{"id":18090,"date":"2022-10-03T12:44:00","date_gmt":"2022-10-03T04:44:00","guid":{"rendered":"https:\/\/www.99.co\/blog\/singapore\/?p=18090"},"modified":"2022-10-20T13:24:04","modified_gmt":"2022-10-20T05:24:04","slug":"total-debt-servicing-ratio-tdsr","status":"publish","type":"post","link":"https:\/\/www.99.co\/singapore\/insider\/total-debt-servicing-ratio-tdsr\/","title":{"rendered":"7 facts about the Total Debt Servicing Ratio (TDSR) property buyers need to know"},"content":{"rendered":"
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Update as of 24 June 2022: This article has been updated to include the latest TDSR, in light of the cooling measures announced on 16 December 2021<\/a>. <\/em><\/p>\n\n\n\n

Implemented back in June 2013 by the Monetary Authority of Singapore (MAS), the Total Debt Servicing Ratio (TDSR) is a framework that safeguards borrowers against over-borrowing for their property purchase(s). <\/p>\n\n\n\n

What is Total Debt Servicing Ratio (TDSR)?<\/h2>\n\n\n\n

The TDSR is a cap on the total amount you can borrow, when applying for a home loan.\u00a0In essence, the TDSR limits the amount individuals can spend on monthly mortgage debt repayments, based on a percentage of their gross monthly income.<\/strong> All banks and financial institutions in Singapore must adhere to the TDSR.<\/p>\n\n\n\n

Currently, the total monthly debt obligations of a given individual or household \u2013depending on whether the property is a single or joint purchase \u2013 is capped at 55% of gross income<\/strong>. <\/p>\n\n\n\n

If you have variable income (e.g. working on commissions, getting rental income), your income counts as being 30% lower for the purposes of TDSR calculations.<\/p>\n\n\n\n

Why does the TDSR exist?<\/h2>\n\n\n\n

The TDSR came about for two reasons:<\/p>\n\n\n\n

The first reason is to prevent Singaporeans from being over-leveraged (i.e. accumulating too much debt for their property asset). This fear is grounded in the 2008\/9 Global Financial Crisis \u2013 the economic crash was precipitated by people taking big home loans, which they couldn\u2019t actually afford.<\/p>\n\n\n\n

The second reason is to slow the pace of property sales. When there are no loan restrictions, investors tend to purchase more properties, and prices often rise. The TDSR is, indirectly, helping to keep the cost of property manageable.<\/p>\n\n\n\n

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Key things to note about the TDSR<\/h2>\n\n\n\n
  1. Don\u2019t confuse TDSR with true affordability<\/li>
  2. Note how variable loans factor into the calculations<\/li>
  3. If you\u2019re self-employed, under-declaring your income impacts your TDSR<\/li>
  4. Make sure you gather income documents early for TDSR assessment<\/li><\/ol>\n\n\n\n

    1. Don\u2019t confuse TDSR with true affordability<\/h3>\n\n\n\n

    Even though the TDSR cap is now 55%, that doesn\u2019t mean it\u2019s financially prudent to reach this amount. As a rule of thumb, your monthly debt repayments should not exceed 30 to 40% of your monthly income \u2013 regardless of what the TDSR allows.<\/p>\n\n\n\n

    You should also factor in your financial situation: if you have just started running your own business, for example, you should aim for a much lower debt limit than the TDSR\u2019s 55%. This will ensure you have enough savings to keep paying the mortgage, in case business goes south.<\/p>\n\n\n\n

    If you find that you\u2019re near the TDSR limit, there\u2019s a good chance your house or loan may be too expensive for you. Find a cheaper alternative.<\/p>\n\n\n\n

    2. Note how variable loans factor into the calculations<\/h3>\n\n\n\n

    Some loans have variable repayment schemes. For example, personal loans and credit card loans often don\u2019t specify a fixed amount you have to repay. For these loans, note that the minimum required payment is used for the TDSR.<\/p>\n\n\n\n

    For example, say you have S$10,000 in credit card debt. For instance, the minimum repayment is 5% (or S$500). In such a case, only S$500 is added toward your TDSR limit.<\/p>\n\n\n\n

    If you have multiple credit lines (e.g. a dozen credit cards and several lines of credit), it\u2019s best to close the ones you don\u2019t use. Otherwise, calculating the minimum repayments for all of them will be a major headache.<\/p>\n\n\n\n

    3. If you\u2019re self-employed, under declaring your income can affect your TDSR<\/h3>\n\n\n\n

    It may be tempting to under-report your income to avoid taxes. We can\u2019t advice you on the legal issues (we\u2019re not lawyers). But we can tell you that, if you understate your income, it becomes much harder to meet the TDSR requirement.<\/p>\n\n\n\n

    If you\u2019re self-employed,\u00a0check out this post<\/a>\u00a0for more help on buying a home.<\/p>\n\n\n\n

    4. Make sure you gather income documents early for TDSR assessment<\/h3>\n\n\n\n

    You will need to offer proof of your income. This can come in the form of tax statements, or simply payslips from clients (if you\u2019re self-employed). If you rely on variable income sources, such as rent or sales commissions, be sure to maintain a record of payments.<\/em><\/p>\n\n\n\n

    The tidier your income sources for the accountant, the quicker your TDSR limit is established.<\/p>\n\n\n\n

    You typically have to provide proof of income over the past six months to a year. As such, it\u2019s best to start early. In the 12 months prior to buying, be sure to carefully collect your pay slips, and avoid under-declaring your income.<\/p>\n\n\n\n

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    How do I calculate my TDSR?<\/h2>\n\n\n\n

    To calculate TDSR, take your monthly debt repayments, divide it by your gross monthly income and multiply it by 100%. This figure cannot exceed 55%.<\/p>\n\n\n\n

    Need some help determining your TDSR? Use 99.co\u2019s TDSR Calculator<\/a> to find out your monthly mortgage limit.<\/p>\n\n\n\n

    Check out this TDSR calculation example for a better idea:<\/p>\n\n\n

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    While this might seem straightforward at first glance, there are quite a few conditions and exceptions that govern the TDSR.<\/p>\n\n\n\n

    To help you budget for your property and make savvy financial decisions, we’ve simplified what you need to know into seven points.<\/p>\n\n\n\n

    1. Outstanding debt obligations reduce the amount you can borrow<\/h3>\n\n\n\n

    Although the maximum TDSR is 55% 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:<\/p>\n\n\n\n