What is Total Debt Servicing Ratio (TDSR)?
The Total Debt Servicing Ratio (TDSR) is a home loan limit implemented by MAS (Monetary Authority of Singapore) that applies to public and private properties.
The TDSR establishes boundaries on the maximum borrowing capacity for homebuyers. It is currently set at 55% (as of 16 Dec 2021) of their gross monthly income. The primary objective is to promote responsible borrowing among households and enhance the credit evaluation standards of financial institutions.
It’s important to note that the TDSR is a permanent requirement that all banks and financial institutions must adhere to when assessing various types of loans, including housing loans, refinancing of housing loans, and loans secured by property.
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What does the Total Debt Servicing Ratio (TDSR) do?
The implementation of the Total Debt Servicing Ratio (TDSR) is essential for various reasons, as follows:
- Managing financial burdens
Property loans often involve significant amounts of money and long repayment periods, which can place a heavy financial burden on individuals and families. The TDSR works with existing loan-to-value (LTV) limits to restrict the amount of financing available for property purchases. These measures promote responsible borrowing practices and maintain a healthy and sustainable property market.
- Strengthening credit evaluation
The TDSR promotes higher standards in credit evaluation by financial institutions. It encourages lenders to adopt more thorough assessment practices, reducing the lending risk to borrowers struggling to meet their repayment obligations.
- Encouraging financial prudence
The TDSR acts as a safeguard to prevent borrowers from becoming overly indebted. It promotes financial prudence by encouraging individuals to consider their financial capabilities and make responsible decisions when taking on property loans.
- Ensuring market sustainability
By preventing borrowers from becoming over-leveraged, the TDSR contributes to the long-term stability of the property market. It helps prevent speculative behaviour and excessive borrowing, reducing the likelihood of market volatility and potential financial crises.
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How to calculate Total Debt Servicing Ratio (TDSR)?
You can use the following formula to calculate your TDSR:
(Total monthly debt obligations of the borrower / Gross monthly income of the borrower) x 100%
The numerator of the TDSR formula represents the borrower’s monthly debt obligations, which include various types of outstanding debts, such as property loans (including the loan being applied for), car loans, student loans, renovation loans, and so on.
Financial institutions have the responsibility of accurately calculating and verifying these debt obligations by:
- Collecting relevant supporting documents from the borrower
- Cross-referencing the information with the credit bureau to ensure accuracy
An alternative approach to calculate your TDSR is by using 99.co’s user-friendly TDSR calculator. Simply enter your income and other financial obligations into the calculator, which will efficiently calculate your TDSR.
The information provided was accurate at the time of publication. For the latest changes and updates, head over to the official websites.
