[HomeLoan]what you must know about Singapore MSR and TDSR
Understanding MSR and TDSR in Singapore
In the realm of property financing in Singapore, understanding Mortgage Servicing Ratio (MSR) and Total Debt Servicing Ratio (TDSR) is crucial for making informed decisions. Here’s a detailed look at these two important concepts and their implications for buyers of Executive Condominiums (ECs) and Private Condos.
Key Differences Between MSR and TDSR
| Aspect | MSR | TDSR |
|---|---|---|
| Definition | Caps mortgage repayments at 30% of gross monthly income . | Caps total debt repayments (including non-mortgage loans) at 55% of gross monthly income . |
| Applicability | Only for HDB flats and new ECs (during Minimum Occupation Period) . | Applies to all property types (HDB, ECs, private condos) . |
| Debt Considered | Only mortgage repayments for the property being purchased . | All existing debts (car loans, credit cards, personal loans, etc.) . |
| Purpose | Ensures affordability of public housing loans . | Prevents over-leveraging by considering overall debt obligations . |
| Income Calculation | Variable income (e.g., freelance) is discounted by 30% . | Variable income is also discounted by 30% . |
Example:
A borrower earning $10,000/month with no existing debts can use $3,000/month for an EC (MSR) but $5,500/month for a private condo (TDSR).
Downpayment Requirements for ECs vs. Private Condos
| Criteria | Executive Condo (EC) | Private Condo |
|---|---|---|
| Downpayment | 25% (minimum) of purchase price . | 25% (minimum) of purchase price (for bank loans) . |
| Loan Type | Bank loan only (HDB loans not allowed) . | Bank loan or private financing. |
| MSR/TDSR Impact | Must satisfy both MSR (30%) and TDSR (55%) . | Only TDSR (55%) applies . |
| Loan Eligibility | Lower loan quantum due to stricter MSR limit, potentially requiring larger downpayment if income is constrained . | Higher loan eligibility under TDSR (55% vs. MSR’s 30%), allowing smaller downpayment relative to income . |
| CPF Usage | CPF housing grants available (e.g., up to $30,000 for first-time buyers) . | No CPF grants for private condos . |
Key Insight:
While the downpayment percentage (25%) is the same for both ECs and private condos, EC buyers often face stricter borrowing limits due to MSR, which may necessitate a larger upfront payment if their income restricts the loan amount. Private condo buyers, subject only to TDSR, generally have more flexibility in loan eligibility.
Extended Example
Assume a borrower with a monthly income of $10,000 and no existing debts:
Assumptions:
- Loan interest rate: 3%
- Loan tenure: 30 years
We’ll use the fixed monthly repayment formula to calculate the maximum property price.
Executive Condo (EC)
The borrower can allocate $3,000/month for mortgage repayments.
\(r = \frac{3\%}{12} = 0.0025\) \(n = 30 \text{years} \times 12 \text{months/year} = 360 \text{months}\)
\(P_{EC} = \frac{3000 \times (1 + 0.0025)^{360}}{(1 + 0.0025)^{360} - 1}\) \(P_{EC} \approx 711,637.14\)
The borrower can borrow approximately $711,637.14. Given a 25% downpayment requirement:
\[\text{Maximum Property Price}_{EC} = \frac{P_{EC}}{0.75} \approx 948,849.52\]Private Condo
The borrower can allocate $5,500/month for mortgage repayments.
\(P_{\text{Private Condo}} = \frac{5500 \times (1 + 0.0025)^{360}}{(1 + 0.0025)^{360} - 1}\) \(P_{\text{Private Condo}} \approx 1,305,004.82\)
The borrower can borrow approximately $1,305,004.82. Given a 25% downpayment requirement:
\[\text{Maximum Property Price}_{Private Condo} = \frac{P_{\text{Private Condo}}}{0.75} \approx 1,740,006.43\]Conclusion
For a borrower with a monthly income of $10,000 and no existing debts:
- Executive Condo (EC): The maximum property price is approximately $948,849.52.
- Private Condo: The maximum property price is approximately $1,740,006.43.
Please note, this is a simplified calculation. Actual scenarios may vary due to changes in interest rates, loan tenure, and other fees and regulations. It is recommended that borrowers consult a professional financial advisor for accurate assessments.
Practical Implications
- EC Buyers:
- Must prioritize reducing existing debts to meet both MSR and TDSR thresholds.
- May need to extend loan tenure or increase income to qualify for larger loans.
- Private Condo Buyers:
- Focus on managing total debt (e.g., credit cards, car loans) to stay within the 55% TDSR limit.
- Can leverage higher loan amounts under TDSR for more expensive properties.
For detailed info, please contact me.