The Total Debt Servicing Ratio (TDSR) framework, implemented by the Monetary Authority of Singapore in 2013, limits borrowers’ total monthly debt obligations to 55% of gross monthly income. This calculation incorporates all existing loans, applying haircuts to variable income components and stress-testing interest rates at 4%. Maximum loan-to-value ratios decrease for subsequent property purchases, with loan tenures capped at 30 years for HDB flats and 35 years for private properties. Further nuances exist for joint borrowers and exceptional cases.
Since its introduction by the Monetary Authority of Singapore in 2013, the Total Debt Servicing Ratio (TDSR) framework has served as a pivotal regulatory mechanism designed to promote financial prudence among property purchasers in Singapore’s robust real estate market.
The TDSR framework stipulates that a borrower’s total monthly debt obligations must not exceed 55% of their gross monthly income, a calculation that encompasses all property loans, car loans, student loans, credit card balances, and any other credit facilities the borrower maintains.
The computation of income under TDSR guidelines follows a structured methodology wherein fixed income is considered at full value, while variable components such as bonuses, commissions, and rental income are subject to a 30% haircut for conservative estimation.
For self-employed individuals, income assessment is based on the average earnings of the preceding two years, with eligible financial assets potentially enhancing the income calculation for determination of loan eligibility.
Property loan assessments incorporate several parameters, including a maximum loan-to-value ratio of 75% for first-time property purchases, which decreases for subsequent acquisitions. Similar to mortgage lending worldwide, a lower LTV ratio percentage typically results in more favorable loan terms and reduced risk for lenders.
Loan tenures are capped at 30 years for HDB flats and 35 years for private properties, with banks applying an interest rate stress test of 4% to guarantee borrowers can withstand potential rate increases.
The framework does provide for certain exceptions, particularly for refinancing of owner-occupied properties and situations where retirees use their property as sole collateral. The tighter TDSR limits announced on 15 December 2021 reflect the government’s objective to cool the property market and align prices with economic fundamentals.
Joint borrowers are evaluated based on their combined financial profile, and in exceptional circumstances, financial institutions may approve loans exceeding the TDSR threshold.
The TDSR framework considerably influences loan eligibility, with lower debt-to-income ratios enhancing maximum borrowing capacity.
Borrowers with existing debt obligations experience reduced borrowing potential, while those with higher incomes benefit from improved TDSR calculations.
Financial institutions may implement stricter internal TDSR thresholds as part of their risk management protocols, further affecting loan approval outcomes in Singapore’s carefully regulated property financing landscape.
For credit card debt calculations under TDSR, lenders use the higher amount between $50 or 3% of balance per card when determining monthly obligations.
Frequently Asked Questions
How Does TDSR Affect Refinancing an Existing Property Loan?
TDSR affects property loan refinancing by potentially limiting borrowable amounts, as borrowers must maintain debt obligations below the 55% threshold.
Owner-occupied properties, however, receive TDSR exemptions regardless of purchase timing, provided loan quantum remains unchanged and tenure isn’t extended.
Investment property refinancing above TDSR limits requires implementing a structured debt reduction plan, with mandatory 3% outstanding balance repayment over three years, while maintaining compliance with the financial institution’s credit assessment criteria.
Can I Use CPF to Lower My TDSR Ratio?
CPF cannot directly lower TDSR ratios, though it offers indirect benefits.
Borrowers may pledge CPF Ordinary Account funds as an income source, which banks amortize over 48 months with a minimum 30% haircut applied.
Additionally, utilizing CPF Housing Grants reduces required loan amounts, subsequently decreasing monthly obligations factored into TDSR calculations.
While CPF contributions for monthly mortgage payments free up disposable income, they don’t directly impact the TDSR formula banks use for assessment.
Does Rental Income Count Toward the TDSR Calculation?
Rental income is included in the Total Debt Servicing Ratio (TDSR) calculation, subject to a 30% haircut by financial institutions.
For eligibility, the income must derive from properties not being financed, with valid tenancy agreements having at least six months remaining.
Financial institutions require verification through an IRAS stamp duty certificate, and the rental income must demonstrate stability and recurrence.
Significantly, rental income from overseas properties is excluded from TDSR calculations.
Are There TDSR Exemptions for Elderly Borrowers?
While elderly borrowers face standard TDSR requirements, certain exemptions exist.
Refinancing of owner-occupied properties is exempt from the 55% TDSR threshold.
Asset depletion methodologies allow for retirement savings to be calculated as income streams.
Financial institutions may consider case-by-case exceptions for retirees with substantial assets but limited income.
Additionally, seniors can access alternative financing mechanisms such as reverse mortgages (for those 62+) and the HDB Lease Buyback Scheme to monetize their properties.
How Do Joint Borrowers Affect TDSR Calculation?
Joint borrowers greatly impact TDSR calculations through aggregated gross monthly income assessment, which potentially increases borrowing capacity.
The combined approach factors in all applicants’ debts while applying variable income haircuts (30%), rental income (70%), and eligible financial assets (70%).
Income-weighted average age determines maximum loan tenure, with higher weight given to the higher income earner.
While the 55% TDSR threshold applies collectively, a lower individual TDSR may be offset by a higher-income co-borrower’s financial strength.
