What is the TDSR?
The Total Debt Servicing Ratio (TDSR) is a framework that safeguards borrowers against over-borrowing for their property purchase(s). In a nutshell, the TDSR limits the amount borrowers can spend on debt repayments to 60 percent of their gross monthly income. All banks and financial institutions in Singapore must adhere to the TDSR.
How will the TDSR affect your home loan?
The maximum TDSR is 60% of an individual’s fixed monthly income. Any existing debt obligations will count against this and reduce the maximum amount you can borrow. These debt obligations include:
Credit Card Balances (including instalment plans)
Obligations as a guarantor
In order to maximise your loan amount up to the full 60% TDSR for your mortgage, pay off as many debts as you can before your property purchase!
How to Calculate TDSR?
Currently, the TDSR is set at 60% of one’s gross monthly income.
Individuals with fixed income will have their loan assessed based on 60% of their gross salary. While individuals with variable income (e.g. freelancers, commission earners, self-employed) are deemed “more risky” by lenders, hence their variable income is subjected to a 30% haircut, before the TDSR is applied.
Consider the following examples:
Amy earns a fixed income of S$10,000 per month. Her car loan repayment is S$1,000 per month.
Under TDSR rules, the maximum debt repayment she could make each month is now S$5,000 (S$10,000 x 60% – S$1,000).
MONTHLY FIXED INCOME
S$10,000 x 60 % – S$1,000 (car loan)
= S$ 5,000
Ben earns a basic of S$4,000 per month and a commission of S$6,000 per month. His car loan repayment is S$1,000 per month.
As a commission earner, his variable income is subjected to a 30 percent haircut.
So the gross income being assessed for loan will be $8200 [(Basic: $4,000) + (Commission: $6,000 x 70%)]
Under TDSR rules, the maximum debt repayment he could make each month is now S$3920 (S$8,200 x 60% – S$1,000).
Basic: S$4,000 + Comm: S$6,000 x 70%
S$8,200 x 60% – S$1,000 = S$3,920
As you can see, even though the two individuals above earn the same income every month, having a fixed salary will give a home loan applicant an advantage in the amount of income eligible for loan assessment.
Does TDSR take into account investment assets?
Fortunately, they do!
If you have financial assets like stocks, unit trusts, bonds, gold, foreign currency deposits, and other liquid assets, you can use them to count toward your monthly income.
How does TDSR factor into the calculation if i’m thinking about refinancing?
TDSR does not come into play if you’re thinking about refinancing the current home that you’re staying in. As such you do not need to worry as much about TDSR if you’re considering this move.
For ease of understanding your loan capability, you can download the I Quadrant application which is free to use. The application includes a calculator which will assist you in calculating your loan capability. Download the app via