Explainers
Calculating TDSR
MAS' rules set out the minimum requirements for calculating a borrower's total debt servicing ratio (TDSR). Financial institutions (FIs) can adopt more conservative practices as long as they are compliant with MAS' rules.
Situations When Monthly Loan Repayments can be Excluded
If a borrower has an existing residential property loan and is taking a second loan to buy a property, their monthly loan obligations for the existing property can be excluded from the TDSR calculation in certain situations.
For this exclusion to apply, the borrower needs to meet these conditions:
| Existing property | Borrower needs to provide |
|---|---|
|
Both these documents:
|
|
Both these documents:
|
| A HDB flat that is being sold | A letter from the HDB approving the sale of the flat. |
The monthly repayment instalment can also be excluded if the borrower has discharged the outstanding loan for the existing property.
TDSR Formula
To calculate a borrower’s TDSR, use the following formula:
(Borrower's total monthly debt obligations / Borrower's gross monthly income) x 100%
Monthly Debt Obligations (TDSR Numerator)
Monthly debt includes all outstanding debt obligations:
- Property-related loans, including the loan being applied for.
- Car loans.
- Student loans.
- Renovation loans.
- Credit card loans.
- Any other secured or unsecured loans, including revolving loans.
FIs should calculate and confirm these obligations by:
- Collecting supporting documents from the borrower.
- Checking with the credit bureau.
Calculating Monthly Debt Obligations
When calculating the monthly interest payable, FIs should base their calculation on a medium-term interest rate.
FIs should apply the medium-term interest rate only to the property purchase loan or loan secured by property under application. It should not be applied to all property loans (including existing ones).
| Type of loan | Medium-term interest rate |
|---|---|
|
Residential property purchase loans and mortgage equity withdrawal loans |
The higher of a 4% floor or the thereafter interest rate. |
| Non-residential property purchase loans and mortgage equity withdrawal loans | The higher of a 5% floor or the thereafter interest rate. |
Why Medium-term Interest Rates Are Used
Medium-term interest rates are used given the long-term nature of property loans. They also help ensure that borrowers are not overextended in their property purchases and are able to continue servicing their monthly repayments even when interest rates increase.
The medium-term interest rates applied to different types of properties reflect the differing risk premium associated with the types of properties.
What is the "Thereafter Interest Rate"?
The thereafter interest rate is the highest interest rate offered by an FI at any time during the tenure of a property loan. The highest interest rate is typically charged after the introductory or lock-in period, and your FI will indicate this to you before you accept the loan.
Where the thereafter interest rate is pegged to a floating reference rate, FIs will compute this using the value of the reference rate as of the date of loan application + the spread.
For example, if the thereafter interest rate comprises 3-Month SORA + 1.5% spread, the FI will calculate the thereafter interest rate by adding the latest published value of 3-Month SORA as of the date of loan application + 1.5% spread.
When calculating a borrower’s monthly property loan instalments, FIs are required to use the higher of the medium-term interest rate floor and the thereafter interest rate. Where a borrower’s TDSR exceeds 55%, his/her loan amount has to be reduced.
If the Borrower has Revolving Loans
If a borrower has a revolving loan, calculate the monthly debt obligations as follows:
| Type of loan | Monthly debt obligation |
|---|---|
| Secured revolving loan | Apply the medium term interest rate to the amount drawn down by the borrower. |
| Unsecured revolving loan | Use the minimum due from the borrower. |
Base these calculations on the latest available statement for the revolving loan. If the borrower is unable to provide a copy of the statement, apply the applicable monthly interest rate of the loan on the total credit limit instead.
Gross Monthly Income (TDSR Denominator)
Gross monthly income refers to the borrower's monthly income before tax, and excludes any CPF contribution made by the employer.
FIs are required to apply a minimum haircut of 30% to:
- Variable income (e.g. commission, bonus and allowance).
- Rental income.
In addition, FIs can include certain eligible financial assets. These are subject to haircuts and an amortisation schedule over 48 months.
Calculating Variable Income
For variable income, FIs should take the average of the monthly variable income earned in the preceding 12 months.
FIs must verify the rental income with a copy of the stamped tenancy agreement. The agreement must:
- Be signed by the borrower (as the landlord) and the party who is leasing the property.
- Have a remaining rental period of at least six months.
Eligible Financial Assets
When including "income streams" from eligible financial assets in TDSR, FIs must apply:
- A haircut, depending on whether the eligible asset is pledged or unpledged.
- An amortisation schedule over 48 months to convert the eligible assets into "income streams".
The types of eligible assets and respective haircuts are as follows:
| Eligible financial assets | Pledged for at least 4 years | Unpledged, or pledged for less than 4 years |
|---|---|---|
Liquid assets
|
Minimum 0% haircut |
Minimum 70% haircut |
Other financial assets
|
Minimum 30% haircut |
Minimum 70% haircut |
Note: For unpledged assets, FIs must also ensure that the assets are still accounted for in the borrower’s bank account statements before disbursing funds under the property loan. This is to ensure that the unpledged assets used in the TDSR computation do not include funds used in making the downpayment for the property loan.