After receiving much feedback, MAS has decided to broaden the existing exemption of Total Debt Servicing Ratio (TDSR) threshold of 60 per cent for borrowers who bought their property before the TSDR rules were introduced.
The exemption takes place with immediate effect.
Under the revised rules, a borrower who bought a residential property before the TDSR rules were introduced – i.e. the Option to Purchase (OTP) of the residential property was granted before 29 June 2013 – will be exempted from the TDSR threshold as long as he occupies the residential property that is being refinanced.1 This is a concession compared to the current rules, which also require that he does not own any other property, or have any other outstanding property loan.
The Mortgage Servicing Ratio (MSR) will also not apply to the refinancing of loans for HDB flats and Executive Condominiums (ECs) that are owner-occupied and were purchased before their respective MSR implementation dates.
A similar concession will apply with regard to loan tenures, for residential properties purchased before the respective implementation dates for the loan tenure limits. In such cases, borrowers whose loan tenures for their owner-occupied residential properties exceed the current regulatory limits4 will be allowed to maintain the remaining tenures of their loans at the point of refinancing.
The TDSR threshold of 60 per cent will continue to apply to the refinancing of all investment property loans. This is to encourage borrowers to right-size their loans and thereby reduce their vulnerability to adverse economic conditions or changes in interest rates. However, MAS recognises that some borrowers may face challenges in right-sizing their debt obligations in the short term; the starting level of debt may be too high and there may be significant costs involved if they had to sell their properties to reduce their leverage.
Therefore, MAS will allow a transition period until 30 June 2017, during which a borrower may refinance his investment property loans above the 60 per cent threshold, provided he meets the following conditions:
The changes are intended to help borrowers ease their immediate debt servicing burdens, while encouraging those who have taken on high leverage on their investment properties to right-size their loans as early as possible.
Borrowers should be aware that the current low interest rate environment will not persist indefinitely. When interest rates rise, borrowers will face higher mortgage repayments. Borrowers engaging in refinancing should therefore exercise prudence and review their debt commitments.