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The Comprehensive Guide to Total Debt Servicing Ratio (TDSR)
Part I (Gross Income)

Gone are the days where you just need to show the bank a few hundred thousand dollars in your bank account and you will be able to get a housing loan of up to four times the amount. Just like how a 40-year loan period is but a distant memory. Veteran property investors, let's take a minute to reminisce in the sweet memories!

Total Debt Servicing Ratio (TDSR), was introduced in June 2013 as a cooling measure to regulate a borrower's maximum property loan eligibility, irrespective of purchase or refinancing.

Monthly Total Debt Obligations / Gross Monthly Income

There are a good number of articles illustrating the TDSR formula. However, even as of May 2019, none of the articles explain clearly how financial institutions compute the TDSR components. I am sure you guys are jumping up and down in anticipation so without further ado, here is the definitive TDSR guide.

At the highest level, TDSR is basically the ratio of your total monthly instalments against your gross monthly income.

MAS stipulates that an individual's TDSR has to be 60% or lower i.e. total monthly debts ≤ 60% of gross monthly income.

TDSR is applicable to all individuals, sole proprietorships or any vehicle that is set up by a natural person solely to purchase a property.

Gross Income

This term is normally understood to be the monthly salary paid before any monthly deductibles (CPF, charities, etc.). However, from a TDSR perspective, it is not so straightforward. You may be wondering this very moment, "Why is it not simple? Isn't it just the gross salary figure on my payslip?".

The gross income used in the computation of TDSR actually differs from the normal definition. Gross income varies depending on your occupation and can be enhanced by other income streams or eligible financial assets.

For employees, salaries can comprise of a fixed salary, fixed allowances like transportation, shift allowances as well as variable components such as sales commissions, bonuses, overtime pay etc. Mortgage lenders will recognize the fixed salary components at 100% of the stated amounts and any variable components will be subject to a haircut of 30%. Financial institutions will use the latest Income Tax Notice of Assessment (ITNA) and payslips to separate fixed and variable salary components. This is the formula to compute an employee's gross monthly income.

Gross Monthly Income =
ITNA – Monthly Fixed Salary x 12 / 12
x 70% + Monthly Fixed Salary

For self-employed, fully commissioned workers and freelancers, the past 2 years ITNA are required. The gross income for these folks will be as such.

Gross Monthly Income =
ITNA / 12
x 70%

Rental Income can also be included as part of the gross income upon satisfaction of two key conditions. The tenancy agreement has to be valid for at least 6 months from the loan application date. And the tenancy agreement has to be stamped with the Inland Revenue Association of Singapore Stamp. The haircut of 30% also applies on the monthly rental income.

Additional Gross Monthly Income = Monthly Rental Income x 70%

On to Part II

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