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The Comprehensive Guide to Total Debt Servicing Ratio (TDSR) Part III (Debts and Income Weighted Average Age)

Here is a recap on the TDSR formula in Part I that kicked off this guide.

Monthly Total Debt Obligations / Gross Monthly Income

How gross monthly income is derived and computed are covered in Part I and II.

The remaining component of the TDSR to cover is the "D" in TDSR. Monthly debt obligations are payments that you need to service monthly, which includes secured loans such as housing loans, car loans and unsecured loans such as overdraft lines, personal loans and credit card loans or spending.

When applying for a new property loan, the corresponding monthly obligation will have to be factored in the TDSR computation. 3 inputs are required: loan amount, interest rate and loan tenure. Loan amount is 75% or lower of the property purchase price. If your desired loan amount exceeds the maximum TDSR of 60%, the mortgage lender will compute the highest loan you can borrow based on the 60% limit.

With respect to the interest rate, MAS stipulates all mortgage lenders to use 3.50%. I think this is a prudent measure as prior to the low interest rate period, the 3 months Singapore Interbank Offer Rate (SIBOR) was about 3.55%.

How about the loan tenure? This is where the income weighted average age comes in. This formula will determine the income weighted average age for you and any joint borrowers (result is usually rounded up).

Income Weighted Average Age =
(Age of Borrower 1 x Gross Income of Borrower 1) + (Age of Borrower 2 x Gross Income of Borrower 2), …, + (Age of Borrower k x Gross Income of Borrower k) / Total Gross Income
where there are k borrowers.

A proportionately heavier weighting is essentially given to the age of the higher income earner and vice versa. Based on the income weighted age, the maximum loan tenure can then be determined.

That's all folks! You pretty much covered all there is to know about TDSR. Give yourself a pat on the back.

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