What you need to know about Mortgage Servicing Ratio (MSR)
Mortgage Service Ratio (MSR) was announced by the Monetary Authority of Singapore (MAS) and HDB in the year 2013, where buyers can only use up to 30% of their gross monthly income to service their monthly payment on the mortgage loan.
The objective of this measure is moderate the property market and to instill financial prudence to cultivate an affordable and sustainable ECs market.
First announced on 12 Jan 2013, MAS introduced MSR capped at 30% for HDB loans taking from banks and financial institution. MSR is applicable to purchases of resale and Build-To-Order (BTO) HDB flats. It then extended MSR on 9 Dec 2013 to Executive Condominiums (ECs)
MSR is capped at 30% of all borrowers’ gross monthly income. Calculation of MSR is based on loan tenure, loan amount, combined monthly gross income and a medium-term 3.5% interest rate.
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 are divided by their total gross monthly income. If the MSR comes out above 30%, 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.
However, when calculating the loan repayments it’s worth going thru the list below.
For loan applications:
- a medium-term interest rate (3.5%) is used to calculate the loan repayments,
- 100% of monthly fixed income, 70% of monthly variable income (e.g. allowance, commission, bonus etc)
- Financial assets, like bank deposit, that are pledged with the bank for 4 years
- the maximum loan tenure is 30 years for EC assuming the maximum Loan-to-Value ratio amount possible is to be borrowed.
- For joint-ownership, the calculation is based on combined income and combined debt obligations.
Benjamin and his wife are both 30 this year and their combine income is $11,000. They can use up to $3,300 monthly to service the monthly mortgage.
Assuming they want to borrow 80% of the property and using 30 years tenure with interest rate of 3.5%, they can secure a total mortgage loan quantum of $734,000 and the maximum purchase price can be $917,500
Eric and his wife are both 40 this year and their combine income is $9,000. They can use up to $2,700 monthly to service the monthly mortgage.
Assuming they want to borrow 80% of the property and using 25 years tenure with interest rate of 3.5%, they can secure a total mortgage loan quantum of $539,000 and the maximum purchase price can be $673,750.
MSR does not apply to the refinancing of loans for ECs that are owner-occupied and were purchased before 10 December 2013.