Calculating Total Debt Servicing Ratio (TDSR) and Understanding its Exemptions
TDSR determines your borrowing capacity and stability. In this comprehensive guide, we’ll explain what TDSR is, how it’s calculated, and its exemptions. Let’s dive in!
What is Total Debt Servicing Ratio (TDSR)?
Total Debt Servicing Ratio (TDSR) in Singapore is a financial measure used by banks and financial institutions to assess a borrower’s ability to handle loan repayments. It is a regulatory requirement introduced by the Monetary Authority of Singapore (MAS) in 2013 to promote responsible borrowing and reduce the risk of excessive debt burdens.
TDSR is calculated by dividing a borrower’s total monthly debt obligations (including existing loans, credit card debts, and other financial commitments) by their gross monthly income. The resulting percentage is used to determine if the borrower’s debt levels are within a reasonable and sustainable range.
As per MAS guidelines, the TDSR is set at 55%, after the government tightened the threshold by 5 points on 16 December 2021. Meaning that a borrower’s total monthly debt obligations should not exceed 55% of their gross monthly income. This includes not only existing debts but also the proposed loan being applied for. If a borrower’s TDSR exceeds the threshold, the loan application may be declined or granted a smaller loan amount.
How is TDSR calculated?
Calculating TDSR involves considering both the borrower’s total monthly debt obligations and their gross monthly income.
1. Total Monthly Debt Obligations: This includes all existing debt repayments such as mortgage payments, car loans, student loans, personal loans, credit card bills, and any other outstanding debt obligations that require regular monthly payments. Lenders consider the minimum monthly payments for each debt when calculating TDSR.
2. Gross Monthly Income: This refers to the borrower’s total income before any deductions, such as taxes or other withholdings. It includes income from employment, self-employment, investments, rental properties, alimony, and any other sources of income.
By dividing the total monthly debt obligations by the gross monthly income and multiplying the result by 100, lenders arrive at the TDSR percentage.
TDSR factors in all debt obligations, including the property loan you’re applying for, credit card, car loans, student loans, and other secured or unsecured loans.
For credit cards, lenders look at the minimum monthly repayment amount. This means $50 or 3% of your whole outstanding balance, whichever is greater. Your monthly debt payment for this credit card would be $50 if you had $1,000 in debt on it. If, however, each of your four credit cards had a $250 balance, the amount used to compute your TDSR would be $200!
What are the exemptions from TDSR?
(a) For owner-occupied property:
If you are refinancing a home loan for a property that you are staying in, you are exempted from meeting TDSR requirements as long as you pass the financial institution’s (FI) credit assessment.
(b) For investment property:
You are exempted from meeting TDSR requirements provided you pass the FI’s credit assessment and agree to pay down a minimum of 3% of the outstanding loan over a period of 3 years.
(*NOTE: It remains at the discretion of individual FIs to decide whether they will allow the exemption, even though MAS has provided such exemptions. For instance, some FIs may have internal credit guidelines that classify borrowers with a TDSR exceeding, say, 80% as “highly-geared” and may choose not to accept the refinancing request, despite it being for an owner-occupied property eligible for TDSR exemption.)
Can I borrow money if I have exceeded my TDSR limit?
Tembusu Financial Services can lend to you if you are an accredited investor and is facing TDSR issues. This is because we are not a Financial Institution (FI) or a bank. Therefore, we are not required by law, to provide loans according to the TDSR requirements.
