What you need to know about Mortgage Servicing Ratio (MSR)

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If you’re planning to buy a property, chances are you’ve heard of the Total Debt Servicing Ratio, which states that only 60 percent of a borrower’s gross monthly income may be spent on debt repayments.

Less well-known, but just as important when it comes to qualifying for a loan, is the Mortgage Servicing Ratio, which caps the amount that may be spent on mortgage repayments to 30 percent of a borrower’s gross monthly income.

Unlike the TDSR, which applies to all housing loans, the MSR applies only to loans for HDB flats and Executive Condominiums (ECs), and the refinancing of these loans.

As with the TDSR, while the idea is straightforward in theory, the MSR becomes slightly more complicated in its application.


The History:

In long-ago times, HDB-issued loans had an MSR cap of 40 percent of a borrower’s gross monthly income. Then in January 2013, it was lowered to 35 percent. At the same time, the MAS Monetary Association of Singapore (MAS) set an MSR limit of 30 percent for bank-issued loans for HDB flats.

In August of the same year, the MSR cap for HDB-issued loans was lowered again to 30 percent, bringing it into line with the banks.

Then on 9 December, the same 30 percent MSR was introduced for loans issued by banks for ECs bought directly from property developers.

This means that now all HDB-issued loans, and loans issued by banks for both HDB flats and ECs, have an MSR of 30 percent.

Calculating MSR

MSR is calculated by dividing a borrower’s monthly mortgage obligations (including debts secured by property) by total gross monthly income. In the case of joint borrowers, their total monthly mortgage obligations is divided by their total gross monthly income.

However, when calculating the loan repayments it’s worth reading the fine print below.

For bank loan applications:

  • • a medium-term interest rate (currently between 3 and 4 percent) is used to calculate the loan repayments,

  • • variable income, such as commission and performance-based bonuses, is taken at 70 percent of its value,

  • • financial assets must be pledged with the bank for four years, and

  • • the maximum loan tenure is 25 years (for HDBs) and 30 years (for ECs) assuming the maximum Loan-to-Value ratio amount possible is to be borrowed.

For HDB loans:

  • • the maximum loan tenure is 25 years, or 65 years minus the buyer’s age (whichever is shorter),

  • • the loan is calculated based on the HDB concessionary interest rate (prevailing CPF interest rate plus 0.1 percent – currently 2.6 percent), and

  • • there is a loan ceiling of 90 percent.

If the MSR comes out above 30 percent, the borrower can try extending the loan tenure, selling or reducing the repayments on any other properties, or reducing the amount borrowed by increasing the cash down-payment.

Exemptions

MSR does not apply to the refinancing of loans for HDB flats and ECs:

  • • that are owner-occupied, and,

  • • that were purchased before 12 January 2013 (for HDB flats) and 10 December 2013 (for ECs purchased directly from a property developer).

If you're just starting out, familiarise yourself with our Beginner's Guide to Understanding Mortgage Loans or check out our glossary of common housing loan terms and acronyms

 

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