Learn everything about Mortgage Servicing Ratio (MSR) in Singapore, including its purpose, how it’s calculated, and how it affects your HDB or EC housing loan eligibility.
Introduction
If you are looking at this article on MSR, it means you have snagged yourself a pretty good deal on affordable housing in Singapore, congratulations!
The Mortgage Servicing Ratio (MSR) is a framework for homebuyers in Singapore, specifically those purchasing HDB flats or Executive Condominiums (ECs). It ensures that borrowers manage their finances responsibly while preventing over-leveraging in the property market. This article provides a comprehensive overview of MSR, how it works, and tips to meet the requirements when applying for housing loans.
1. What is the Mortgage Servicing Ratio (MSR)?
MSR is the percentage of your gross monthly income that goes toward servicing your monthly mortgage repayment.
Key Points About MSR:
- Capped at 30% of gross monthly income for HDB and EC housing loans.
- Applies only to loans for public housing (HDB flats and ECs).
- Does not apply to private property loans.
2. Purpose of MSR
The MSR framework was introduced to:
- Promote financial prudence among homebuyers.
- Reduce risks of default by ensuring that borrowers do not overcommit financially.
- Stabilize the public housing market by aligning affordability with income levels.
3. How is MSR Calculated?
MSR Formula:
- MSR (%) = (Monthly Mortgage Repayment ÷ Gross Monthly Income) × 100
Components of the Calculation:
1.Monthly Mortgage Repayment:
- Includes principal and interest payments based on the loan amount, tenure, and interest rate.
- Calculated using a conservative interest rate (often 3% for HDB loans).
2. Gross Monthly Income:
- Includes all fixed income sources, such as salaries, bonuses, and rental income.
- Variable income is typically discounted by 30%.
Example Calculation:
Suppose you earn $6,000 per month and apply for a $300,000 HDB loan with a 25-year tenure at 2.6% interest.
- Monthly repayment = $1,360.
- MSR = ($1,360 ÷ $6,000) × 100 = 22.7%.
Since this is below the 30% MSR cap, you meet the requirement.
4. MSR vs. Total Debt Servicing Ratio (TDSR)
While MSR focuses solely on housing loans for HDB flats and ECs, Total Debt Servicing Ratio (TDSR) considers all your monthly debt obligations.
Comparison:
| Aspect | MSR | TDSR |
|---|---|---|
| Scope | HDB and EC housing loans | All property and personal loans |
| Income Cap | 30% of gross monthly income | 55% of gross monthly income |
| Application | Public housing loans only | Private and public loans |
5. MSR and HDB Loans
HDB Concessionary Loan MSR Requirements:
- Fixed interest rate of 2.6%.
- Loan tenure capped at 25 years or until the youngest borrower reaches age 65.
- MSR must not exceed 30% of your gross monthly income.
CPF Usage and MSR:
- Borrowers can use CPF Ordinary Account (OA) savings for down payments and monthly repayments, helping them meet the MSR criteria.
6. MSR and Executive Condominiums (ECs)
MSR applies to ECs purchased directly from developers during their Minimum Occupancy Period (MOP). Once the MOP is over, ECs are considered private properties, and MSR no longer applies.
7. Strategies to Meet MSR Requirements
Before you read the strategies, I just want to say that yes, it sounds obvious, because it is, there is nothing you can do to “loophole” your way through unless you are looking at refinancing. But, that’s topic for another day.
Extend Loan Tenure:
A longer loan tenure reduces monthly repayments, helping you stay within the 30% cap.
Improving Your Income:
Increase your gross monthly income by taking on additional work or seeking a salary increment.
Reduce Loan Amount:
Consider paying a higher down payment to reduce the loan amount and monthly instalments.
Clear Existing Debt:
Pay off other loans to ensure that your MSR and TDSR calculations align with regulatory limits.
Opt for Joint Applications:
Combine incomes with a spouse or family member to enhance eligibility.
8. Common Questions About MSR
Q1: Does MSR apply to private property loans?
No, MSR is specific to HDB flats and ECs. Private property loans are subject to TDSR instead.
Q2: What happens if I exceed the MSR limit?
You will need to reduce your loan amount or improve your financial position to meet the 30% cap.
Q3: Are self-employed individuals eligible under MSR?
Yes, but their variable income is typically discounted by 30% for MSR calculations.
Q4: Can I refinance my HDB loan under MSR?
Yes, refinancing is allowed, provided the new loan aligns with the MSR framework.
Q5: How does the MSR affect EC buyers?
The MSR applies to ECs during their MOP but is lifted once the EC becomes privatized.
9. Conclusion
The Mortgage Servicing Ratio (MSR) is an essential framework for ensuring financial responsibility among homebuyers of public housing in Singapore. By limiting mortgage repayments to 30% of gross monthly income, the MSR protects individuals from over-leveraging and supports long-term financial stability.
For those looking to purchase an HDB flat or EC, understanding and meeting the MSR requirements is crucial. By planning your finances wisely and following the tips outlined in this guide, you can navigate the MSR framework and secure your dream home.
