SINGAPORE – The Monetary Authority of Singapore (MAS) said on Thursday (Sept 1) it was fine-tuning the Total Debt Servicing Ratio (TDSR) rules to make it easier for borrowers with existing home loans to refinance their mortgages and pay off their debts at lower interest rates.
Here is what you need to know:
1. WHAT IS THE TDSR?
The framework or rules, introduced on June 29, 2013, were implemented to encourage home buyers to borrow within their means.
The TDSR limits the home loan quantum by ensuring your monthly repayments for all your debts – mortgage, credit cards, car loans, personal loans, and so on – do not exceed 60 per cent of your monthly income.
Thus if you and your spouse earn a combined S$10,000 a month and the total of all your credit card, car loan and personal loan repayments is S$4,500 monthly, your TDSR threshold is S$6,000 (60% of S$10,000). This means the maximum monthly repayment for your home loan cannot exceed S$1,500 (S$6,000-S$4,500).
2. HOW DO THURSDAY’S TDSR CHANGES AFFECT YOU?
The changes affect two groups of people: People with an existing property loan for the house that they live in and people with an existing investment property loan.
For the first group, a homeowner who wants to refinance the mortgage on the house that he lives in will now be exempt from the TDSR’s 60-per cent rule, regardless of when he bought the property.
For the second group, a borrower can refinance his investment property loan above the TDSR threshold regardless of when the property was bought, if he meets two conditions:
– He commits to a debt reduction plan with his bank to repay at least 3 per cent of the outstanding balance on his property loan over three years, and
– He passes the bank’s credit assessment.
3. HOW IS THIS DIFFERENT FROM PREVIOUS TDSR RULES?
Previously, owner-occupied home loans were exempted only if the property had been bought before June 29, 2013.
And investment property loans were allowed to be refinanced above the 60 per cent TDSR threshold only if the borrower applied by June 30, 2017. This deadline has now been removed.
The borrower would also have had to commit to a debt reduction plan with their bank before Thursday’s rule changes. However, Thursday’s announcement specified the terms of such a plan.
4. DOES THIS MEAN NEW HOME LOANS ARE EXEMPT FROM TDSR TOO?
No. The TDSR rules will continue to apply to new property loans. The MAS has said that the tweaks announced on Thursday are not a relaxation of property market cooling measures.
5. HOW MANY PEOPLE CAN BENEFIT FROM THE CHANGES?
Just a small minority of borrowers. Only about 2.5 per cent of home loans made after the TDSR rules were implemented are currently above the 60-per cent threshold.
6. SO WHY DID THE MAS DECIDE TO MAKE THESE TWEAKS?
MAS said it had received feedback that some borrowers who wanted to refinance their home loans to take advantage of the current lower interest rates were unable to do so because of the the TDSR threshold.
Now they can go ahead and refinance and pay lower monthly instalments.