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Effect of MAS debt servicing framework for property loans

MAS imposes another round of property cooling measure effective 29 June 2013.

Learn how this new debt servicing framework affects you.

Many banks imposes different risk management and applies different debt servicing ratio and

methods of calculation for lending out money. There were uneven application on lending criteria.

MAS rules aim to strengthen financial institution's credit underwriting practices by imposing Total

Debt Servicing ratio and assessment methods.

Total Debt servicing ratio (TDSR)

  • Banks will need to consider a borrower's total debt to work out the total debt servicing ratio.
  • A bank needs to consider all borrower's income.
  • Maximum 60% on Debt servicing ratio.

Calculation methods on income

  • Assessment of incomes of all borrowers. (variable and rental incomes will be considered at only 70%)
  • Consider all financial assets and amortize them into "income stream" in calculation of TDSR. The amortization method is to be discussed.
  • All borrowers must also be mortgagors. (Once a borrower becomes a mortgagor, they cannot avoid additional buyer stamp duties on 2nd, 3rd or more properties)
  • Guarantors for borrowers must also be brought in as co-borrowers.
  • For joint borrowers, the weighted average age of the borrowers will be used to compute the loan tenure.
    • For example borrower 1 is 45 years old and earns $100,000, borrower 2 is 33 years old and earns $50,000. The total assessed income is $150,000. The average age based on weighted average is weighted more heavily towards the higher income earner. In this case, 45 - (45 – 33) x ($50,000/$150,000) = 41 years old. Therefore, in order to borrow 80% of valuation, assuming both are first time borrowers, the loan tenure is 65 – 41 = 24 years.
    • Had it been based on the younger person's age, the loan tenure of 65 – 33 = 32 years. Therefore, the maximum loan tenure would be 30 years (assuming a Loan-to-value of 80%). Had it been based on average age, the average age would be (45+33)/2 = 39 years old. The loan tenure would be 26 years.

Calculation on Debt

  • Consider all of a borrower's debt and liability.
    • This means that all personal loans, all credit card outstanding balances, other property loans, number of credit facilities, over-draft facilities, balance transfers, car loans and such, will all be computed.
  • Apply a specific medium term interest rate (a higher interest rate than the actual interest being charged) in calculating the "installment amount" for calculating Debt Servicing.
    • Medium term residential interest rate set at 3.5% and non residential rate set at 4.5%.

Applies to

  • Applies to all loans for purchase of property and refinancing of such loans

For Refinancing

Existing borrowers who are seeking to refinance their housing loans will be exempted, provided they meet the specific conditions set out in MAS' guidelines on application of TDSR for property loans under MAS notices 645, 1115, 831 and 128.

Buying a New Property

When setting out to purchase a property, it is important to apply for an Approval-in-Principle prior to making any purchase as you may be caught out. Contact a mortgage consultant to assist in reviewing your credit report.

Paul Ho

He holds a Masters of business administration from a university ranked within the TOP 100 universities and has distinctions in finance and economics. He also writes for STproperty, iProperty,, and amongst many others. He is passionate about helping people enhance their wealth and in making money work harder for them.