The total debt servicing ratio was introduced in Singapore to rescue borrowers from the nightmare of taking on too much debt and committing their entire monthly income towards loan repayments. Basically, the TDSR is the maximum portion of your monthly income that you are allowed to commit towards your debt repayments including your mortgage repayment.
The percentage given for the total debt servicing ratio in Singapore is at a maximum of 60% of your monthly income. This means that the total figure of the amount that you should spend on making all your debt repayments such as credit card payments, personal loans, car loans and mortgage loans should not exceed 60% of your monthly income.
If you are not on a fixed monthly income, meaning you are self-employed, earning commissions, or a freelancer, then for purposes of calculating the total debt servicing ratio, your income will be taken as 70% of the average amount of income that you receive per month. For example, if you get an average of $6,000 per month as a freelancer, then the amount of your TDSR will be 60% of $4,200.
The total debt service ratio affects your property purchase in the following ways.
The total debt servicing ratio has made it more difficult to purchase property in Singapore. The main purpose is to prevent Singaporeans from taking on too many mortgages which can eventually become unmanageable. If you have several debts that you are servicing, then you may already have reached your total debt servicing ratio of 60% before applying for a home loan. This will hinder you from purchasing property until you pay off some of your other debts. The ultimate goal is that you should have debt that you can manage.
Interest rates on property loans keep changing. It is possible for the interest rates to rise suddenly for a season of time. The amount calculated on your total debt service ratio should still be sufficient to cover the repayments of your debts even when the interest rates rise suddenly. This changing interest rate will prevent you from borrowing very large amounts of cash.
If you are self-employed or a freelancer, then you will not be able to borrow as much as those who have a fixed monthly income. This is because your total debt servicing ratio will be calculated on only 70% of your average monthly income.
You could find yourself in a situation where you would like to apply for a home loan but you do not meet the TDSR requirements. In this case, you can choose any of the following options.
Apart from the above information, there are other facts that should be noted about the total debt servicing ratio in Singapore. These are given below.
If you are planning to buy an HDB flat or an executive condominium in Singapore, then the total debt servicing ratio will apply as well as the mortgage servicing ratio, which is 30%. This means that you will only be able to use 30% of your monthly income, on top of the 60% applied by the TDSR, to service your mortgage. The balance of the percentage can be allocated to the payment of other debts such as car loans, credit card payments and even personal loans. Consequently, owners of HDB flats and executive condominiums will be very limited in the amount that they are allowed to borrow.
If you are a homeowner and you live in your home, then you will be able to refinance your home loan without being subjected to the total debt servicing ratio rules. You will also need to meet the requirements for credit assessment given by the financial institution. However, if you bought your home for investment purposes, then the TDSR will apply. It should also be noted that you can request for the TDSR percentage to be raised above 60% if you satisfy the following terms.
If you are a retired homeowner and you want to borrow some cash against the paid-up value of your home, then it is possible for you to be exempted from the TDSR rules. The terms and conditions for this exemption are that the loan you are taking plus any outstanding amount on the mortgage should be below 45% of the value of the home. This arrangement is designed to give older homeowners the opportunity to get easier access to funds using their home value.
When calculating your monthly income for TDSR, other liquid assets that you may have such as stocks, foreign currency accounts, and even gold can be included. You will need to show proof of ownership of these assets, after which 70% of the total value will be included in your income figure when calculating your total debt servicing ratio. This will enable you to get access to a higher amount of funds when you apply for a home loan.
$2.50 for a bottle of water sounds very overpriced, but it becomes normal and acceptable once people mention the brand, Evian. Evian water is known..
What are the must-knows when it comes to taking a home mortgage loan? Singapore has been known to be among the most expensive cities in..
They say that two are better than one because they will get more for their effort or investment. That couldn’t be truer with , a..
Stock research is essential for helping Singaporeans when evaluating companies for them to be able to determine whether they are worthwhile additions to their portfolios...
What the Reduction of the Singapore Appreciation Rate Means? Different central banks around the world use various strategies to control the rate of inflation in..
. It affects almost all the countries of the world including Singapore. Most countries experience both core inflation and lifestyle inflation. Core inflation can be..
The importance of personal finance management is undisputed, no matter who you are. If you can manage your budget proficiently, you know how much money..
Investing in the Singapore Exchange is a worthwhile venture for . However, before you begin to buy and sell securities on the Singapore Exchange, you..
Ecommerce comprises of electronic platforms that are used to facilitate business transactions. Millions of people around the world log into virtual markets on the internet..
Banking is a business that is distinct from a business that solely deals with money lending. Money lenders typically advance their own money while banks..
What is Financial Freedom? Financial freedom means different things to different people. For many Singaporeans, financial freedom means having all their financial needs met and..
Most people set out to start their businesses with excitement, but many of them, even those who plan well and save to start up, often..
Many Singaporeans consider the option of taking a bank loan when they need funding for various projects. However, taking a bank loan is not as..
Advertising was extremely expensive at some point in its history, particularly ten to twenty years ago when companies relied mainly on A TV or magazine..
As a beginner in investing, the idea of putting money into an investment you are considering may be intimidating. Usually this comes from lack of..
Singapore is known for its great food, great weather, friendly residents and being super clean. It is also known for its thriving economy. In the..
Looking for a job can sometimes be challenging. It is important that you take note of the tips that could help you to emerge successful..
Cashless payment methods have been the trend in recent times. Singapore is among the top nations worldwide who are going cashless. In fact, a few..
Applying for your first credit card usually comes with a sense of excitement and apprehension. You'll have the opportunity to make your purchases conveniently and..
Refinancing your home refers to the process of replacing the original mortgage with a new one. Refinancing serves the purpose of enabling borrowers to more..
Cutting down on expenditure has always been associated with making major lifestyle changes. However, you don't always have to make a big change in your..
Taking a business loan in Singapore should never be seen as a sign of weakness in a company. This type of loan is also not..
For Singaporeans who are considering getting cards or already have them and want to know the best ways to avoid debt, it is important to..
You cannot copy content of this page.