Your Basic Lesson in Total Debt Servicing Ratio

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Property Investment Singapore TDSR

 

Knowledge about the Total Debt Servicing Ratio framework or TDSR among Singaporeans isn’t really that widespread, not alot  of Singaporeans are aware of what it means and how it affects them. If you’re a house buyer in Singapore, then the TDSR framework will affect you directly. Before you buy or sell a property in Singapore, it is essential that you are aware of TDSR, Additional Buyer Stamp Duties (ABSD) and Seller Stamp Duties (SSD). If you want to find out more about the complexities of the TDSR, do read on:

What is the TDSR?

The TDSR is a set of limitations released by the Monetary Authority of Singapore (MAS) on the amount a bank can lend to an individual. This measure is put in place to prevent risky financial behavior, such as borrowing beyond your means and property speculation or ‘flipping’. In essence, Singaporean authorities are limiting the financial abilities of people to borrow more than they can pay back, and also protecting the property field from being abused. This abuse can result in severely ballooning house prices and something called a subprime meltdown, where high risks mortgages go into default and contribute to an economic recession.

How does the TDSR framework function?

Basically, the TDSR does not allow an individual to borrow above 60% of his or her gross monthly income from any financial institution. This means that any loans you have, including personal loans, car loans, business loans, credit card debt and housing loans per month cannot exceed 60% of your monthly income. Therefore, if you are applying for a new loan and that makes your debt limit go above the 60% benchmark, then the chances of you being denied that loan will be high.

How do we calculate the TDSR for housing loans?

Let’s say that your monthly household income is $10,000, therefore the total amount of debts you are allowed is 60% of that, meaning 60% x $10,000 = $ 6,000. Therefore if you have car loans, credit card bills, or personal loans of $4000, you are only allowed to take a maximum of $2000 for you housing loan, as $6,000-$4,000 = $ 2,000.

What are these new Fine Tuning rules by MAS?

In 2016, MAS introduced some fine tuning rules to give borrowers more flexibility when it comes to servicing their loans. These fine tunes include:

  • Borrowers who live in their residential property bought under the TDSR framework are exempted from this framework when they decide to refinance their homes.
  • Those that have a current investment property loan can increase their TDSR threshold as long as two conditions are met. Firstly, the borrower must commit to reducing his debt with the bank by paying at least 3% of his or her outstanding balance of the loan over 3 years and he or she must pass the bank’s credit assessment.

The effects of these fine tune tweaks cover both home owners and investors. Now home owners who refinance their homes will be able to take advantage of lower interest rate loans and pay less in monthly installments.

Now find out more about property investments in Singapore. Read on.

3 Comments

  1. […] occupy the unit. Property Investors should know about the Additional Buyer Stamp Duties (ABSD) and Total Debt Servicing Ratio (TDSR). These are some of the basics you should know about SSD […]

  2. […] One of these costs is the Additional Buyer Stamp Duty. Beside ABSD, it is important to understand Total Debt Servicing Ratio (TDSR) and Seller Stamp Duties (SSD) too. If you’re wondering what it is, here are the answers to your […]

  3. […] seem not to suffer from a ballooning of prices, and are therefore less likely to be subjected to cooling measures and government taxes that impacts property investment in […]

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