TDSR refers to the total debt servicing ratio, while the MSR refers to the mortgage servicing ratio limits of the borrower. TDSR calculates the portion of your earnings that could be used to serve your loan. As of the latest update, the highest percentage allowed by the government is only 60%. The computation takes into account all your other loan obligations, and then add all your repayment obligations, to make sure it does not go beyond the allowed 60%. You may think that the TDSR is similar or has the same features as the MSR. They are thoroughly different frameworks. However, if you have a variable income, you would get a much smaller TDSR computation. For example, if you have a $5,000 income from business, then you only get 30% of your variable income to qualify for the TDSR computation. This method computing your 60% TDSR out of the $3,500 variable income.
What are the highlights of the TDSR ruling?
The ratio is now capped at 60%. For the commercial and industrial loans, the new loan calculation is based on 4.5%. For the residential character loans, the new loan calculation is based on 3.5%. To calculate the loan tenure of two or more borrowers, the calculation is based on the income weighted average age. There are no more guarantors in this ruling. All borrowers should be the mortgagors. If you opt for a guarantor, then the guarantor should be a mortgagor itself. The TDSR applies to all real character loans, which include residential and commercial similarities. For a refinancing, it would not apply if the character is occupied by the owner.
The MSR focuses only on your housing loan repayments. Recently, the MSR limit in Singapore has been cut to 30% of the gross monthly salary of the borrower from the past 35%. This method that in spite of of your other loan repayments, you can use at the minimum 30% of your monthly income. If over 30% of your income has been allocated already to paying your existing loan repayments, then you are not eligible to make another loan anymore. The government has been increasingly keen on how its people are spending their money. The government was convinced that people spent their money to the last borrowed cent. The government wants to ensure its people are not borrowing money like a broke alcoholic. The MSR does not apply to HDB flats and ECs that are owner occupied and purchased before the implementation of the new MSR ruling.