Mortgage Servicing Ratio (MSR)

What is Mortgage Servicing Ratio?

Mortgage servicing ratio (MSR) refers to the portion of a borrower’s gross monthly income that goes towards repaying all property loans, including the loan being applied for.

MSR is capped at 30% of a borrower’s gross monthly income.

It applies only to housing loans for the purchase of an HDB flat or an executive condominium bought directly from a developer.

Employers’ CPF contributions are not included in the calculation of your gross monthly income. However, the amount of cash that is deducted from your official salary and placed in your CPF account (ie. the employees’ contribution), does count towards your gross monthly income.

For most salaried employees without a side job/business, their gross monthly income would therefore be equivalent to their salary as indicated on their employment contract + any bonuses or commissions they receive during the year.

Use the MSR calculator from MoneySmart if you are still unsure of how much you can borrow with MSR.

What is the difference between TDSR and MSR?

First of all, the MSR only applies to buyers of HDB property and ECs, while TDSR applies to all property loans, public or private.

Like MSR, Total Debt Servicing Ratio or TDSR or also serves to limit the amount of money the HDB or banks can lend you.

The TDSR dictates that your total monthly loan payments (for all loans including home loans, car loans, education loans, credit card debt and so on) not exceed 60% of your total gross income.

The main difference is that the TDSR takes into account ALL your loan repayments, including credit card debt. Having existing financial commitments directly lowers the amount of money you can borrow to buy a home.

The MSR, on the other hand, limits the amount of money you can borrow based on your income, but does not consider other loans you might have.

Thus, when calculating how much you are allowed to borrow, both the TDSR and MSR must be satisfied. If you already have lots of financial commitments, the TDSR might end up being more restrictive, while the MSR is more restrictive if the home loan will be your first loan.

How can I calculate MSR?

Simply calculate 30% of your gross monthly income. That figure is the maximum you are allowed to spend on home loans.

Let’s say your monthly income is $5,000.

30% x $5,000 = $1,500

When you get a mortgage, you have to make sure that your monthly loan repayments are not more than $1,500.

When it’s you and your partner buying the property, together, both your incomes will be taken into account.

If that sounds like too much math, you can always use MoneySmart’s MSR calculator.

Do you have any questions about the MSR? Ask away in the comments!

Source: MAS, Money Smart.

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