: 

• Combined gross monthly income of both loan applicants
• The monthly debt that both borrowers are obligated to repay
• The length of the loan, which is based on the income-weighted age average of the borrowers

Calculating the TDSR

You calculate the TDSR by dividing the applicant’s total monthly debt repayments by their gross monthly income. 

Formula for Calculating the TDSR: (Applicant’s total monthly debt repayments / Applicant’s gross monthly income) x 100%

TDSR Example Calculations

1. Fixed Income Applicant / Borrower

Thomas makes a fixed income of $8,000 a month. The total amount he spends to pay off his car loan, credit card bills and a personal loan come to $4,000 a month. 

• His TDSR limit is $4,400, which is 55% of $8,000.
• If Thomas wants a loan to buy property, the maximum monthly repayment can be no more than $400, ($4,400 - $4,000) according to TDSR requirements. 

If he wants to borrow more money, he must pay his outstanding debts off first. 

2. Variable Income Applicant / Borrower

William’s fixed monthly income is $8,000 but he also receives $2,000 in rental income each month. His rental income is considered variable income and is adjusted down 30% to $1,400, making his gross monthly income $9,400. His monthly debt obligations total $4,000. 

• TDSR = (Monthly debt obligations) / (Gross monthly income) = $4,000/$9,400 = 42.55%

3. Joint Income Applicants / Borrowers

Stella earns a fixed monthly income of $5,000 and her monthly debt repayments total $1,500. Her husband has a gross monthly income of $7,000 and his monthly debt repayments come to $2,000. 

• TDSR = (Joint monthly debt obligations) / (Joint gross monthly income) = $3,500/$12,000 = 29.16%

How does TDSR Handle Investment Assets?

Fortunately, they are considered!

You can use your financial assets when calculating your monthly income. These include stocks, bonds, gold, unit trusts and/or foreign currency deposits.

Exemptions from TDSR

Singapore has exemptions in place for most of the rules and frameworks it has implemented. These provide some wiggle room for certain individuals and/or circumstances. 

1. Owner-occupiers who want to refinance their home loan

An existing borrower who wants to refinance his/her home loan will receive an exemption from the TDSR rules if he/she owns and occupies the property. 

This is basically a concession to borrowers who are repaying the loan on the home they occupy. This provision was implemented by the Monetary Authority of Singapore (MAS) so that homeowners can benefit from a lower interest rate by refinancing their existing loan.

2. Refinancing of loans on investment property

Furthermore, borrowers are allowed to refinance loans on investment property beyond the TDSR limit as long as the following conditions are met: 

• Upon approval of the refinancing, the borrower accepts a debt reduction plan set forth by the financial institution. The plan must consist of repaying at least 3% of the outstanding loan balance within 3 years. 
• The credit assessment of the financial institution is fulfilled. 
• Mortgage Equity Withdrawal Loans (MWLs)

TDSR limits do not apply to mortgage equity withdraw loans (MWLs), which are loans in which property owners borrow against the paid-up value of their property.

TDSR rules do not apply for MWLs if the LTV of the loan will not go over 50% when combined with other loans that are secured by the same property. 

This provision was implemented by the Monetary Authority of Singapore (MAS) so that homeowners, especially retirees, are able to monetise their property. 

3. Exceptional cases can exceed the 55% threshold

The TDSR framework also includes provisions for financial institutions to grant property loans exceeding the 55% threshold for exceptional cases, as long as the following conditions are met: 

• The financial institution approving the loan clearly documents the exceptional reasons for exceeding the limit. 
• These cases are given enhanced scrutiny by the financial institution when it comes to evaluating their credit. 
• These borrowers commit to following a debt reduction plan set forth by the financial institution. 
• The financial institution reports the case to MAS. 

What are Mortgage Servicing Ratios (MSRs)?

Mortgage Servicing Ratios (MSRs) are only applied to loans used for buying Singapore’s HDB flats and/or Executive Condominiums (ECs). So, these are different than TDSRs, which apply to all home loans. 

The idea behind the MSR is theoretically straightforward, however it does get a little complicated when being applied. Here are some guidelines on the MSR, and how it would impact you: 

Overview of the MSR

What is Singapore’s Mortgage Servicing Ratio (MSR)?	A rule that caps the borrower’s monthly repayments at 30% of their gross monthly income.
Who does the Mortgage Servicing Ratio (MSR) apply to?	People purchasing HDB flats (directly from HDB or on the resale market) plus people who buy executive condominium units (ECs) from developers.
Does the MSR apply to HDB loans or bank loans or both?	It makes no difference whether you take out an HDB or bank loan. If you are buying an HDB flat or an EC unit from a developer, the MSR applies.
Are there any exemptions to the MSR?	Yes. The MSR does not apply when refinancing a loan for an HDB flat or an EC that is owner-occupied, or that was bought before 12 January 2013 for an HDB flat or 10 December 2013 for an EC.

What is MSR? 

Not as widely known as the TDSR, but just as important for people applying for a loan to buy an HDB flat, is the Mortgage Servicing Ratio (MSR), which only applies to loan applicants for HDB flats and ECs being purchased from the developer. Those buying an HDB flat will be subject to the MSR, which limits the amount of money they can spend monthly on mortgage repayments to 30% of their gross monthly income. 

For example, if your gross monthly income is $5,000, your home loan instalment repayments cannot be more than 30% of that amount, meaning they can’t exceed $1,500. 

History of Singapore’s MSR

Long ago the MSR in Singapore was 40% of a loan applicant’s/borrower’s gross monthly income. In January of 2013, it was lowered 5% to 35%. It was also then that the Monetary Authority of Singapore (MAS) set a 30% MSR limit on bank loans for HDB flats. 

In August of 2013, the MAS again lowered the MSR limit on HDB-issued loans to 30%, which brought it into alignment with bank-issued HDB loans. 

Then on 10 December 2013, the MAS implemented a 30% MSR for bank loans for ECs being bought directly from the developer. 

These changes mean that all HDB-issued loans, plus bank loans for both HDB flats and ECs, all now have a 30% MSR. 

Calculating the MSR

The MSR is determined by dividing a loan applicant’s/borrower’s mortgage repayments to include debts secured by property, by their total gross monthly income. When there are joint applicants/borrowers, their total joint monthly mortgage repayments are divided by their total joint gross monthly income. 

Formula for Calculating the MSR: (Total monthly repayments on all property loans / Total gross monthly income) x 100% ≤ 30%

Other Factors that Must be Noted

When calculating your monthly loan repayments, you should definitely read the fine print detailed below: 

Bank loan applicants/borrowers: 

• a medium-term interest rate, which is now between 3% and 4%, will be used to calculate your monthly loan repayments,
• variable income, like bonuses and commissions, is adjusted down to 70% of the amount,
• financial assets have to be pledged to the bank for 4 years, and
• the loan tenure tops out at 30 years if the maximum loan-to-value ratio amount is being borrowed. 

HDB loans: 

• the loan tenure tops out at 25 years, or 65 years minus the applicant’s age (whichever is lower), 
• the loan is figured using the HDB concessionary rate of interesting, which is the prevailing CPF rate plus 0.1% - now 2.6%), and
• the loan ceiling is 90%. 

If the resulting MSR is more than 30%, the borrower can try stretching out the loan tenure, reducing the repayments on other property they own, sell other properties, or lower the borrowed amount by raising their down payment. 

Exemptions to the MSR

An existing borrower who wants to refinance his/her HDB flat or EC will receive an exemption from MSR rules if he/she owns and occupies the property. For HDB flats it must have been bought before 12 January 2013 and for ECs bought directly from the developer it must have been bought before 10 December 2013. 

TDSR vs. MSR 

If you’re planning to buy a HDB flat or an EC, you’ll need to factor in the TDSR as well as the MSR. 

People applying for a loan with HDB or a bank for the purchase of an HDB or EC must pass both criteria. MSR calculations are first, then the TDSR calculations follow. This may end up affecting how much you are allowed to borrow from the banks. 

To recap:

Under MSR rules, the monthly home loan repayments for an HDB flat or EC are not allowed to exceed 30% of your total monthly household income. The TDSR caps the amount you can borrow by making sure your monthly repayments on debt are less than 55% of your gross monthly income. 

For example: 

Steve makes a fixed monthly salary of $5,000. He is repaying a car loan at $1,000 a month and a student loan at $800 a month. 

MSR is the first criteria: 

MSR = Fixed income x 30%

$5,000 x 30% = $1,500

Steve is eligible for a loan with repayments of no more than $1,500 a month. 

TDSR is the second criteria: 

TDSR = Fixed income x 55%

$5,000 x 55% = $2,750

Steve’s total monthly repayments on all debts must not be over $2,750. 

Steve’s total monthly debt obligations: 
Car loan: $1,000 + Student loan: $800 + MSR: $1,500 = $3,300. 

The bank or financial institution Steve is borrowing from will determine the maximum amount they can loan him to buy an HDB flat or EC. This will be based on his $1,200 a month eligible income. This figure is arrived at because there is an excess of $550 because even though on MSR criteria, Steve can use $1,500, on the second criteria, TDSR, at $1,500, his total monthly debt is $3,300. This exceeds the Total Debt Servicing Ratio limit of $2,750 (55% x $5,000). So, $1,500 - $550 = $950. 

If Steve wants to buy a private property instead, his bank will determine how much to loan him based on his $3,000 a month eligible income. If Steve wants to increase the amount of money he is allowed to borrow, he could pledge some financial assets to the bank.

Comparison chart of the TDSR & MSR: 

	Total Debt Servicing Ratio (TDSR)	Mortgage Servicing Ratio (MSD)
Calculations	(Total monthly debt repayments) / (Total gross monthly income)	(Mortgage repayments) / (Gross monthly income)
Caps	55%	30%
Types of property that apply	All types of property	HDB flats & Executive Condominiums (ECs)

If you’re wondering why Singapore implemented the TDSR and MSR rules, it was to keep people from over-leveraging themselves financially. People who could not afford it were taking out huge home loans. Another reason for these limits was that property investors kept buying more and more properties since there seemed to be no loan restrictions. This in turn, caused property prices to soar. 

MSR rules were designed to give HDB flat and EC owners additional protection because they are considered more vulnerable. 

If you don’t pass the criteria for MSR or TDSR, you can get around it in a couple of ways. You can make a larger down payment, pay off some of your debts first, or buy a less expensive home. It’s important to be responsible with your finances, especially when taking on debt. 

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