There is an array of factors that lenders evaluate before approving your mortgage. Total Debt Servicing Ratio (TDSR) is one of these factors. There is no rocket science associated with this calculation. You can easily calculate your Total Debt Servicing Ratio to check your eligibility for the mortgage.
What is Total Debt Servicing Ratio?
Total Debt Servicing Ratio is a framework that enables the Singaporean government to restrict the home loan borrowers from taking undue advantages of the loan money. The TDSR rule states that not more than 60% of your monthly income should be taken up by housing loan repayments and other repayments like credit card debts, student loans, personal loans, etc. If you have already exceeded this limit, then you are not eligible to apply for housing loan by any means.
Now that you are clear about Total Debt Servicing Ratio, let’s proceed towards the adverse effects that this percentage that cause to your housing loans.
Casts a Bad Impression of Your Financial Health
Your financial health is what makes you eligible for the loans. No lender wants to waste time and money on those borrowers who find it difficult to make the repayments on time. A higher TDSR indicates that you already have a massive portion of your monthly income taken up by other debts. Offering you another loan would add to the trouble of getting repayments back from you. Lesser the number, more would be your credibility as a trustworthy borrower.
You Get Minimal Housing Loan Approvals
Consider yourself out of the eligibility domain if you are having a higher Total Debt Servicing Ratio. You won’t be able to convince lenders about your ability to repay the loans. All the FIs are strictly following this framework and you cannot convince anyone by any means. The only solution is to lower the TDSR by adopting the right measures.
What is an Acceptable Total Debt Servicing Ratio?
Singaporean government has set the limit of 60% TDSR for every housing loan borrower. All the Financial Institutions (FIs) have been instructed to comply with this limit while processing the housing loans to the Singapore citizens.
What’s the best way? You should target a TDSR of no more than 40%-50%. This would make it easier for you to remain within the 60% limit.
How Can You Lower your Total Debt Servicing Ratio?
You can lower your TDSR by applying some measures and good financial practices. This ratio is never constant and can be changed with time.
Firstly, you can lower the interest rate on some of your loans, like credit card debts. Doing so would cause a decrease in TDSR. Secondly, you can have multiple streams of income to increase your monthly income. That would massively decrease the TDSR in no time. Another way is to settle those loans first which are close to pay off.
Taking these measures would surely benefit you in terms of financial matters and future housing loan approvals.