The MAS, Monetary Authority of Singapore, states that any person seeking to refinance a loan before the TDSR rule is exempted from the 60% threshold of the TDSR. TDSR means Total Debt Servicing Ratio. As long as the property that you are planning to refinance relates to a residential property, then this exemption applies. However, you need to take another rule for consideration. To be able to avail of the exemption, the OTP or option to purchase, should be granted before June 29 2013. This regulation affects all financial institutions offering home loan packages as the TDSR framework includes all of the outstanding debt of the borrower when computing the loan amount. The instruction is to observe a 60% TDSR for all property loans.
Challenges faced by the borrowers
The TDSR was implemented to ease the debt servicing burden of the borrowers. However, the mortgage servicing ratio does not apply to the HDB flats and executive condominiums refinancing of homes that were already purchased and occupied before the date of implementation. The transition period is estimated to extend until June 30 2017. This means that the MAS will allow the borrower to refinance or invest in real property loans above the 60% threshold only if he agrees to a debt reduction plan. The borrower should also fulfill the financial institution's credit assessment as well as the OTP granted before June 29, 2013.
Why TDSR of 60%?
After the MAS conducted a review of the financial institution's portfolios in 2012, they found out that there were unwise practices in regards to the computation of the debt servicing ratios. This was highlighted as one of the areas for improvement in terms of underwriting credit home loan applications. They required the financial institution to include the other outstanding debt obligations of the borrower, which provides a clearer view of the percentage of the total monthly debt obligations to the gross monthly income. The other factors considered in the computation of the TDSR are the monthly repayment of the property loan and the monthly repayment of other outstanding property and non-property debt obligations. In addition, the financial institution is to apply another 30% besides the 60% to all variable and rental incomes. This would help evaluate the debt servicing ability of the borrower.
The rule refinements highly affects the assignment of the names of the borrowers. The name of the borrowers on the real estate property and of the application of mortgagors should meet the TDSR. In case of joint borrowers, the average age of borrowers and their income should be considered for the computation of the allowed loan term or tenure. The LTV limits and the TDSR are structural in nature. This means that these rules will be in place for a long time in the hope บ้านมือสอง กรุงเทพ of encouraging prudent borrowings.
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