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How Is TDSR Different From MSR?

October 18, 2017

As Singapore debt levels were estimated to be among the highest in Asia, the Monetary Authority of Singapore (MAS) decided to implement the TDSR – Total Debt Servicing Ratio, which is a framework that allows the standardization of the manner in which financial institutions underwrite loans and ensure that borrowers do not become overleveraged. This new implementation also includes refinement of rules related to the LTV (Loan-to-Value ratio).

What the TDSR implies, is that all loans will be checked before approval of a loan application. In other words, non-housing-related loans will also be checked. These are loans such as car loans, student loans, credit card debts, personal loans, etc. Furthermore, variable income, such as bonuses, and rental income is no longer enough to qualify for a bigger loan, because financial institutions have to place a discount on the amount declared.

The MAS has set a threshold of 60% of the borrower’s income, and if the borrower’s debt level exceeds that threshold the loan will not be granted. Additionally, the MAS has announced that they are prepared to make changes to the current threshold, if need be.

The Mortgage Servicing Ratio (MSR) is another “tool” implemented to ensure financial prudence among Singaporeans. Similar to the TDSR, but not quite the same, the MSR only takes into consideration the housing loan repayments; in other words, the MSR shows the amount of monthly income that goes into your home loan repayments. The current threshold for the Mortgage Servicing Ratio is 30% of your monthly income. That is to say, if more than 30% of your income goes into your mortgage, you are not eligible for a loan.

At minimum, for the computation of the MSR a medium-term interest rate is used. Initial rates that apply for the first years of the mortgage are not taken into account.

Regarding the gross monthly income, for commission earners, its assessment is based on the NOA – Notice of Assessment – for the past 2-3 years, which is also applicable for self-employed Singaporeans, though the income is not recognized 100%, but generally 70% of its total worth. For salary earners the income is recognized 100%.

What do the TDSR and MSR imply?

For people who already have an outstanding home loan (or two), the probability of being granted another loan decreases considerably. It is very hard to achieve more than one loan without breaking either the TDSR of 60% or the MSR of 30%. This happens to prevent home buyers from borrowing more than their means, as statistics show Singaporeans have been doing.

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