All The Legal Loan Limits You Need To Know About In Singapore

Know your numbers so you won’t fumble. Find out more about the legal loan limits you ought to know as a financially responsible adult.

While many people strive to be debt-free, the fact is that most of us rely on some form of credit to pay for our day-to-day expenses as well as life’s big purchases. Think: using credit cards to earn rewards on purchases and getting a personal loan to pay for big-ticket items or events, such as weddings. This is where adequate knowledge of loans and their respective limits shines. 

Nobody can deny how confusing this jargon can be, but it pays to educate yourself so you are empowered to take better charge of your personal finances. 

This article on legal loan limits serves as a useful guide perfect even for beginners. Read on for the details pertaining to property, car and unsecured loans. Time to impress your significant other, family and buddies as you become a (more) financially responsible adult!

• Secured vs Unsecured loans
• Property loans
  • Total Debt Servicing Ratio (TDSR) 
  • Loan-To-Value (LTV) 
  • Mortgage Servicing Ratio (MSR) 
• Loan Tenure 
• Car loans
• Unsecured loans

Secured vs unsecured loans

It’s important you understand the difference between secured and unsecured loans. Secured loans require you to offer something valuable you own as a collateral; unsecured loans do not. For the latter, you can borrow the money outright after your lender considers your financial standing, income, credit report and more. 

As the lender is naturally taking on more risk when extending unsecured loans to borrowers, interest rates tend to be much higher than those associated with secured loans. Common unsecured loans include: 

• Credit cards
• Personal loans
• Education loans
• Credit lines 

Common secured loans in Singapore include home loans and car loans.

Property Loans 

Total Debt Servicing Ratio (TDSR)

TDSR is a lending metric used by lenders to assess a borrower's capacity to take on a property-related loan. TDSR is calculated for any loan to buy a property, any loan secured by a property as well as the refinancing of such loans. TDSR is required because property loans are long-term and typically massive liabilities for individuals and households. 

Set by the Monetary Authority of Singapore (MAS) to ensure borrowers do not over-leverage when it comes to property purchases, a borrower’s TDSR has to be ≤ 55% for the purchase of properties where the Option to Purchase is granted on or after 16 December 2021. As of 30 September 2022, the medium-term interest floor used to calculate TDSR has increased by 0.5% to 4%, which means the maximum loan amount may be reduced. 

Here’s how to calculate a borrower’s TDSR: 

(Borrower's total monthly debt obligations / Borrower's gross monthly income) x 100%

Keep in mind monthly debt includes all outstanding debt obligations including:

• Property-related loans, including the loan being applied for
• Car loans
• Student loans
• Renovation loans
• Credit card loans
• Any other secured or unsecured loans, including revolving loans

Exemptions from TDSR rules can be made under certain circumstances, such as the refinancing of owner-occupied residential mortgages. You may read more about those here. 

Loan-To-Value (LTV) 

LTV is simply the loan amount as a percentage of the property’s value. Extending from that, the LTV limit is the maximum amount an individual can borrow for a housing loan based on the loan tenure, borrower’s age, borrower’s existing loans and whether the borrower is a shell company. 

For HDB Concessionary Loans, the maximum LTV has been changed to 80% for resale applications received by HDB from 30 September 2022 onwards.

Keep in mind there's no change to the amount of downpayment required when signing the Agreement for Lease for flats purchased directly from HDB — the downpayment still stands at 10%. This has to be paid through cash, your CPF Ordinary Account (CPF OA), or a combination of both.

For bank loans, the maximum LTV is 75%. The remaining 20% can be paid through a combination of cash or your CPF OA, but an absolute minimum of 5% must be paid in cash. 

Keep in mind banks and financial institutions are not obliged to offer you the maximum LTV. Your LTV may very well be lower because of factors like outstanding housing loans, the remaining lease on the property, your age and loan tenure and your credit score.

A quick word on Cash Over Valuation (COV)…

COV is the difference between the agreed sale price of the resale flat and the actual valuation of the flat. It only applies to resale flats, when buyers purchase a resale flat above its HDB valuation. COV can only be paid for in cash, so don’t even think about dipping into your CPF monies or housing loan!

Remember the above-mentioned LTV limit? Your LTV limit is based on the valuation of the property or the purchase price, whichever that is lower. Therefore, if you’re intending to purchase a resale flat that may potentially cost more than the actual valuation of the flat, make sure you have enough cash on hand before committing to the Option to Purchase.

Mortgage Servicing Ratio (MSR)

MSR reflects the portion of a borrower’s gross monthly income that goes towards repaying all of their property loans, including the loan being applied for. The maximum MSR allowed is set at 30%. Another important thing to note? MSR only applies to the purchase of HDB flats and ECs.

Here’s how you calculate your MSR:  

(Monthly repayment instalments for all property loans / Gross monthly income) x 100%

Loan Tenure

Getting an HDB flat? You have the option of financing your home with an HDB Concessionary Loan or a bank loan. The maximum loan tenure is capped at 25 years and 30 years respectively. 

Purchasing an EC or private property? Your only option for financing your EC or private property  is a bank loan, capped at a maximum loan tenure of 30 years and 35 years respectively according to MAS regulations.

Car Loans

The maximum loan tenure for financing a motor vehicle is 7 years, no matter if you are buying a new or used motor vehicle. 

Depending on the open market value (OMV) of the vehicle, your maximum LTV varies. 

• Motor vehicle with OMV ≤ $20,000: maximum LTV is 70%
• Motor vehicle with OMV > $20,000: maximum LTV is 60%

Keep in mind that LTV here refers to the amount of loan expressed as a percentage of the purchase price (including taxes and COE price) of the motor vehicle.

Take note that the maximum limits illustrated above do not apply to people who are financing motorcycles and commercial vehicles. They also don’t apply to the financing of motor vehicles for people who are physically disabled or their caregivers.

In all seriousness, the maximum car loan amount you are eligible to apply for has to comply with TDSR rules. As mentioned earlier, TDSR limits your total monthly debt obligations to 60% of your gross monthly income. Debt obligations that you have to consider include existing home loans, renovation loans, personal loans, student loans, other secured or unsecured loans.

Unsecured Loans

Regulations in Singapore limit the total amount you can borrow for unsecured loans to a maximum of 12X your monthly income. Before you run off celebrating, know that there are measures in place to prevent borrowers from accumulating too much of such debt. Additionally, unsecured loans have to be considered in the calculation of your TDSR. 

As there are many different types of unsecured loans available to consumers — personal loans, education loans, renovation loans, credit cards, credit lines and more —  it’s crucial you recognise that different loans have different restrictions. 

Case in point, an individual’s credit card limit and personal loans are commonly restricted to 4X their monthly income. The maximum renovation loan one can apply for is often capped at 6X of their monthly income or $30,000, whichever is lower. 

Knowledge is power

Why should you care about all these legal loan limits? Well, there’s a high chance you are already or will soon be dealing with some form of debt. That’s part and parcel of adulting, don’t you agree? 

Having a sense of these numbers will surely come in handy when you’re planning for huge purchases like your first home or dream car. Plus, it’s always a good idea to keep your personal finances in check so you don’t wind up with more loans, hence debt, than you can comfortably handle.

Read these next:
How Much Do You Need To Buy Your First Home In Singapore?
Complete Guide To HDB Grants: How Much Can You Get?
Step-By-Step Guide To Buying Your Very First HDB BTO In Singapore
Are You Ready to Get a Car Loan in Singapore?
Understanding Personal Loans: Why And When Should You Use It?