Mortgage Servicing Ratio (MSR) Singapore Guide: HDB and EC

A Mortgage Servicing Ratio or MSR is one of the cooling measures imposed by the Monetary Authority of Singapore (MAS) in January 2013 to make sure the borrowers do not overstretch themselves financially for their property purchases.

The MSR framework is intended to ensure that borrowers have enough income to make property loan repayments before purchasing one.

Now let’s learn about MSR in detail – how it is calculated, relevant formulas and what can you do to mitigate your MSR limit. The article also sheds light on the key differences between the MSR and TDSR (another well-known loan limit) and exemptions to the MSR.

Contents:

1. What is Mortgage Servicing Ratio (MSR)?
2. What does a 30% MSR limit mean?
3. How is Mortgage Servicing Ratio (MSR) calculated in Singapore?
4. How does a variable income affect MSR calculations?
5. Properties Mortgage Servicing Ratio (MSR) applies to
6. What is the difference between MSR and TDSR?
7. What if you exceed the 30% MSR limit?
8. Are there any exemptions to the Mortgage Servicing Ratio (MSR)?

What is Mortgage Servicing Ratio (MSR)?

Mortgage Servicing Ratio, or MSR, is a loan limit on how much you can borrow for a home loan based on your income, without taking into consideration other loans you might have.

It applies to all HDB flats and Executive Condominiums (ECs) purchased directly from the property developer (i.e. the minimum occupation period has not expired).

What does a 30% MSR limit mean?

MSR refers to the percentage of total monthly income you can use to service all your property loan payments, including the loan being applied for.

Currently, the MSR limit is capped at 30%, which means a borrower can use only 30% of their gross monthly income to repay a mortgage they have taken out to buy an HDB property or EC.

Please note that your gross monthly income does not include the CPF contributions made by the employer. Only the cash deducted per month from your official salary (i.e. the employee contribution) is counted in the calculation of your gross monthly income.

Previously, some people were taking huge loans that they couldn’t afford, increasing the risk of defaults. With no loan limitations in place, investors kept purchasing more properties, which resulted in the rising cost of property.

The rationale behind introducing the concept of MSR was to prevent over-leveraging and encourage prudence in financial planning especially for subsidised public properties.

How is Mortgage Servicing Ratio (MSR) calculated in Singapore?

The calculation of MSR is based on the borrower’s total monthly mortgage obligations, including debts secured by property and the total monthly gross income. Simply divide the monthly mortgage obligations by their gross monthly income.

If you are taking up a loan with a co-borrower, the MSR limit is calculated by taking the combined gross income into account.

MSR formula:

The formula for calculating the MSR limit is

(Monthly repayment instalments for all property loans / Gross monthly Income) x 100%) must be less than or equal to 30%

For example, if you earn a monthly income of $5,000, your monthly loan payments should not be more than $1,500, which is 30% of $5,000. In other words, your loan eligibility is capped at $1,500.

Here are a few things financial institutions take into account while calculating MSR:

• First, all the borrower’s property loans;
• Second, at least 20% of monthly debt payment for any property loan where the borrower is also the guarantor.

Please note that the MSR limit applies to all loans. It does not matter whether you take a loan from HDB or banks (or other financial institutions).

Other regulations that come in line with MSR and impact the loan quantum you can borrow include:

Total Debt Servicing Ratio (TDSR). TDSR represents the percentage of your income that can go into servicing your loan. The TDSR is currently capped at 55% of your gross monthly income.

This means your housing loan repayments—after adding all your monthly debts, including car loans, renovation loans, student loans, credit card bills, etc.—cannot go beyond 55% of your monthly household income. Typically, anything above 50% is considered excessive and a warning sign that you are taking too much risk.

Loan-to-Value Ratio (LTV). LTV limit is the maximum amount of mortgage a bank can loan you as a percentage of the property’s purchase price or value (whichever is lower).

If it is your first property, you are allowed to borrow 75% of the LTV limit for loan tenure of 30 years or less up to age 65, and 55% LTV if the loan tenure is more than 30 years or the loan extends past the age of 65.

How does a variable income affect MSR calculations?

According to MAS, financial institutions must apply a ‘30% haircut’ on the variable income components. Variable income may include income from businesses, rental, stock dividends, and performance-based bonuses and commissions.

So, those who are self-employed, odd-job workers, or freelancers can take only 70% of their variable income into account for MSR calculations.

Please note that your variable income should be provable in some way. It is important to support your extra income claims with appropriate payslips or documents to show proof of your side income.

If you are a salaried employee without a side hustle, your gross monthly salary would be the same as indicated on the employment contract plus any commissions, overtime pay, or bonuses received from the employer during the year.

Scenario for MSR calculation: fixed income + variable income

Let’s say you are a website developer working in an MNC and earning a fixed salary of $3,500 per month. Suppose you also take up freelancing Photoshop editing projects and earn $1,500 from this side hustle, then

[Fixed Income + (70% x Variable Income)] x 30% = MSR

$3,500 + (70% x $1,500) x 30%

= ($3,500 + $1,050) x 30%

= $4, 550 x 30%

= $1,365

This concludes that your monthly loan payments should not be more than $1,365.

What type of properties does Mortgage Servicing Ratio (MSR) apply to?

Let’s take a look at the table below for a clear understanding of whether MSR applies to your property.

Property Type	MSR applicable – Yes or No?
BTO HDB flat	Yes
Resale HDB flat	Yes
EC (purchased directly from developer)	Yes
Resale EC	No
Any Private Property	No

MSR applies only to loans for resale and build-to-order (BTO) HDB flats and executive condominiums bought directly from developers.

MSR for HDB loan and bank loan applications

There are certain points that HDB vs bank loan borrowers must take into account when calculating their monthly loan repayments.

MSR For HDB loans:

• For MSR calculations, the loan repayments are calculated based on an interest rate of 2.6% (prevailing CPF interest rate plus 0.1%).
• The maximum loan tenure is 25 years, or 65 years minus the buyer’s age (whichever is shorter).
• The loan-to-value (LTV) is capped at 80%.

MSR For Bank loans:

• When taking home loan from a bank, your estimated monthly loan repayments are based on a medium-term rate (presently 4.5% – 4.7%). This is due to a “stress test” banks apply to understand whether you will be able to make loan repayments in case the bank loan rates suddenly increase.
• If you own financial assets, you can pledge them to the bank for at least four years to increase your income for MSR calculations.
• The maximum loan tenure for HDB flats is 25 years and a maximum of 30 years for ECs.
• The loan-to-value (LTV) is capped at 75%.

Further reading: New HDB Rules 2023

What is the difference between MSR and TDSR?

Homebuyers planning to get a home loan with HDB or bank for buying an HDB flat or EC must pass both criteria – MSR calculations followed by TDSR calculations. While TDSR and MSR are usually discussed together, it is important to understand the difference between the two.

The primary difference between these two loan limitations is that the MSR limit applies to your home loan for HDB property and EC buyers (not any other debts), while TDSR applies to all loan obligations.

Let’s take a look at the below MSR vs TDSR comparison table.

	MSR	TDSR
Housing loans applicable	HDB flats & ECs bought from a developer	All public & private properties
Capping	30%	55%
Calculation formula	(Home loan repayments) / (Gross monthly income) x 100%	(Monthly debt repayments) / (Gross monthly income) x 100%
More restrictive when	The home loan applied is your first loan	Already have lots of financial commitments
Other things to note	Does not take into account other loans you might have (only for property repayment)	Considers ALL your debt repayments, including outstanding non-mortgage loans.

When calculating the money you can borrow, both the criteria – MSR and TDSR – must be satisfied. However, if you are purchasing a private property, you don’t need to worry about your MSR limit for now. Only TDSR applies to private properties.

What if you exceed the 30% MSR limit?

Unfortunately, at times, you may fall short of meeting the MSR requirements. In the event you exceed the MSR limit, you can get around it in a couple of ways. Here is some advice from mortgage experts to mitigate it.

• You can apply to extend the loan tenure (if you have not already maxed out) to reduce monthly loan repayments.
• You can lower the loan amount you borrow by making a bigger downpayment either through cash or CPF.
• If you are limited by other property loan obligations, you can opt to refinance your existing loans to reduce monthly repayments.
• Consider selling or reducing the loan repayments on other properties to free up the monthly income for use towards repayments for the new home loan.
• Next is trying to get other income sources recognized like rental income, side-businesses, bonuses, commissions, fixed income products, etc.
• Lastly, you should consider buying a less expensive property so that you can lower the amount you borrow.

For more in-depth details on how home loans work and how to meet the MSR criterion, you can get in touch with a qualified mortgage consultant at DollarBack Mortgage and get a free non-obligatory quote and consultation.

Are there any exemptions to the Mortgage Servicing Ratio (MSR)?

Yes, there are some MSR exemptions granted by the MAS.

MAS allows an exemption from the MSR limit for refinancing loans for HDB flats and ECs directly purchased from a property developer only if the property is owner-occupied and has fulfilled the MOP period.

Final Thoughts

The Mortgage Servicing Ratio (MSR) exists to ensure borrowers can cope with rising interest rates and other factors that may create a hindrance in making timely loan repayments down the line. It stresses the importance of every borrowing and for borrowers to know their financial capabilities so they can plan for any potential financial crisis.

If you are still unsure about any aspect of the Mortgage Servicing Ratio, or if you need any advice on best home loan rates to better prepare your finances, please feel free to get in touch with one of our experienced mortgage consultants.