TDSR and MSR: How Your Loan Is Really Decided

Most people focus on the loan-to-value limit when they think about how much they can borrow, but that is only half the picture. The amount a bank will actually lend you is usually set by your income, through two rules: the Total Debt Servicing Ratio and, for some properties, the Mortgage Servicing Ratio. Understanding TDSR in Singapore is what tells you your real borrowing limit, and it is often lower than the headline LTV suggests.

What TDSR is

The Total Debt Servicing Ratio limits all of your monthly debt repayments combined, not just your home loan, to 55 percent of your gross monthly income. That includes your mortgage, car loan, personal loans, credit card commitments, and any other debt. The logic is simple: it exists to make sure you can still service your loans if your circumstances tighten or rates rise. TDSR applies to essentially all property loans.

What MSR is, and when it applies

The Mortgage Servicing Ratio is a second, tighter cap that applies only to HDB flats and to executive condominiums bought directly from a developer. It limits the housing loan repayment alone to 30 percent of your gross monthly income. For these purchases, both rules apply, and your loan is limited by whichever is more restrictive. For private property, only TDSR applies.

The detail that catches everyone out

Here is the part most people miss. Banks do not calculate these ratios using the interest rate they quote you. They use a stress-test rate, a medium-term interest rate floor set by the authorities, which at the time of writing is 4 percent per year for residential property and 5 percent for non-residential. So even if your actual rate is lower, your TDSR is worked out as though you were paying 4 percent. This is deliberate. It checks that you could still afford the loan if rates were higher, and it is why the amount you can borrow is often less than you expect.

A simple illustration

Consider someone with a gross monthly income of $10,000 and no other debt. Their TDSR ceiling is 55 percent, or $5,500 a month for all debt. If they have a $500 monthly car loan, $5,000 is left for the mortgage. The bank then works out how large a loan produces a $5,000 monthly repayment at the 4 percent stress rate over the loan tenure, and that, not the LTV, is their real limit. Add more existing debt, or a shorter tenure, and the figure falls.

What lowers your limit, and what lifts it

A few things reduce your borrowing power under these rules: existing loans and credit commitments, a shorter loan tenure, and being older, since tenure is capped by age. A few things help: clearing other debts before you apply, a longer tenure where you qualify for it, and including a co-borrower with income, though that brings its own considerations. Showing eligible financial assets can also play a role in some cases.

Why this matters before you shop

The practical lesson is to work out your TDSR-based limit before you start viewing, not after you have fallen for a home. Getting an in-principle approval from a bank tells you the real number, so you are looking at properties you can actually finance rather than ones the LTV headline suggests.

A considered view

TDSR and MSR are where many buyers discover their real budget is different from what they assumed. If you would like help understanding what you can genuinely borrow before you commit to anything, I am happy to walk through it with you.