Total Debt Servicing Ratio Capped at 60%
In the past, Debt Servicing Ratio is used by banks and financial institutions to assess how much of your income can be used for servicing your debts, and the percentage guide used is 50% of your income. For a moment, we may cheer at the increase of capped from 50% to 60%. However, TDSR (unlike DSR) requires that your monthly mortgage repayment together your other monthly debts obligations like car loan, personal loan etc. cannot exceed more than 60% of your monthly income.
How does this affect you?
If you are totally debt free, this is a piece of good news to you. Your monthly mortgage repayment against your income is now officially increased to 60% of your monthly income. However, if you have been splurging using your credit card, financing your car and/or have taken some personal loan, your monthly mortgage repayment allowed to finance your property will be affected. In other words, the amount of housing loan you can get from the banks or financial institutions will be reduced.
For example, if you are earning a good income of S$10,000 per month and are debt-free, you could secure a housing loan where your monthly mortgage repayment is not more than S$6,000 (60% of S$10,000). However, if you have other financial obligations (credit loan, car loans etc.) which, perhaps, make up to S$2,000 per month, the monthly mortgage repayment allow will be S$4,000 (S$6000 – S$2,000). Given you can only secure a housing loan that caused S$4,000 monthly repayment, the quantum loan you can be secured is in turn reduced.
With the new TDSR ruling, some people try to maximize their TDSR ratio by delaying their purchase of big ticket items like car, appliances etc. before purchasing their property. However, it is recommended that you exercise prudence in your financial obligations and live a lifestyle within your means =)3