If you’re thinking about buying a home in Singapore, you’ve probably heard about TDSR. It’s a rule that says you shouldn’t spend more than 55% of your monthly income on paying off debts. But there’s another important thing to know, especially if you’re looking at HDB flats.

For HDB flats and ECs bought from the developer, there’s something called MSR. This rule is specific to these types of homes. MSR limits how much of your monthly income can go towards your mortgage payments to 30%. So, if you earn $5,000 a month, the most you can spend on your home loan each month is $1,500. It’s an important factor to consider when figuring out if you qualify for a loan.

Simply put, the Total Debt Servicing Ratio (TDSR) sets a limit on how much of your monthly income can be used to repay various debts like student loans, car loans, or personal loans. The Singapore government introduced TDSR in 2013, aiming to ensure responsible borrowing and prevent individuals from getting overwhelmed by debt. Initially set at 60%, it was later adjusted to 55% on December 16, 2021.

It’s important to note that changes in the medium-term interest rate can impact the amount you’re allowed to borrow according to TDSR calculations. This rule applies permanently and is mandatory for all banks and financial institutions. TDSR comes into play when evaluating:

1. Housing loans

2. Refinancing of housing loans

3. Loans secured by property

So, if you’re considering a mortgage or any loan tied to property, understanding and staying within the TDSR limits is crucial for responsible financial planning.

The Total Debt Servicing Ratio (TDSR) is like a safety net to make sure people don’t end up with more debt than they can handle, and that banks lend money responsibly.

TDSR is all about making sure loans are given to people who can actually afford them, especially when it comes to mortgages. It helps borrowers understand the real impact of a mortgage on their budget.

One big reason TDSR was brought in is to keep property speculation in check in Singapore. In the past, some folks would borrow a lot of money to buy properties, hoping to sell them later for a profit.

In a nutshell, TDSR stops risky loans from being handed out and sets a standard for how banks figure out if someone can really handle repaying a loan. It’s all about making sure loans make sense for borrowers and keeping the financial system stable.

In simple terms, the Total Debt Servicing Ratio (TDSR) is like a rule that keeps an eye on how much money you can borrow for a home loan. It says that the total of all your monthly debt payments, like student loans, car loans, credit card bills, and others, shouldn’t be more than 55% of your income.

If you have a lot of other debts, the bank might let you borrow less for your home loan. You might also need to spread out the time it takes to pay back your home loan to stick within these TDSR limits.

Nowadays, there are more rules to consider when getting a home loan:

1. Loan-to-Value (LTV) ratio: This decides how much of the property’s value you’re allowed to borrow.

2. Loan tenure rules: There’s a limit on how long you can take to pay back the loan.

3. Stress-test interest rate: This is like a safety check. Even if the actual interest rate is lower, the bank looks at whether you can still afford the loan if the interest goes up to 4%.

If your income is not stable or you have money from renting a property, the bank might not consider all of it when calculating TDSR. There’s something called a ‘haircut’ that trims down this variable income, especially if you’re freelancing or self-employed.

If you’re taking a loan with someone else, like a friend or family member, the bank looks at both of your incomes and debts together to calculate TDSR. They treat guarantors, mortgagors, and borrowers almost the same way now.

In short, TDSR is like a set of rules to make sure you don’t borrow too much and can handle your loan payments, considering all your other debts and the current financial rules.

When you’re buying an HDB flat (whether it’s new or resale) or a new executive condominium (EC), there’s an extra thing to keep in mind besides the Total Debt Servicing Ratio (TDSR) – it’s called the Mortgage Servicing Ratio (MSR).

The MSR rule says that the monthly payments for your HDB flat or EC can’t be more than 30% of your household income. Even if you could technically afford more according to the TDSR, the MSR puts a cap at 30%.

So, let’s say your other loans only take up 10% of your monthly household income. Even though TDSR says you could use up to 55%, with MSR, you can only use 30% of your household income for the monthly payments on your HDB flat or EC. It’s like a specific limit just for these types of homes.

Like many rules in Singapore, there are some special situations where the Total Debt Servicing Ratio (TDSR) doesn’t apply, giving a bit of flexibility.

Owner-occupiers Refinancing:

If you’re already repaying a loan for the home you live in (owner-occupier) and want to refinance, you don’t have to strictly follow the TDSR rules. It’s a kind of concession for those repaying a loan on their own residence.

Refinancing Investment Property Loans:

You can also refinance loans for investment properties beyond the TDSR limit under certain conditions. This includes committing to a debt reduction plan with the bank, repaying at least 3% of the outstanding balance over not more than 3 years, and meeting the bank’s credit assessment.

Mortgage Equity Withdrawal Loans (MWLs):

TDSR doesn’t apply to Mortgage Equity Withdrawal Loans (MWLs). These are loans where homeowners borrow cash against the paid-up value of their property. There’s a condition, though – TDSR won’t apply if the loan-to-value (LTV) ratio doesn’t exceed 50% when combined with other loans on the same property. This provision allows homeowners, especially retirees, to use their property for additional cash.

Exceptional Cases:

The TDSR framework also has a provision for financial institutions to grant property loans exceeding the usual 60% threshold in exceptional cases. But, there are strict conditions – the reasons must be well-documented, the financial institution needs to conduct an enhanced credit evaluation, a debt reduction plan must be in place, and the case must be reported to MAS (Monetary Authority of Singapore). This is basically a safety net for unique situations where the standard rules might not be suitable.