How TDSR & LTV Affect Property Loans and Refinancing

When buying property in Singapore, two key regulations govern how much you can borrow: the Total Debt Servicing Ratio (TDSR) and the Loan-to-Value (LTV) limit. These frameworks, set by the Monetary Authority of Singapore (MAS), ensure prudent borrowing and help buyers manage their finances without over-leveraging. Understanding these regulations can significantly impact your ability to secure a property loan, the size of your loan, and how you plan your property investment strategy.

What is TDSR?

The Total Debt Servicing Ratio (TDSR) sets a maximum threshold for how much of your income can be used to service all your debt obligations, including your property loan. As of 2024, the TDSR limit remains at 55%, meaning that no more than 55% of your gross monthly income can go towards servicing your total debt.

TDSR formula:

$TDSR = \frac{\text{Monthly total debt obligations}}{\text{Gross monthly income}} \times 100$

This includes:

• Your proposed property loan repayment
• Existing loan obligations such as car loans, student loans, or credit card debt
• Any other mortgage or loan repayments

Key Considerations for TDSR:

1. Income used for calculation: MAS allows the use of both fixed and variable income to calculate TDSR, but variable income (e.g., bonuses, commissions) is subject to a 30% haircut to account for fluctuations.
2. Other financial obligations: All existing loan obligations are factored in, including car loans, personal loans, and credit card debt. The sum of these debts must not exceed 55% of your gross income when combined with the new mortgage payment.
3. Assessment rate: The MAS stress test rate for residential property loans is currently 4%. However, many banks use a higher loan assessment rate of around 4.8% to ensure borrowers can still manage their payments if interest rates increase. The good news is that some banks offer a lower assessment rate, as low as 4.2%.

   The lower the stress test rate, the higher the loan amount you can secure since banks will assess your ability to borrow more comfortably. If you’re looking to qualify for a larger loan, feel free to contact us, and we can help you find out which banks offer this more favourable assessment rate.

Practical Example of TDSR:

• Monthly gross income: $10,000
• Existing monthly car loan repayment: $1,000
• Credit card debts: $500
• Proposed monthly mortgage repayment: $3,500

Your total debt obligations would be:

$\$1,000 \text{ (car loan)} + \$500 \text{ (credit card)} + \$3,500 \text{ (new mortgage)} = \$5,000$

TDSR:

$TDSR = \frac{\$5,000}{\$10,000} \times 100 = 50\%$

TDSR=$10,000$5,000​×100=50%

You would likely qualify for the loan since this is within the 55% cap. If the total exceeds 55%, you would need to reduce your loan amount or income obligations to meet the threshold.

Understanding LTV (Loan-to-Value Ratio)

The Loan-to-Value (LTV) ratio refers to the maximum amount of financing you can obtain for a property, expressed as a percentage of the property’s value or price, whichever is lower. LTV limits vary based on the number of existing loan you are financing, loan tenure, and age.

LTV Limits and Cash Downpayment Requirements

The LTV ratio directly impacts how much of the property price must be paid in cash or via CPF. Below are the LTV limits for different scenarios:

Explanation of Changes for Loan Tenure > 30 years or Borrower’s Age + Loan Tenure > 65 years:

• For borrowers with no existing loans, if your loan tenure exceeds 30 years or your age + loan tenure exceeds 65, the LTV limit drops to 55%, and you must pay at least 10% in cash.
• For borrowers with 1 existing loan, the LTV limit is reduced to 25%, and you will need to provide 25% cash downpayment, with 50% paid through CPF or additional cash.
• For borrowers with 2 or more existing loans, the LTV limit drops further to 15%, with 60% of the property price needing to be paid in CPF or cash, and 25% in cash downpayment.

How TDSR and LTV Work Together

TDSR and LTV work in tandem to determine your loan eligibility. TDSR limits the amount of debt you can take on based on your income, while LTV limits how much you can borrow against the property’s value. Even if you qualify for a high LTV ratio (e.g., 75%), your TDSR must remain within the 55% cap, which may limit the loan amount depending on your other debts.

Interest Rates: Peak and Coming Down

After several years of increasing interest rates, rates are now considered at their peak and are beginning to come down. Buyers should factor this in when planning their property purchases, as lower interest rates may improve affordability.

While lenders have been stress-testing loans at a higher loan assessment rate of 4.8%, it’s important to note that as interest rates ease, this could create more favourable conditions for those seeking loans.

TDSR and Refinancing or Repricing

When refinancing or repricing your property loan, TDSR still applies. According to MAS guidelines, the new loan must also meet the 55% TDSR limit if you want to refinance or reprice a property loan. However, there are exceptions for certain borrowers:

1. Borrowers exempt from TDSR: If the borrower does not increase the loan amount or extend the loan tenure, they may be exempt from the TDSR threshold when refinancing their property loan.
2. Exemption for owner-occupied homes: For refinancing loans of owner-occupied residential properties, borrowers who purchased their homes before the introduction of the TDSR framework (June 2013) may also qualify for an exemption, provided the loan amount or tenure does not increase.

For those considering repricing their loans (switching to a different package within the same bank), TDSR does not apply as long as the loan amount and tenure are not increased.

Borrowers must evaluate their existing loan terms and assess how refinancing or repricing might impact their financial commitments, especially if they are close to the 55% TDSR threshold. To explore the best mortgage rates available, check out the latest offers on our Mortgage Rate Page for a detailed comparison and tailored advice.

Key Takeaways for Property Buyers in 2024:

• Rates are coming down: With interest rates having peaked, buyers can expect more favourable conditions soon, potentially improving loan affordability.

• Refinancing and TDSR: If you’re considering refinancing or repricing, ensure that your loan meets the TDSR guidelines or determine if you qualify for any exemptions.

• Monitor regulatory updates: MAS may introduce further adjustments to TDSR or LTV limits, especially as economic conditions change. Buyers should stay updated on these changes to optimize their borrowing strategy.

Conclusion

Navigating property loans in Singapore requires understanding both TDSR and LTV regulations. These frameworks ensure buyers do not over-leverage themselves and protect financial stability in fluctuating interest rates. You can decide how much to borrow and plan your financial future prudently by considering your debt obligations, income, and property value.

For a personalized estimate, you can use our Affordability Calculator for Singapore Property to calculate your TDSR and LTV based on the latest MAS guidelines.