A Three Part Guide to Total Debt Servicing Ratio (TDSR) in Singapore

By Dawn Chew A Three Part Guide to Total Debt Servicing Ratio (TDSR) in Singapore |Updated 7 Jan 2022 4 minutes

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At a glance...

Getting a housing loan isn’t as simple a process as it was in the past. Things like a 40-year loan period is but a distant memory, and now the Total Debt Servicing Ratio (TDSR) is how we regulate a borrower’s maximum property loan eligibility, regardless of purchase or refinancing.

The Total Debt Servicing Ratio (TDSR) was first introduced back in 2013. The TDSR applies to every individual, sole proprietorship, or any vehicle that has been set up by a natural person solely for the sake of buying a property.

MAS has stipulated that an individual’s TDSR has to be of 60% or lower when calculated against their gross monthly income.

Now, while there are many articles out there that show you the finer details in how to calculate the ratio of your monthly instalments against your gross monthly income, here is a more in-depth guide to the TDSR formula, split into 3 parts, so you can calculate it yourself.

It can be calculated like this:

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Part 1: Gross Income

First off, let’s explain what is included within the scope of the aforementioned Gross Monthly Income.

The term has been widely used to represent the monthly salary that is paid to an employee before any monthly deductions for CPF, charities, and more are taken into account. 

However, when seen from a TDSR point of view, it’s not as simple. 

When defined by a TDSR perspective, the gross income definition differs in that the gross income will vary depending on your occupation and can be enhanced by any income streams you may have such as freelancing, or any eligible financial assets you may own.

For most employees, their salary may contain a fixed salary with fixed allowances for transportation, shift allowances, as well as any sales commissions, bonuses, overtime pay, and the like. Mortgage lenders will take into account the fixed salary at 100% of the stated amount and any other amounts will be subjected to a cut of 30%. 

Financial institutions will then use the latest Income Tax Notice of Assessment (ITNA) and employee payslips to separate any fixed and variable salary amounts in order to calculate an employee’s gross monthly income.

For those that are self-employed, fully commissioned workers, or freelancers, the past 2 years of their ITNA will be required instead.

Below is how employees with fixed salaries and those that are self-employed may calculate their gross monthly income respectively:

gross-monthly-incomegross-income

Besides that, any rental income may also be included into your gross income when two key conditions are fulfilled. The tenancy agreement must be valid for at least 6 months from the loan application date, and the tenancy agreement must be stamped with the Inland Revenue Association of Singapore Stamp. The 30% cut also applies to the monthly rental income.

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Insider Tip

You may calculate your rental income like so:

Additional Gross Monthly Income = Monthly Rental Income x 70%

Part 2: Eligible Financial Assets

As we know from Part 1, the TDSR regulates any purchases or refinancing of a residential property loan based on any debts versus your income. Now, here’s a look into how financial assets can help boost your possible borrowing ability:

A. Eligible Financial Assets

These are typically cash deposits, listed company shares, bonds, unit trusts, or even gold.

B. Liquid Assets

These usually refer to any unencumbered funds that can be conveniently drawn upon within a short period of time. There are two ways for such assets to be recognised, either pledged or unpledged.

C. Pledged Assets

These are usually cash deposits that have yet to be deposited in any fixed deposit with the mortgage lender, from the loan start date onwards and for the next 48 months. For examples, if you were to pledge $100,000, then it would increase your month gross income by $2,083.

A simplified formula to calculate your pledged asset and convert it into income can be seen below:

gross-income-drived-asset

D. Unpledged Assets

These usually are not required to be placed with the mortgage lender. Using the example in C, with the same $100,000 deposit, your income will be instead be increased by a much lower $625.

A simplified formula to calculate your unpledged asset and convert it into income can be seen below:

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Insider Tip

Regarding investments, you may simply use the formula for unpledged assets. This is because often, the financial institutions in question will not accept the pledging of these assets. It is important to bear in mind the risks using investments to increase borrowing ability may have, as the portfolio value may change between the initial approval stage and the loan disbursement stage, unlike pure deposits.

Part 3: Debts & Income Weighted Average Age

Last but not least, the Debt part of the TDSR. In general, monthly debts are obligated payments that you have to service monthly, and can include secured loans such as housing loans and car loans; and unsecured loans such as overdraft lines, personal loans, and credit card loans, or spending.

When you apply for a new property loan, the corresponding monthly obligation will need to be factored into the TDSR calculations. 3 inputs are a must: the loan amount, the interest rate, and the loan tenure.

The loan amount is 75% or lower of the property purchase price; and if your desired loan amount has exceeded the maximum TDSR or 60%, the mortgage lender will then calculate the highest possible loan you can borrow based on the 60% limit.

When taking into account the interest rate, MAS has stipulated that all mortgage lenders should use 3.50%. Before the low interest rate period, the 3 months Singapore Interbank Offer Rate (SIBOR) was about 3.55% instead.

Finally, let’s talk about the loan tenure. The loan tenure is where the income weighted average is applied. The formula below will determine the income weighted average age for you and any joint borrowers (should there be any) and the result will be rounded up.

income-weighted

A much heavier weighting is given to the age of the higher income earner and a less heavy weighting will be given to the age of the lower income earner. Thus, when based on the income weighted age, you can determine the maximum loan tenure.

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