When was MSR implemented?
The Mortgage Service Ratio (MSR) was implemented on 12 Jan 2013 for buyers of HDB flats or Executive Condominiums who take loans for their properties.
What are the changes to MSR?
From 12 Jan 2013 for HDB loans, buyers can take up to 35 per cent of their monthly gross income. Buyers who take loans from banks and other private institution can only take up to 30 per cent of their monthly gross income.
In an adjustment to the MSR, on 28 Aug 2013 and 9 Dec 2013, buyers who apply for HDB loan can only take up to 30 per cent of their monthly gross income. This is to align the MSR for HDB and bank loans. At the same time, the maximum tenure for HDB loan has been adjusted to not exceeding 25 years while the same for bank loans was reduced from 35 years to 30 years for Executive Condominium, and 25 years for HDB flats.
Why implement the MSR?
The MSR is applicable to Singapore Citizens and Permanent Residents who take up loan to purchase their HDB flats or Executive Condominium. This is part of the measures introduced by the government to encourage financial prudence for home buyers of HDB flats and Executive Condominium so that they can borrow within their means. At the same time, not forgetting how the Global Financial Crisis started, these measures serve to regulate the borrowing practices by banks and financial institution including HDB.
Understand more about computation of MSR
First, we should divide a borrower’s monthly mortgage obligations (including debts secured by property) by their total gross monthly income. For the case of joint borrowers, their combined total monthly mortgage obligations is divided by their combined total gross monthly income.
Do take note of the following when computing the MSR:
For bank loan applications
• an interest rate of about 3.5 per cent is used to calculate the loan repayments,
• when evaluating variable income, such as commission and performance-based bonuses, a discount of 30 per cent is applied,
• any financial assets must be pledged with the bank for 4 years, and
• the maximum loan tenure for HDBs is 25 years and the same for ECs is 30 years
For HDB loans
• the maximum loan tenure is 25 years subject to the borrower’s age limit of 65 years (whichever is shorter),
• the loan is calculated based on the HDB concessionary interest rate which is the prevailing CPF interest rate plus 0.1 per cent. The current HDB concessionary interest rate is 2.6 per cent, and
• the loan ceiling is 90 per cent.
Do take note that if the MSR exceeds 30 per cent, the borrower can reduce the repayments on any other properties, or reducing the amount borrowed by increasing the cash down-payment.
1) Will I be subject to MSR if I wish to refinance my HDB or Executive Condominium?
No, according to guidelines from Monetary Authority of Singapore (MAS) you do not need to apply MSR if you intend to apply for refinancing of loans for HDB flats and Executive Condominiums that are owner-occupied, provided they were purchased before their respective MSR implementation dates.
This means that the Option to Purchase (OTP) was granted before 12 January 2013 for HDB flats and 10 December 2013 for Executive Condominium purchased directly from a property developer.
Please refer to MAS guideline here
2) What is the difference between MSR and TDSR?
Total Debt Servicing Ratio (TDSR) was implemented on 28 June 2013. TDSR was meant to serve as a long-term measure to ensure that financial institutions practise prudence when disbursing property loans.
On the other hand, MSR was mandated for MAS-regulated financial institutions since 12 Jan 2013.
|For MSR, the monthly repayment of a mortgage cannot be more than 30 per cent of a borrower's gross monthly income||For TDSR, it takes into account all monthly debt liabilities which include the mortgage repayment. This must not be more than 60 per cent of the borrower's gross monthly income|
|The MSR applies to all mortgages, whether by financial institutions or HDB, for the purpose of purchase of a HDB flat or Executive Condominium||TDSR is applicable to all property loans, regardless of residential properties, commercial properties, etc that are granted by financial institutions|
|For computing MSR, the medium-term rate of 3.5% per cent, or the existing market rate, whichever is higher, must be used. If the borrower is taking HDB concessionary loan, the rate to be used is the prevailing rate of the loan is 2.60 per cent||For computing TDSR, the financial institutions have to use a specified medium-term rate (3.5 per cent for housing loans, and 4.5 per cent for non-residential property loans or the existing market rate), whichever is higher|
|For refinancing, MSR will not apply to loans for HDB flats and Executive Condominiums that are owner-occupied, provided they were purchased before their respective MSR implementation dates||For refinancing, TDSR will not apply if the residential property is owner-occupied, provided the Option to Purchase (OTP) of the residential property was granted before 29 June 2013|