After much complains and feedbacks being made, MAS had finally decided on 10th Feb 2014, to update the Total Debt Servicing Ratio (TDSR) measuresimplemented last year.
Earlier, in a bid to curb individuals from over-borrowing for their properties, the TDSR was implemented to ‘right size’ the loans and ‘reduce vulnerability to adverse economic conditions or changes in interest rates’.
This rule has however hurt many investors and older folks who have over leveraged previously, received lower income in the recent years, and/or due to increasing age, face a shorter loan tenor which equals to high monthly installments for the mortgage, and also a TDSR percentage too high to even mention it here.
The revised rules, in a nutshell, allow home-owners to be able to refinance their mortgage even if their TDSR has exceeded 60%. Well that’s if they meet certain requirements (as usual!):
- The property has to be occupied by the owner him/herself and is not rented out for investment purposes
- You would have bought this property before 29th June 2013 (before TDSR was introduced)
- You do not own any other property or have other property loans (the second part refers to the guarantors out there for some property loans)
For HDB & EC owners restricted by the Mortgage Servicing Ratio (MSR), it will also not apply if you have bought the flats before 12 January 2013 for HDB flats and 10 December 2013 for ECs purchased directly from a property developer.
As for investment property owners, not to worry as you are not left out entirely. You can still refinance your loans even if your TDSR has exceeded 60% provided:
- You would have bought this property before 29th June 2013
- You and all the borrowers agrees to a debt reduction plan offered by the bank when refinancing
- You and all the borrowers pass the bank’s credit assessments
*The deadline is however 30th Jun 2017.
As of today, only a handful of banks have embraced these new measures and are still in the process of fine-tuning their assessment process, while the rest are still working on TDSR<60% as a benchmark to make any new loan/refinancing offers.
For the very few banks that are efficient enough to give it a go, the following can be proposed to the banks for refinancing:
- In line with MAS’s rules on a ‘debt-reduction plan’, borrowers could pay off a certain % of their outstanding loan, and the bank will undertake the balance loan even if TDSR > 60%
- Another option offered was for a certain % of their outstanding loan to be repaid over a short loan tenure while refinancing the balance loan on the usual loan tenure allowable.
- You have tons of cash and/or liquid investments lying around to justify that you can bury the bank with your money even after paying off your loans and other debts.
All these options weigh heavily on your credit bureau record which should be in flying colors (all As). This means no late payments for your credit cards and other loans. You should also preferably have good fixed pay income with regular CPF contribution or high variable income declared on your Notice of Assessment (NOA).
Should you require some help in figuring out if you meet the TDSR requirements or running out of options banks to refinance your mortgage due to previous over leveraging, please do check with our experienced mortgage brokers on the exemption details offered by the banks.
Perhaps it’s time to cancel and cut up those credit cards lying unused in the drawers, and ninja past the next credit card promoter who waives a free gift in your face when you walk by them.