What is Debt Service Ratio?
Debt Service Ratio (DSR) is a way for banks to determine whether you are eligible to get a property loan from them.
DSR formula as follows:
| DSR = Commitment / Net Income. |
Net income is your gross income after deducting EPF and income tax portion.
Allowable DSR
| Income | Bank maximum allowable DSR |
|---|---|
| < RM3000 | 60% of Net Income |
| < RM6000 | 70% of Net Income |
| < RM10,000 | 75% of Net Income |
| > RM10,000 | 80% of Net Income |
Notes: Different banks have their own allowable DSR. Above table as guideline only.
DSR Calculation
For new loan application the DSR is calculated the same for all banks but for refinancing the DSR is calculated differently.
New Housing Loan
Let say:
Monthly Income:
Gross Income: RM10,000
EPF Deduction: RM1,000
Income Tax Deduction: RM1,000
Net Income: RM8,000
Monthly Commitment:
Credit Card: RM200
PTPTN: RM100
ASB Loan: RM200
Personal Loan: RM500
Car Installment: RM1,000
Total Commitment:RM2,000
| DSR (without new property loan) = RM2,000 / RM8,000 = 25% |
Assuming you apply new property loan with monthly installment of RM2,000.
So the DSR would be:
| DSR (with the new property loan) = RM4,000 / RM8,000= 50%. |
Based on the table allowable DSR, you are still eligible to apply for the housing loan.
Refinancing Loan
Most bank will use similar DSR calculation as the new loan except for Maybank. According to Maybank for the cash out portion they would calculate based maximum tenure of 10 years and the original amount can go to maximum tenure either 30 years or maximum age of 70 years old.
The cash out calculation is only for DSR calculation but if Maybank approves the refinance, you still pay your monthly installment based on maximum tenure.
Calculation Example:
Outstanding amount of the original loan: RM100,000
Refinancing loan amount: RM200,000
So cash out = RM200,000 – RM100,000 = RM100,000
New Refinancing loan interest: 5%
The cash out monthly is calculated on RM100,000 based on 5% interest for 10 years which come to: RM1,061
While the outstanding amount of RM100,000 will be calculated based on 5% interest and tenure of 30 years which come to: RM536
So the monthly loan amount for DSR calculation is RM1,597
| DSR (for Maybank) = (RM1,597 + RM2,000) / RM8,000 = 45% |
Other banks will calculate RM200,000 based on 5% interest for 30 years which come to: RM1,074
| DSR (other banks) = (RM1,074 + RM2,000) / RM8,000 = 38% |
So other banks give lower DSR so easier to qualify for a loan. However usually, Maybank gives lower interest rate.