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Embarking on the journey to own your first property is an exciting milestone in adulthood. Navigating this major financial decision requires careful planning and understanding of various housing ratios that help mntn balance between affordability and potential debt levels. outlines useful housing ratios for guiding your home-buying decisions.
A housing ratio measures the proportion of income spent on housing expenses, offering insights into whether one’s financial commitments are manageable alongside other obligations. Two key ratios to consider when buying a home are:
The Mortgage Servicing Ratio is essentially the percentage of your gross monthly income that's allocated towards repaying property loans, including any new loan you're considering.
According to guidelines, no more than 30 of your gross monthly income should go toward paying off this monthly obligation. The MSR specifically applies when taking out a mortgage for an HDB flat or an executive condominium EC where the minimum occupation period has not expired.
To calculate your MSR:
textMSR = fractextTotal Property Loan RepaymenttextGross Monthly Income times 100
It's advisable to keep this ratio within a range of 25-30 to avoid overexting yourself financially.
The Total Debt Servicing Ratio encompasses all monthly debt obligations, including property loans and other financial commitments like car or student loans. This ratio ensures that you're not burdening your finances excessively with debt.
As of December 16th, the TDSR is capped at 55 of your gross monthly income. Financial institutions consider this rule when assessing loan applications for properties bought from them, though HDB loans are exempt.
The formula to calculate your TDSR:
textTDSR = fractextTotal Monthly Debt ObligationstextGross Monthly Income times 100
that the MSR applies solely for loans taken out with HDB or ECs, whereas both the MSR and TDSR are relevant when applying to financial institutions.
Even if you meet the MSR and TDSR thresholds, consider opting for smaller loan amounts or shorter repayment terms than necessary. By doing so:
You minimize interest costs.
Enhance your ability to cope with unexpected expenses such as property taxes or increases in mortgage rates.
Improve resilience agnst financial setbacks like income reductions.
Before making a home purchase, consider the proximity of your new residence to family members, especially children and grandchildren. This arrangement could foster a stronger familial bond while potentially saving on transportation costs for both parties.
For first-time buyers considering resale flats, familiarizing yourself with this process can help ensure you're making an informed decision your financial capabilities.
of purchasing a home involves balancing personal finances and future commitments. Understanding housing ratios like the MSR and TDSR provides valuable guidance in making well-informed decisions while protecting your retirement funds for the long-term. , meticulous planning ensures you're not only buying a property but also securing financial stability.
The information provided is accurate as of the date of publication but should be verified with official sources or professional advice for up-to-date detls and personal tax implications.
This article is reproduced from: https://www.cpf.gov.sg/member/infohub/educational-resources/housing-ratios-calculations-msr-tdsr
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