Disclaimer (Block 1): This article is for educational purposes only and is intended to assist CEA-registered property agents in understanding regulatory frameworks. It does not constitute financial, tax, or legal advice. LEVR's calculations are indicative only. Always verify rates and eligibility with your bank, HDB, CPF Board, or a licensed financial advisor before advising clients.
What Is the Mortgage Stress Test?
Singapore banks are required by MAS to assess all residential property loans using a stress-test interest rate floor of 4.0% per annum, regardless of the actual loan rate offered. If the monthly repayment at 4.0% causes the borrower’s Total Debt Servicing Ratio (TDSR) to exceed 55% of gross monthly income, the loan cannot proceed.
For HDB and EC purchases, an additional Mortgage Servicing Ratio (MSR) cap of 30% applies to the property loan instalment alone.
Income Haircuts Applied by Banks
Banks do not use a borrower’s full stated income. MAS Notice 632 requires banks to apply haircuts to variable and non-employment income before computing TDSR. A “30% haircut” means the bank discounts the income by 30% — only 70% of that income counts.
| Income Type | Haircut | Qualifying Portion |
|---|---|---|
| Fixed base salary | 0% (no haircut) | 100% of income counts |
| Bonus and commission (irregular) | 30% haircut applied | Only 70% of variable income counted |
| Rental income | 30% haircut applied | Only 70% of net rental income counted |
| Self-employment / freelance income | 30% haircut applied | Only 70% of declared income counted |
Source: MAS Notice 632, TDSR variable income haircut standard.
Example: Client earns a fixed salary of S$6,000/month plus a variable commission averaging S$4,000/month. The bank applies a 30% haircut to the variable S$4,000: qualifying income = S$6,000 + (S$4,000 × 70%) = S$6,000 + S$2,800 = S$8,800/month.
This is a 12% reduction from the stated monthly income of S$10,000 (S$6,000 + S$4,000).
TDSR Formula
After applying income haircuts, the TDSR is computed as:
TDSR = Total Monthly Debt Obligations ÷ Gross Monthly Qualifying Income
“Gross monthly qualifying income” means income after haircuts are applied. The TDSR limit is 55%. Debt obligations include the proposed mortgage repayment at the 4% stress-test rate, plus all other existing loans (car loans, personal loans, student loans, other mortgages).
Practical TDSR Check
Client profile: S$8,800/month qualifying income, no other debts. Proposed property: S$1.2M condo, 25-year loan at 4% stress-test rate.
- Monthly instalment at 4% over 25 years on ~S$960K (80% LTV) ≈ S$5,070/month
- TDSR = S$5,070 ÷ S$8,800 ≈ 57.6%
- Result: Exceeds 55% TDSR limit. The client would need to increase income, reduce the loan amount, or extend the tenure.
Common Agent Mistakes
Mistake 1: Assuming 100% of variable income qualifies
Commissions, bonuses, and rental income are all subject to a 30% haircut. Using full stated income overstates borrowing capacity by up to 30% of variable income. Clients who rely heavily on commission are especially exposed to this gap.
Mistake 2: Using the actual mortgage rate instead of 4%
Even if the bank offers a rate of 3.5%, the stress test uses 4.0%. TDSR should always be computed at the 4% floor before advising clients on loan size.
Mistake 3: Forgetting existing debts in the TDSR calculation
TDSR includes all debt obligations, not just the new mortgage. A client with a S$800/month car loan instalment has less mortgage headroom than their income alone would suggest.
Key Takeaways
- Banks stress-test at 4.0% per annum, not the promotional rate.
- Variable income (commissions, bonuses, rental) gets a 30% haircut — only 70% counts toward qualifying income.
- TDSR must stay below 55% of qualifying monthly income.
- For HDB/EC, an additional MSR cap of 30% applies to the property loan instalment.
- Run LEVR’s TDSR calculator with the correct income haircuts before advising clients on loan size or affordability.
Key Sources
- MAS Notice 632 — Total Debt Servicing Ratio Framework — mas.gov.sg
- MAS Property Loan Guidelines (LTV, MSR, TDSR) — mas.gov.sg
Disclaimer (Block 3): LEVR's calculator outputs are estimates based on inputs provided and current regulatory parameters as known at time of publication. They are not a guarantee of borrowing capacity, stamp duty liability, or CPF eligibility. Regulatory thresholds and rates may change. Always verify with IRAS, your bank, or a licensed financial advisor before making financial decisions.