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In , we will explore housing ratios that can help you make informed decisions when planning to buy a home.
One of the most significant milestones in adulthood is owning your own space. As one of the largest financial commitments throughout our lives, buying a house is a long-term commitment requiring strategic financial planning.
To ensure we stay within our budget while staying financially sound, housing ratios are an essential tool for mntning balance in our sping. Housing ratios provide insight into how much income is allocated towards housing expenses.
Two primary housing ratios exist to keep your home budget under control:
Mortgage Servicing Ratio MSR:
The Mortgage Servicing Ratio represents the percentage of a borrower's gross monthly income that goes toward repaying property loans, including the loan for which you are applying.
Under this rule, ideally, no more than 30 of your gross monthly income should be spent on mortgage repayments. To calculate the MSR, use the following formula:
MSR = fracMonthly Loan RepaymentGross Monthly Income
Note that the MSR applies only to housing loans for a Housing Development Board HDB flat or an executive condominium EC, where the minimum occupation period MOP has not expired.
A prudent rule of thumb is mntning this ratio within 25 to 30. This approach leaves room for other financial commitments and allows for savings in the future. Avoid taking too much debt using your current funds, such as CPF contributions, to ensure you have flexibility beyond your mortgage obligations.
Total Debt Servicing Ratio TDSR:
The Total Debt Servicing Ratio refers to the maximum proportion of an individual's gross monthly income that can be allocated towards repaying all monthly debt obligations.
Examples include:
Property-related loans, including the loan you're applying for
Car loans
Student loans
Renovation loans
Credit card loans
Any other secured or unsecured loans, including revolving credit
The current limit for TDSR is set at 55 of your gross monthly income effective as of December 16, 2021. This rule applies to property loans offered by financial institutions.
To calculate the TDSR, use this formula:
TDSR = fracTotal Monthly Debt PaymentsGross Monthly Income
When applying for a loan from a financial institution to buy an HDB flat or EC, both the MSR and TDSR are considered.
Recommation:
Consider choosing smaller loans with shorter tenures than necessary. This approach can minimize interest costs while ensuring you are not overburdened financially in managing your debt. It also helps you cover ongoing expenses such as property taxes, mortgage insurance, and any unexpected changes e.g., income reductions.
By adhering to these ratios, you will be better prepared for future financial obligations, including handling potential interest rate hikes and unforeseen events.
When using CPF savings for housing purchases, that they are primarily inted for retirement. Carefully consider your choices so as not to compromise long-term financial security in this area.
The information provided is accurate as of the date of publication.
Explore related content:
Home Ownership: Housing decisions that boost future possibilities
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Family Focus: Choosing a home closer to family
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First-time Resale Flat Buyer's Guide
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More information can be found through CPF Board's website, which offers additional resources on financial planning and homeownership.
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Last updated: February 26, 2024
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