How much buffer do I need before I upgrade?
Most upgraders ask me one question first: how much can I borrow? I usually ask a different one. If interest rates go up, or one income stops for six months, can you still hold?
Buying the next property is the easy part. Holding it through a bad year is where people get stuck.
The limits the banks work with
The Monetary Authority of Singapore sets a few rules that cap how much you can borrow:
Total Debt Servicing Ratio. All your monthly debt repayments cannot exceed 55% of your gross monthly income.
Mortgage Servicing Ratio. For HDB flats and new executive condominiums bought from developers, the housing loan repayment cannot exceed 30% of gross monthly income.
Loan to value. Up to 75% for your first housing loan, and up to 45% for a second housing loan.
Tenure. Up to 30 years for HDB flats and 35 years for private property, with lower loan limits if the loan runs past age 65.
Banks also test your loan at an interest rate higher than what you actually pay, so you are not approved right at your limit.
Why passing these limits is not enough
These rules tell you what the bank will lend. They do not tell you what you can live with. Passing the test at 55% does not mean your family is comfortable at 55%.
The buffer questions I run with clients
If rates go up from today, what does the monthly instalment become?
If one income stops for six months, how many months can you still pay?
If you sell first and buy later, where do you stay in between and what does it cost?
If you buy first and sell later, can you carry two loans if the sale takes longer?
Is there still money left for the kids' education and your own retirement?
Personally I would
Plan the exit before the entry. Write down what happens if the old place takes longer to sell, if rates move, or if work changes. If the plan still works, then we talk about the climb.
This is exactly how my Asset Elevation Method works. We only step up when the numbers still hold under pressure. If the exit does not work, we do not climb.
Quick answers
What is the TDSR limit in Singapore?
Your total monthly debt repayments cannot exceed 55% of your gross monthly income under MAS's Total Debt Servicing Ratio.
What is the MSR and when does it apply?
The Mortgage Servicing Ratio caps the housing loan repayment at 30% of gross monthly income for HDB flats and new executive condominiums bought from developers.
How many months of buffer should I keep before upgrading?
There is no single number. Test whether you could keep paying if rates rose or one income stopped for six months, and whether you can carry two loans if your old home takes longer to sell. If the plan breaks, do not climb yet.
Thinking about upgrading? Book a free 15 minute Zoom call and we will stress test your plan together.
Source: MAS, new housing loans explainer. Bank criteria differ, so confirm your own eligibility with your banker.
Comments