A summary on everything you should know about the new Total Debt Servicing Ratio (TDSR) framework by MAS. All financial instituitions in Singapore must adhere to the guidelines. Let's find out the subtle points of TDSR.
MAS introduced the TDSR framework on 28 June 2013. It's a methodology for every financial instituitions including banks to compute borrower's debt and borrowing limits.
While the market interest rates for property loans is about 1.5%, TDSR requires banks to assess your borrowing limits based on 3.5% for residential properties. Commercial properties will be using 4.5%. This is almost a 300% buffer to ensure you can service the loan even when the rates spike up.
The framework also outlines all variable income to be recognized at 70% of its value. It's a reflection of the nature the income is derived. For example, if your commission and bonus is $100,000, only $70,000 will be included in the assessment.
You cannot use more than 60% of your income to service debts and obligations. In other words, a $10,000 salaried worker can only spend $6,000 towards loans a month.
Gone are the days where the younger or average age of all borrowers are used in calculating the loan tenure. As part of the TDSR guidelines, MAS requires the loan tenure to be computed based on income-weighted age of all borrowers.
Borrowers & Guarantors
Every borrower must be a mortgagor. A guarantor must also be a borrower. These effectively clip the wings of borrowers and guarantors as they will have a property and loan in their name respectively. Subsequent property investments will take these commitments into account and they are subjected to ABSD and lower borrowing LTV.Download a pdf version here.