Introduced by the Monetary Authority of Singapore (MAS) on 28th June 2013 and further enhanced on 16th December 2021, TDSR is designed to curb excessive borrowing and promote a healthy property market by limiting the amount of debt a borrower can undertake.
Til date, it is still deemed and feared by most property market participants as the most draconian and effective cooling measure due to its broad application across all property types and loan purpose.
Understanding TDSR is essential for anyone looking to secure a mortgage, as it directly impacts loan eligibility and repayment capabilities.
What is TDSR?
TDSR is a framework that caps the proportion of a borrower’s gross monthly income that can be used to service monthly debt obligations, including mortgage repayments. The current TDSR threshold is set at 55%, meaning that all your debt obligations, including the mortgage on the property you intend to purchase, should not exceed 55% of your gross monthly income.
For instance, if your gross monthly income is $10,000, the maximum amount you can allocate to service all your loans, including your mortgage, is $5,500. This measure ensures that borrowers do not over-leverage themselves, maintaining a buffer for other essential expenditures and unforeseen financial circumstances.
Why Was TDSR Introduced?
The TDSR framework was implemented as a macroprudential measure to ensure the stability of the financial system in Singapore. Prior to its introduction, there were concerns about the increasing levels of household debt and the potential risks to the banking sector and the broader economy. By limiting the amount of debt an individual can take on, TDSR helps to mitigate the risks associated with excessive borrowing and ensures that borrowers are better able to withstand economic shocks.
Additionally, TDSR serves as a tool to moderate property price inflation. By restricting the borrowing capacity of buyers, it reduces the risk of speculative buying and helps to cool the property market, preventing unsustainable price increases.
Why is TDSR so effective
Inclusive Debt Calculation: TDSR takes into account all of a borrower’s debt obligations, not just the mortgage loan. This includes personal loans, car loans, and credit card debt, ensuring a holistic assessment of an individual’s financial health.
Broad Applicability: The TDSR framework applies to all property loans, including those for residential, commercial, and industrial properties. This prevents spillover effects where demand might shift to other property segments if only specific types of properties are targeted.
Ease of Monitoring: The TDSR framework can be more straightforward for authorities to monitor and enforce compared to measures like additional taxes or transaction caps, which might require more complex implementation and monitoring mechanisms.
How Does TDSR Impact Borrowers?
The TDSR framework has significant implications for both prospective homebuyers and existing homeowners looking to refinance their loans. Here are some key points to consider:
- Loan Eligibility: TDSR directly influences the amount you can borrow. Higher existing debts will reduce your borrowing capacity, potentially impacting your ability to purchase a higher-valued property.
- Financial Planning: Adhering to the TDSR threshold encourages better financial planning and discipline. Borrowers need to account for all their financial commitments and ensure they remain within the 55% limit.
- Refinancing: Existing homeowners seeking to refinance their mortgages must also comply with TDSR. This means that any changes in income or additional debt taken on since the original loan approval could affect refinancing options.
TDSR Exemptions and Adjustments
While TDSR applies to most property loans, there are certain exemptions and adjustments.
- Owner-occupied properties – if you are refinancing your owner-occupied property and have been servicing your existing loan well, you might be exempt from the TDSR threshold.
- Eligible Financial Assets (EFA) – In the computation of income for TDSR, MAS caters for other additional sources of income which may contribute to your overall income thereby improving your TDSR ratio.
- Equity Term Loan (ETL) – If you are looking to cash out of your existing property, you may be able to push your TDSR threshold beyond 55% subjected to lenders’ discretion and underwriting.
It’s important to consult with our mortgage advisor to understand how these exemptions and adjustment may apply to you and benefit you in your mortgage application.
Navigating TDSR with Sgloanmart.com
At Sgloanmart.com, we understand that navigating the intricacies of TDSR can be challenging. Our team of dedicated mortgage advisors is here to provide you with personalized service and expert advice. We offer comprehensive market comparisons and innovative digital solutions to streamline your mortgage application process, ensuring that you find the best possible financing options within the TDSR framework.
In conclusion, TDSR is a critical rule that promotes responsible borrowing and helps maintain the stability of Singapore’s property market. By understanding and adhering to this framework, borrowers can make informed decisions, secure their financial future, and contribute to a stable and sustainable property market.
