How many of you have made a big purchase in your life which requires a loan or installment? Be it buying a car, property, or even products, there'll always be a question that pops up.
"Err, how much can I borrow ah?" Today we are going to learn a couple of terminologies that each of us will encounter in the process of purchasing your dream home.
They are, TDSR (Total Debt Servicing Ratio) & MSR (Mortgage Servicing Ratio).
So, how did all these terms come about?
TDSR
The Total Debt Servicing Ratio (TDSR) is a framework to ensure that people borrow, and banks lend, responsibly.
This framework safeguards borrowers against over-borrowing for their property purchase(s).
In simple terms, this framework is to protect us and the borrowers. The ratio gives a guide to how much you can borrow according to how much you can earn and afford. It also protects borrowers like banks to prevent them from over-borrowing.
Under MAS Rulings, TDSR limits the amount borrowers can spend on debt repayments to 60 % of their gross monthly income.
Imagine, if this framework is not in place, everyone would be working only to service their loans, not so ideal.
MSR
Same same but different, the MSR (Mortgage Servicing Ratio) is a borrowing limit set by the MAS on how much you can borrow when you wish to take up a loan to buy HDB or an Executive Condominium (EC). Under MAS's rulings, a maximum of 30% of your gross monthly income can be used to repay your loan.
My gross income is?
Income earned as a result of your employment.
For employees, it refers to the gross monthly wages or salaries before deduction of employee CPF contributions and income tax.
It mainly comprises of your
basic wages,
overtime pay,
commissions,
tips,
other allowances,
and one-twelfth of annual bonuses.
For self-employed persons, gross monthly income refers to the average monthly profits from
business,
trade,
or profession (i.e. total receipts less business expenses incurred) before deduction of income tax.
How to calculate my TDSR & MSR?
Let's illustrate an example from this case study below. Ah Boon earns $7,000 per month and has financial obligations for his car loan and credit card payments of $2,500 per month.
Ah Boon's TDSR threshold : 60% X $7,000 = $4,200
Less off existing financial obligations = $4200 - $1,500 =$1,700
Means what?
If Ah Boon were to take up a housing loan, maximum repayment would be $1,700. If he wants a larger loan, he would have to consider the following options such as paying off car loans or credit card payments.
How to calculate MSR?
Remember, if you are buying HDB or ECs, MSR will apply to you.
Slightly different from TDSR, MSR limits the amount of money you can borrow based on your income but it does not consider other financial obligations or loans which you have.
To calculate your MSR, take 30% of your monthly gross income. Let's welcome Ah Boon back again with a monthly salary of $7,000. Ah Boon's MSR would be :
30% X $7,000 = $2,100
When Ah Boon gets a mortgage, his monthly repayment must not exceed $2,100.
Disclaimer, ensure your utmost best that both your TDSR and MSR conditions are satisfied to ensure a smooth process of taking up a property or housing loan.
Have more questions about calculating your TDSR and MSR? Leave a comment or book a free consultation with us at HYMK Propertyplace to find out more.
Comments