How a Singapore bank counts your income and debts for a home loan

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Kooky

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Two borrowers in Singapore can earn the same amount in a year and be offered very different home loans. The reason is rarely the bank's mood. It is the way the Monetary Authority of Singapore (MAS) tells every lender to count: which income is taken in full, which is trimmed, which interest rate is used to test the repayment, and which debts go on the other side of the fraction.

Most buyers know the two headline ratios. Fewer know what goes into them, and that is where the surprises come from: a bonus that counts for less than it paid, a rent that is ignored because the lease is nearly over, a savings balance that turns into a small monthly figure, or a parent whose age shortens the loan. This guide follows the calculation line by line, using the explanatory pages MAS publishes for its Notice 645, the rule that sets the method for banks. Each figure is given with the date of the rule behind it, and every worked example is labelled as one.

MAS explanatory page on calculating the Total Debt Servicing Ratio, and MAS measures effective 30 September 2022, as read on 11 October 2026.

The two ratios, and where the method is written

One reminder is enough. The Total Debt Servicing Ratio, or TDSR, says that no more than 55% of a borrower's gross monthly income should go towards repaying all debts, including the loan being applied for. The Mortgage Servicing Ratio, or MSR, says that no more than 30% of that income should go towards property loans, and it applies only to the purchase of HDB flats and executive condominiums. Both sentences are taken from the MAS explanatory page on new housing loans, which carries a last revision date of 16 December 2021. The ratio was 60% when the framework began on 29 June 2013, according to the MAS announcement of 28 June 2013.

The method sits in MAS Notice 645, titled "Computation of Total Debt Servicing Ratio for Property Loans". The MAS page for the notice says it applies to all banks, that it sets out the formula and parameters for the ratio, for monthly total debt obligations and for gross monthly income, and that it also spells out the limit on monthly instalments for HDB flats and executive condominiums. The page lists the notice as taking effect on 28 June 2013, with amendments in August and December 2013, February 2014 and July 2018, and shows a last revision dated 29 September 2022. The 2013 announcement names sister notices for other kinds of lender, numbered 1115, 831 and 128, so the same counting applies beyond banks. The loan-to-value and tenure rules live in a separate text, Notice 632 on residential property loans.

MAS describes these as minimum requirements. Its page on the calculation says financial institutions may be more conservative, which is why two banks can still give two answers from the same payslips.

The formula and the people it covers

The formula is short: the borrower's total monthly debt obligations, divided by gross monthly income, multiplied by 100. Everything interesting is in how the two halves are filled.

According to the MAS page on who the ratio applies to, the test covers any individual applying for a loan to buy property or a loan secured by property, and the refinancing of either. It covers residential and non-residential property, in Singapore and abroad, for loans applied for on or after 29 June 2013. Loans to companies follow a different credit assessment. Two cases are kept inside the rule on purpose: a sole proprietor, and an individual who sets up a company only to buy property. In both, the lender applies the ratio to the person.

The lender may not take the borrower's word for the inputs. The 2013 announcement requires financial institutions to verify and document the debts and the income used, and the calculation page adds a credit bureau check alongside the borrower's own papers.

The test rate: 4%, not the rate on the offer letter

The first surprise is the interest rate. The bank does not compute the new loan's instalment at the promotional rate in its brochure. MAS tells it to use a medium-term interest rate. For a loan to buy a home, or to withdraw equity from one, that is the higher of a 4% floor and the loan's "thereafter" rate. For non-residential property the floor is 5%.

The 4% and 5% floors date from 30 September 2022, when MAS raised each by half a percentage point from 3.5% and 4.5%. The MAS release on those measures applies the new floors to purchases where the option to purchase was granted on or after that date, and to equity withdrawal applications from the same date. It states that the floor is used for both the TDSR and the MSR.

The thereafter rate needs a word of explanation. MAS defines it as the highest interest rate the lender offers at any time during the life of the loan, typically the rate that applies once the introductory or lock-in period ends. For a floating-rate package, the bank takes the reference rate as it stands on the date of application and adds the spread. MAS gives the case of a package priced at the three-month SORA plus 1.5%: the lender uses the latest published three-month SORA and adds 1.5%. If that reference rate stood at 3%, to take an illustrative figure, the thereafter rate would be 4.5% and the bank would test at 4.5%, because it is higher than the floor.

The effect is easy to measure. Take an illustrative loan of S$800,000 over 30 years. At an assumed package rate of 2.5% the monthly instalment would be about S$3,161. At the 4% test rate it is about S$3,819. The bank counts the second figure, about S$658 a month more than the borrower would actually pay at the start.

Income: what is counted in full and what is cut

Gross monthly income, in MAS's wording, is income before tax, and it excludes any CPF contribution made by the employer. A fixed monthly salary goes in at face value. Two kinds of income do not.

Variable income. Commission, bonuses and allowances are subject to a minimum haircut of 30%. The bank first takes the average monthly variable income over the preceding 12 months, then counts at most 70% of it. A salesperson or a property agent paid mostly in commission therefore brings in, for the purposes of the ratio, no more than seven-tenths of what the last year actually paid. A new bonus scheme that has not yet run for a year produces a low average, because the months without it count as well.

Rental income. Rent also takes a minimum 30% haircut, and it has to be proved. MAS requires a stamped tenancy agreement, signed by the borrower as landlord and by the tenant, with at least six months of the rental period left to run. A lease with four months remaining gives the bank nothing to count, however reliable the tenant. A room let informally, with no stamped agreement, gives nothing either.

The word "minimum" matters in both cases. A lender is free to cut deeper, and some do for income they regard as irregular. The 30% is the least the rule allows.

A dollar of salary is a dollar. A dollar of bonus or rent is seventy cents at most, and only if the paperwork is there.

Turning savings and investments into income

A retiree with a modest pension and a large portfolio would fail a pure income test. The framework answers this by letting a lender convert eligible financial assets into "income streams". The method has two steps on MAS's calculation page: apply a haircut that depends on the kind of asset and on whether it is pledged, then spread what is left over an amortisation schedule of 48 months.

A worked example shows how sharply the pledge changes the result. The figures are illustrative, and the monthly amounts assume the balance is simply divided by 48. A borrower holds S$300,000 in Singapore dollar deposits. Left unpledged, 70% is cut, S$90,000 remains, and it counts as S$1,875 a month. Pledged with the lender for at least four years, nothing is cut and the same deposit counts as S$6,250 a month. For S$200,000 of shares, the unpledged figure is S$60,000 spread over 48 months, or S$1,250 a month; pledged for four years, S$140,000 remains and counts as about S$2,917 a month.

Two practical points follow from the rule. First, pledging means the money or the securities are tied up with the lending institution for the period, so the higher figure has a cost in flexibility. Second, MAS adds a check for unpledged assets: before the loan is disbursed, the lender must make sure they still appear in the borrower's account statements. The purpose is stated on the same page: money that has been spent on the down payment cannot also be counted as income.

The debts on the other side

The numerator is every monthly repayment the borrower owes. MAS lists property loans, including the one applied for, car loans, student loans, renovation loans, credit card loans and any other secured or unsecured loans, revolving credit included.

Revolving facilities have no fixed instalment, so the rule supplies one. For a secured revolving loan, the bank applies the medium-term rate to the amount drawn down. For an unsecured one, such as a credit card or a personal credit line, it uses the minimum payment due. Both are read from the latest available statement. Where there is no statement, the lender applies the facility's monthly interest rate to the whole credit limit, which means an unused line with a large limit can still weigh on the ratio.

One relief concerns people who are moving home and still have a loan on the old one. MAS's page sets out when the existing property loan's repayment can be left out of the sum:

• for an HDB flat, or an executive condominium still within its minimum occupation period, a signed undertaking to HDB to complete the sale within the stipulated period, with a written declaration to the lender;
• for an HDB flat already being sold, HDB's letter approving the sale;
• for private property, or an executive condominium past its minimum occupation period, a sale and purchase agreement signed by both sides and the IRAS certificate showing that stamp duty was paid;
• in any case, proof that the outstanding loan has been discharged.

Without one of these, the old mortgage stays in the numerator and the buyer is assessed as someone carrying two home loans.

A worked example, from payslip to loan size

The following example is illustrative and every assumption is stated here. A single borrower has a fixed salary of S$7,000 a month, bonuses over the preceding 12 months of S$24,000, which is S$2,000 a month on average, and rent of S$3,000 a month from a property let under a stamped agreement with more than six months to run. The borrower repays S$900 a month on a car loan and has a credit card statement showing a minimum payment of S$150. The bank applies the minimum haircuts and no more.

The borrower thinks of an income of S$12,000. The bank works with S$10,500, allows S$5,775 a month for all debts, and has S$4,725 left for the new instalment once the car and the card are taken off. That instalment is computed at 4%, assuming the package's thereafter rate is below the floor. How much loan S$4,725 a month supports then depends on one more variable, the tenure.

The gap between the shortest and the longest bar is about S$287,400, from the same income and the same debts. This is why the tenure and age rules further down belong in a guide about income: they decide which bar a borrower is allowed to use. The ratio is also only one ceiling. The loan-to-value limit in Notice 632 caps the loan against the price of the property, and the lower of the two results applies.

The MSR: a second test for HDB flats and executive condominiums

For an HDB flat, the same borrower meets a tighter test first. The MSR allows 30% of gross monthly income for property loans. MAS's September 2022 release describes its scope as HDB flats and executive condominium units bought directly from developers, and applies the same medium-term rate floor to it. The page for Notice 645 places the instalment limit in the same notice as the income rules.

The difference from the TDSR is in the numerator: the MSR looks at property loans, the new one included, while the TDSR adds every other debt. Continuing the illustrative example, 30% of the counted income of S$10,500 is S$3,150 a month. At the 4% test rate that supports a loan of about S$596,800 over 25 years, or about S$659,800 over 30 years. The car loan and the card play no part in this test, but the borrower must still pass the wider one: S$3,150 plus S$1,050 is S$4,200, inside the S$5,775 allowed. For most HDB buyers without heavy consumer debt, the 30% test is the one that sets the loan.

A buyer who takes HDB's own housing loan rather than a bank loan is assessed by HDB under its own rules. The same MAS release records that HDB introduced a 3% interest rate floor for computing its eligible loan amount, for loan eligibility applications received from 30 September 2022.

Two borrowers, a guarantor and the name on the title

For a joint application, the ratio is computed on the totals. The 2013 MAS announcement states that it is based on the aggregate monthly debt obligations and the aggregate gross monthly incomes of the joint borrowers. A partner with a good salary and no debts lifts the result; a partner with a small income and a large car loan can lower it, because their debts come in with their income.

Two rules introduced with the framework stop the ratio from being sidestepped through other people. Under the first, borrowers named on a property loan must be the mortgagors of the residential property the loan is for. A relative with a strong income cannot simply be added to the loan to pass the test while staying off the property. Under the second, a guarantor who stands behind a borrower who would not otherwise meet the threshold has to be brought in as a co-borrower. Once a co-borrower, that person's income and debts are counted, and the first rule then requires them to be a mortgagor as well. MAS's page on refinancing notes that both requirements apply unless the option to purchase was granted before 29 June 2013.

The consequences reach beyond the loan. A parent who becomes a co-borrower and co-owner carries a housing loan and a property in their own name from then on, which matters for any later purchase of their own. The rule states the requirement; what follows from it depends on each family's position.

Tenure and age: the limits behind the instalment

MAS caps the tenure of a housing loan at 30 years for an HDB flat and 35 years for other property, according to its page on loan tenure and loan-to-value limits. Within those caps, a second threshold changes how much can be borrowed against the property: the lower loan-to-value limit applies if the tenure exceeds 30 years, or 25 years for an HDB flat, or if the loan period runs beyond the borrower's age of 65. For a borrower with no other housing loan, that page gives the two limits as 75% and 55%, for options granted on or after 6 July 2018.

For joint borrowers the age used is not the older one's or the younger one's. MAS tells lenders to take the income-weighted average age, each borrower's age weighted by their share of the combined gross monthly income. In an illustrative case, a borrower aged 52 earning S$9,000 a month applies with a borrower aged 34 earning S$6,000. The weighted age is 52 times 9,000 plus 34 times 6,000, divided by 15,000, which gives 44.8 years. A loan meant to end by 65, so as to keep the higher limit, can then run for about 20 years. Had the incomes been the other way round, the weighted age would have been lower and the available tenure longer.

This is where age meets the chart above. A shorter tenure means a higher instalment for the same loan, tested at 4%, against the same 55% or 30% ceiling. An older couple can accept a longer tenure with a smaller loan-to-value limit and a larger cash outlay, or a shorter one with a smaller loan. The rule leaves that choice to the borrower and the lender.

When the test is not applied

The framework has a short list of exemptions, set out on MAS's page on who the ratio applies to.

Refinancing an owner-occupied home. An existing borrower refinancing the loan on a home they live in is not held to the TDSR threshold or the MSR limit. MAS's refinancing page adds that the borrower must still meet the lender's own credit assessment.

Refinancing an investment property. The ratio applies, unless the borrower meets two conditions: a commitment to a debt reduction plan repaying at least 3% of the outstanding balance over a period of up to three years, and the lender's credit assessment. The September 2022 release adds that refinancing of this kind is tested at the medium-term rate that applied when the loan was first taken, and that refinancing of owner-occupied loans was unaffected by the higher floor.

Equity withdrawal at low gearing. Since 11 March 2017, according to the joint release of 10 March 2017, the framework no longer applies to mortgage equity withdrawal loans with a loan-to-value ratio of 50% or below. MAS's page counts all loans secured on the same property together for that 50%, and gives the reason: to let retirees borrow against their homes for cash.

Bridging loans and pooled collateral. Bridging loans whose outstanding balance will be repaid within six months are exempt. So are loans secured by a pool of collateral in which property makes up less than 50% of the credit limit.

Outside these cases, MAS's overview of the ratio says a lender may approve a property loan above the threshold on an exceptional basis, after an enhanced credit evaluation. The 2013 announcement put the mechanics in a footnote: the lender's board, or senior management for a foreign-incorporated institution, approves the policy for exceptions, and each case goes to the credit committee. On the calculation page, the ordinary outcome of a ratio above 55% is simpler: the loan amount is reduced until the ratio fits.

Kooky, from Shaka

Kooky edits Agents Estate and builds Shaka, the payment router he made for real estate professionals. One payment comes in, and every agent, agency and party in the deal receives their signed share on closing date.

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