The Total Debt Servicing Ratio (TDSR) is a regulation introduced by the Singapore government in 2013 to ensure Singaporeans borrow responsibly and reduce systemic risk of being over-leveraged.
If you plan to buy a property, one of the important factors that will affect the amount you can borrow is TDSR. Here’s what the regulation is, and how it affects your financial decisions in other areas of your life.
What Is TDSR?
TDSR stipulates the maximum percentage of your monthly income that can be used to service all your loan obligations across financial institutions, including credit card debt (including interest-free instalments), student loans, car loans, and existing mortgages.
Currently, the TDSR is set at 60% of one’s gross monthly income. Thus, if your gross monthly income is $3,000, the total amount that can be used for service your loan obligations is $1,800.
If you’re not a salaried employee (such as a business owner) or derive a significant portion of your income from commissions, your TDSR is calculated based on a 30% reduction of your gross monthly income. So if your average gross monthly income if $6,000, your TDSR will be based on 60% of $4,200, which is $2,520.
How Does TDSR Affect Your Property Purchase?
If you already have many loan obligations, you might find yourself hitting the TDSR limit when applying for a home loan.
This could affect the total amount of loan you’re able to receive, or it might force you to stretch your home loan longer than you might like, in order to keep monthly repayments beneath the TDSR threshold.
What Can You Do If You Don’t Meet The TDSR Requirements?
Because TDSR takes into account all of your debt obligations, you should look at “cleaning up” your existing instalments and loans when you’re planning a property purchase. This will give you the best chance at preventing TDSR from being a major issue in financing your new property purchase.
At DollarsAndSense, we’ve always been advocates of being fully aware of the implications of taking up any form of financing, including interest-free instalments. Rather than see TDSR as a hassle to circumvent, it is actually a useful check to “force” you to evaluate what you can realistically and safely afford to buy, whether that’s a new home, a car, or other big ticket items.
If you really need to, you can also try asking your bank for an exemption, for example, if you can prove that you a large amount of liquid assets or funds that you can deploy if needed, but this will subject to assessment by your bank. A good mortgage specialist will be able to advise you on all your available financing options.
Getting Help With Your Home Financing
If TDSR and getting exemptions sounds complicated, well, in a way it is. There are many rules and considerations that borrowers need to be aware of. In addition, comparing the fine print from multiple banks’ loan packages is probably not something you want to spend your time doing.
To help guide you through the process and get you the best home equity loan – or any home loan, for that matter – you can approach our friends at Redbrick.
Simply fill in the contact form and an experienced Redbrick mortgage specialist will be in touch with you for a non-obligatory consultation. The best part? Their services are free for you, since it is the banks that are footing the bill.