Back

TDSR and MSR, What Are They Exactly?


Connect With Us:

facebook page link

Share:

Share on Facebook

Like:




TDSR and MSR


Introduction

The Total Debt Servicing Ratio (TDSR) and the MSR (Mortgage Servicing Ratio) are frameworks introduced to ensure mortgage is serviceable by mortgagors. According to the Monetary Authority of Singapore (MAS), the TDSR has the effects of a property cooling measure but is not used as a cooling measure policy. It is used to encourages financial prudence among buyers and strengthen credit underwriting practices of financial institution. It is a form of stress test instead of cooling measure. The MSR is calculated differently but achieves the same objective.


Differences

Apart from how it is calculated (which will be explained later), this section will explain the similarities and difference between the two frameworks.

For HDB loan, only the MSR of 30% will apply. For bank loans, the lower of MSR and TDSR will be used.

The MSR is 30% of your total income. The TDSR is 60% of your income, and you will still need to deduct all other financial commitments from the 60% of your income.


Mortgage Servicing Ratio (MSR)

The MSR is very straightforward. It takes 30% of your gross income as monthly repayment of your loan to calculate for the loan quantum. No other question will be asked.


Total Debt Serving Ratio

Total Debt Servicing Ratio (TDSR) framework


  • 60% of income
  • 30% haircut off variable income
  • Income weighted average age to determine loan tenure
  • 3.5% per annum interest rate as stress test for resale HDB housing loan
  • Borrower must be the owner of the property
  • Only applies to bank loan

Please refer to the table below for a more visual illustration of the TDSR framework.


tdsr

TDSR Calculations


MSR or TDSR?

When taking a bank loan, the lower of MSR and TDSR will be used.

When the bank uses the TDSR instead (because TDSR calculation is lower than MSR), it adds another dilemma when choosing between bank loan and HDB loan because one uses MSR and another uses TDSR in this scenario. As far as only TDSR and MSR is concern, the HDB loan may be better in this case because it will lead to a higher loan quantum. Furthermore, the MSR is very straightforward and does not ask any other questions. The TDSR on the other hand, deduct many things off and may end up lower than the MSR calculation, especially if a large portion of your income is variable.

When taking a bank loan, it is advised that the fixed income earners take the bank loan where possible as TDSR is not so harsh on fixed income earners.


Refinancing

For owner occupied housing loan, the TDSR and MSR does not apply at the time of refinancing.

For non owner occupied housing loan, the TDSR and MSR apply generally. However, if the borrower commits, at the time of refinancing, to a debt reduction plan with his financial institution comprising a repayment of at least 3% of the outstanding balance over a period of 3 years and also fulfils the financial institution credit assessment, then he need not be subjected to the TDSR framework.


Conclusion

We hope that this article has helped you in your MSR and TDSR calculation, and more importantly, helped you make an informed decision on which loan you want to take when you purchase a HDB flat.



Continue Reading the Article?

The article you just read is a summarized version. The rest of the article below is just a version that is more lengthy and complete for people who want to learn more in depth information. You can choose to hit the back button to browse other articles if you do not require such in depth information. Give us a "Like" if you appreciate our work or if it had helped you! Please share if you think your friends will be able to benefit from it as well!



Connect With Us:

facebook page link

Share:

Share on Facebook

Like:






TDSR and MSR


Introduction

The Total Debt Servicing Ratio (TDSR) and the MSR (Mortgage Servicing Ratio) are frameworks introduced to ensure mortgage is serviceable by mortgagors. According to the Monetary Authority of Singapore (MAS), the TDSR has the effects of a property cooling measure but is not used as a cooling measure policy. It is used to encourages financial prudence among buyers and strengthen credit underwriting practices of financial institution. It is a form of stress test instead of cooling measure. The MSR is calculated differently but achieves the same objective.


Differences

Apart from how it is calculated (which will be explained later), this section will explain the similarities and difference between the two frameworks.

For HDB loan, only the MSR of 30% will apply. For bank loans, the lower of MSR and TDSR will be used.

The MSR is 30% of your total income. The TDSR is 60% of your income, and you will still need to deduct all other financial commitments from the 60% of your income.


Mortgage Servicing Ratio (MSR)

The MSR is very straightforward. It takes 30% of your gross income as monthly repayment of your loan to calculate for the loan quantum. No other question will be asked.


Total Debt Serving Ratio

The TDSR is more complex and it is stricter to variable-income earners. The variable components, whether it is commission, non periodic bonus or allowance, a 30% have to be deducted from it first. We then add the fixed income component with the variable income components after the 30% deduction. That is the income where it is subjected to the TDSR of 60%. After taking 60% of the calculated income, we need to deduct all other financial commitments. The final amount is the maximum monthly repayment amount, with the estimated loan tenure and interest rate of 3.5%, we can find out the loan quantum for the buyer. With the LTV limit, we can find out the maximum property price that the buyer can afford. It is very difficult to understand this framework with just words.

Total Debt Servicing Ratio (TDSR) framework


  • 60% of income
  • 30% haircut off variable income
  • Income weighted average age to determine loan tenure
  • 3.5% per annum interest rate as stress test for resale HDB housing loan
  • Borrower must be the owner of the property
  • Only applies to bank loan

Please refer to the table below for a more visual illustration of the TDSR framework.


tdsr

TDSR Calculations


MSR or TDSR?

When taking a bank loan, the lower of MSR and TDSR will be used.

When the bank uses the TDSR instead (because TDSR calculation is lower than MSR), it adds another dilemma when choosing between bank loan and HDB loan because one uses MSR and another uses TDSR in this scenario. As far as only TDSR and MSR is concern, the HDB loan may be better in this case because it will lead to a higher loan quantum. Furthermore, the MSR is very straightforward and does not ask any other questions. The TDSR on the other hand, deduct many things off and may end up lower than the MSR calculation, especially if a large portion of your income is variable.

When taking a bank loan, it is advised that the fixed income earners take the bank loan where possible as TDSR is not so harsh on fixed income earners.


Refinancing

For owner occupied housing loan, the TDSR and MSR does not apply at the time of refinancing.

For non owner occupied housing loan, the TDSR and MSR apply generally. However, if the borrower commits, at the time of refinancing, to a debt reduction plan with his financial institution comprising a repayment of at least 3% of the outstanding balance over a period of 3 years and also fulfils the financial institution credit assessment, then he need not be subjected to the TDSR framework.


Conclusion

We hope that this article has helped you in your MSR and TDSR calculation, and more importantly, helped you make an informed decision on which loan you want to take when you purchase a HDB flat.



Date first posted on 18 June 2019; Last Edited on 18 June 2019

Connect With Us:

facebook page link

Share:

Share on Facebook

Like:



For more articles on other key topics: