What is Total Debt Servicing Ratio (TDSR)?
The Total Debt Servicing Ratio (TDSR) is a framework established by the Monetary Authority of Singapore (MAS) in 2013 to promote responsible lending and borrowing, encourage financial prudence and, in the long run, to curb the risk of a subprime meltdown.
How to Calculate TDSR?
The rule of thumb of the TDSR states that your total monthly debt obligations must not exceed 60% of your gross household monthly income. This sets a cap on the maximum amount of money you can borrow from financial institutions for your monthly repayments.
Here is how TDSR is calculated:
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What is Mortgage Servicing Ratio (MSR)?
The Mortgage Servicing Ratio (MSR) is a sub-component of the TDSR which is a key element to consider when applying for a home loan.
MSR dictates that your total monthly mortgage repayments must not exceed 30% of your gross household monthly income.
It is important to note that the 30% MSR cap is included in the 60% TDSR limit. Simply said, if your MSR is 30% of your gross household monthly income, you have a remainder of 30% for your other financial commitments for example Car loans, credit cards, etc.
Here is how MSR is calculated:
An example to illustrate TDSR and MSR
Say your gross household monthly income is S$10,000.
The TDSR’s threshold is 60% of your gross household monthly income, which is S$6,000. This is the maximum sum of your total monthly repayments.
The MSR’s threshold is 30% of your gross household monthly income, which is S$3,000. This is the maximum sum of your monthly mortgage repayments.
Over a loan tenure of 25 years, with a monthly mortgage repayment of S$3,000, you can borrow up to S$900,000 for a home loan.
This means the remaining 30% of your other monthly debt obligations (excluding home loan repayments) can be up to S$3000 to pass the 60% TDSR cap.
If you are in the midst of searching for a home loan, don’t fret over the various rulings and considerations, let our mortgage experts at HugMortgage offer you unbiased home loan advice for free!