Demystifying Mortgage Servicing Ratio and Total Debt Servicing Ratio in Singapore

Understanding Mortgage Servicing Ratio (MSR) and Total Debt Servicing Ratio (TDSR) in Singapore

When it comes to purchasing a property in Singapore, understanding the financial aspects is crucial. Two important terms that often come up in this context are Mortgage Servicing Ratio (MSR) and Total Debt Servicing Ratio (TDSR). These ratios play a significant role in determining your eligibility for a mortgage loan and ensuring your financial stability. Let's demystify these terms and understand their implications.

What is Mortgage Servicing Ratio (MSR)?

Mortgage Servicing Ratio (MSR) is a measure that determines the percentage of your monthly income that can be used to service your mortgage loan. In Singapore, the Monetary Authority of Singapore (MAS) has set a cap on the MSR at 30% of your gross monthly income. This means that your monthly mortgage repayment, including both principal and interest, cannot exceed 30% of your income. For housing loans granted by HDB, the interest rate floor of 3% will be used to compute the eligible loan amount.

What is Total Debt Servicing Ratio (TDSR)?

Total Debt Servicing Ratio (TDSR) is a broader measure that takes into account all your existing debt obligations, including credit card debts, car loans, and other outstanding loans, in addition to your mortgage loan. The TDSR cap is set at 55% of your gross monthly income by the MAS. This means that your total monthly debt repayments, including your mortgage, cannot exceed 55% of your income. For housing loans granted by private financial insitution, the interest rate floor of 4% or the thereafter interest rate  will be used to compute the eligible loan amount.

Why are MSR and TDSR important?

MSR and TDSR are important because they ensure that you do not overextend yourself financially and can comfortably afford your mortgage repayments. By setting these caps, the MAS aims to prevent borrowers from taking on excessive debt and protect them from potential financial distress.

These ratios also serve as a safeguard for financial institutions, ensuring that borrowers have sufficient income to meet their loan obligations. This helps maintain the stability of the housing market and reduces the risk of loan defaults.

Implications for Borrowers

Understanding MSR and TDSR is crucial for borrowers as it helps them assess their affordability and make informed decisions. If your MSR or TDSR exceeds the prescribed limits set by the MAS, you may face difficulties in securing a mortgage loan. In such cases, you may need to consider reducing your loan amount, increasing your income, or paying off existing debts to improve your ratios.

In Conclusion

Mortgage Servicing Ratio (MSR) and Total Debt Servicing Ratio (TDSR) are important measures that determine your eligibility for a mortgage loan in Singapore. By understanding and managing these ratios, you can ensure that you make a financially sound decision and avoid any potential financial difficulties in the future. It is advisable to consult with a financial advisor or mortgage specialist to assess your MSR and TDSR before embarking on your property purchase journey.

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