Housing Loan Information
When you apply for a home loan from a local bank to finance your home purchase, mortgage bankers will use a series of qualification criteria to assess your financial capacity and to ensure prudence. Under the guidance of the Monetary Authority of Singapore (MAS), home loan applicants must comply with the rules and regulations by Total Debt Servicing Ratio (TDSR) framework and Loan-To-Value Ratio(LTV) limits.
1. Total Debt Servicing Ratio for Property Loans
The total debt servicing ratio (TDSR) is a maximum threshold set by MAS.
Total Debt Servicing Ratio (TDSR) applies to individuals and certain companies. TDSR must be calculated for any loan to purchase a property and any loan secured by a property, as well as the refinancing of these loans.
Why Is TDSR Required?
Property loans can be large, long-term liabilities for most individuals and households. TDSR limits ensure that borrowers are not over-leveraged for property purchases.
TDSR helps to:
Strengthen the credit underwriting practices of FIs.
Encourage financial prudence among borrowers.
Ensure long-term sustainability in the property market.
It also complements the existing loan-to-value (LTV) limits on property purchases.
To calculate a borrower’s TDSR, use the following formula:
(Borrower's total monthly debt obligations / Borrower's gross monthly income) x 1
2. Loan-to-Value Ratio (LTV) Limits and Minimum Cash Down Payment (MCDP)
When you apply for a home loan, the banker will apply the Loan-to-Value Ratio (LTV) limits to your application after meeting the rules under the Total Debt Servicing Ratio (TDSR) Framework. LTV limits and MCDP are subject to factors such as numbers of home loans, loan tenure, and age applicants. Please refer to the chart below for a quick review.
3. Work out your Total Debt Servicing Ratio
The rules of the Monetary Authority of Singapore set out the minimum requirements for calculating a borrower’s Total Debt Servicing Ratio (TDSR). Local bankers will apply a series of assessment processes on your total current monthly debt obligations and gross monthly income, and work out your current TDSR Ratio. The Total Debt Servicing Ratio (TDSR) threshold for property loans is set at a maximum of 55% of the borrower’s monthly income. For example, if a borrower has existing monthly debt obligations equal to 20% of their monthly income, then the maximum amount they can get for a property loan is based on35% of their monthly income.
Monthly debt includes all outstanding debt obligations:
Property-related loans, including the loan being applied for.
Credit card loans.
Any other secured or unsecured loans, including revolving loans
Bankers will calculate and confirm any debt obligations by collecting supporting documents and will check these with the credit bureau.
Gross Monthly Income (TDSR Denominator)
Gross monthly income refers to the borrower's monthly income before tax and excludes any CPF contribution made by the employer.
Calculating Variable Income
For variable income such as commission, bonus and allowance, financial institutions (FIs) will take the average of the monthly variable income earned in the preceding 12 months.
A minimum haircut of 30% will be applied to the variable income and verified rental income from your property investment. Certain eligible financial assets will be considered with respective haircuts, such as cash or deposits, foreign currency, stocks, gold, business trusts, and collective investment schemes. These are subject to haircuts and an amortisation schedule over 48 months.
When banks calculate the loan amount they will look at the property’s current market value, and the purchase price.
The Loan-To-Value or LTV is the ratio of the loan amount against the lower of the purchase price or the current market value. The purchase price will be adjusted to deduct any discounts, rebates, or benefits included in the purchase of the property or in obtaining a home loan.
Here’s a diagram showing the maximum LTV, and the minimum cash required (own cash, not from CPF) to purchase a private or HDB property.