Home Loan Considerations – What is TDSR Ratio?

Home loans can be tricky at first. Many things need to be considered first before getting accepted with a mortgage or a home loan. The Singaporean government, most especially the Monetary Authority of Singapore, enforces strict protocols on these considerations in order to ensure that the individual has enough money to pay off his or her loans and living expenses at the same time.

Everybody has their own income, and Singaporean borrowers are known to be one of the most responsible people on the planet, so why the uptight course of action? For one, people excessively borrowed in the past. Singapore went through an economic boom that is so great that the nationals who already lived in the vicinity were forced to step up to secure their properties in this tiny city state.

Since we now know what prompted these changes to the way Singaporeans borrow money from home loans, we will go back to the main topic at hand – what is TDSR Ratio?

What is TDSR Ratio?

TDSR Ratio, or the Total Debt Service Ratio, is a percentage of all loans that you currently have in contrast to your gross monthly income.

The real question now is what kinds of loans? The pretty straightforward answer is that all loans that you need to pay are counted in the computation. Whether it’s also an ongoing mortgage, student loan, motorcycle loan, credit card balance, or the likes, it’s going to account for your Total Debt Service Ratio. This also means that the TDSR is your personal gauge of whether you’re already overspending on loans for yourself or not.

How to Calculate your TDSR Ratio?

It may sound unclear now, but here’s a more detailed explanation of how you can arrive at your own TDSR Ratio. Let us do it with a scenario.

First, list down all your loans. Suppose you have a student loan, motorcycle loan, mortgage, and credit card balance at this given time. You add all those up and take note of the sum. For this scenario, we will place the sum at S$4,000. 

Now, let us take a look at your gross monthly income. Suppose that your gross monthly income is at S$12,000. 

Divide the sum of your loans over your gross monthly income, and then multiply it by 100. In this scenario, we will divide 4,000 over 12,000. It would give us 0.33. Multiply that by 100 and you’ll get 33. Arriving at that answer, you’ll get your TDSR. That means that you have a Total Debt Service Ratio of 33%.

How do banks use your TDSR?

Now, what do we do with your ratio? Here’s the practical part. Lenders will most likely approve your loan if your TDSR is below 43%! Well, some are stricter than others, so a safe value of 36% and below is advisable for someone who really wants to secure their loans in the first place. Sometimes, they also base off family income, so that can also help.

While this may seem a nice, easy gauge to know if you can get approved for loans, sadly it is not the only thing that is considered when applying for home loans, mortgages, and the likes. For one, your credit score will also be considered, as well as your loan history, income stability, and such – you know, the basic shenanigans for loans. 

If so, what is TDSR here for?

It basically acts as a safeguard for people to not overspend their money on loans. Sometimes, people loan too much that they don’t leave some money for their daily expenses. It leaves them vulnerable and open to bankruptcy. The Monetary Authority of Singapore aims to protect and encourage Singaporean borrowers to practice financial prudence at all times.

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