Both TDSR and MSR work together to prevent borrowers from falling into debt from loans they cannot handle, and also to regulate lending amounts by financial institutions.
They also stop borrowers from committing a higher proportion of household income to repay a loan faster.
However, the actual interest rates charged for mortgages will continue to be determined by private financial institutions.
WHO DOES IT AFFECT?
This will apply to property loans where the option to purchase (OTP) is granted on or after Sep 30. If there is no OTP, it will apply when the date of sale and purchase agreement is on or after that date.
This also applies to fresh applications for an HDB loan eligibility letter received on or after midnight on Sep 30.
NEW HDB LOAN INTEREST RATE FLOOR
A new interest rate floor of 3 per cent has also been introduced for computing HDB’s concessionary housing loan amount. This works in tandem with the TDSR and MSR framework.
This means a borrower’s eligible housing loan amount will be computed using 3 per cent per annum or 0.1 percentage point above the prevailing CPF Ordinary Account interest rate, whichever is higher.
An interest rate floor is the lowest possible determined interest rate in a loan, which may otherwise fluctuate during the repayment period.
The revised interest rate floor will not affect the actual HDB concessionary interest rate, which remains at 2.6 per cent per annum, and will not impact existing applications received by HDB before this time.
According to HDB, its use of the interest rate floor to compute the housing loan amount “encourages flat buyers to borrow prudently as purchasing a flat is a long-term financial commitment”.