The total debt servicing ratio in Singapore. What you should know and how it affects you?

Singapore is a big financial market with all sorts of monetary activities taking place. Being the most expensive place to live in, every moment Singapore sees numerous monetary transactions; be it loan, service fee, credibility, debts etc. The supervising authority for such transactions, Monetary Authority of Singapore (MAS) launched an impressive framework on all the property loans.

The purpose and defining exigency of this framework is the act of taking consideration of borrowers other outstanding debt obligations whilst the process of granting property loans. All the financial institutions are liable to adhere to the strategy mentioned in the framework so that it will strengthen credit underwriting practices by FIs along with facilitating encouragement for institutions in regard with financial prudence.

TDSR is a tremendous procedure which meets the loopholes of loan-to-value, a previous property cooling measure. It is a reactive intervention approach. Among many things that TDSR does, it emphasis mostly on;

  • Map the credit worthiness of the borrower by facilitating them with a robust basis of assessing the debt servicing ability.

  • It can be calculated on percentage basis of the total monthly debt obligations to gross monthly income on a consistent basis.

  • TDSR has been designed in a more comprehensive manner, only to leave no room for any discrepancy by applying its standard over all types of property loans, loans for re-financing and secured property loans.

  • It will therefore involve mostly on proper and relevant documentation on a borrower’s debt obligation and income used in the computation of TDSR.

  • Monetary Authority of Singapore insists on not exceeding 60% of TDSR threshold and thence the exceeded one will be regarded as imprudent.

Methodology: To calculate this, you need to take into consideration the monthly repayment for the property loan that the borrower is applying for along with the monthly repayment of all the other debt obligations. After this, apply a specified amount of medium-term interest rate to the amount. Add a subsequent haircut, a minimum of 30% to all variables income. You will also have to apply haircut to the value of any eligible financial asset which is taken into sincere consideration.

How it can affect you: TDSR is only designed to ensure that as a buyer you have significant credibility and are in a position to repay the amount of loan that you wish to take along with the interest rate levied on it without much trouble. It is a procedure to me followed by financial institutions only to be in a better position to judge and leverage services, avoiding insolvency. Applying haircut of 30% is also a significant mode of realizing the actual paying capacity based on and taking into consideration basic expenses.

On an ending note, TDSR is a very strong tool with a core benefit of assessing, knowing and working according to the credibility of the borrower.