Ever wanted to purchase a new home?
Buying a house is a lifetime investment that takes around 35 years to repay and banks will need to know if you can do so.
Besides thinking about raising money to pay the downpayment, do you know that banks also consider your Debt Servicing Ratio before approving your housing loan?
The Debt Servicing Ratio is a financial instrument which takes into account your earnings and commitments.
It’s not just housing loans. Banks also use DSR if you want to apply for personal or car loans as well.
How well do Malaysians know about DSR?
iProperty surveyed their user base and found that 43% of them are familiar with DSR and how it affects their home loan.
Theyâ€™ve also conducted a survey and discovered that the biggest concern of the Below 40 (B40) and Middle 40 (M40) group is to successfully secure a home loan.
â€œDSR is new to many people. Often, they donâ€™t understand that each bank has its own benchmarksâ€
iProperty General Manager, David Mawer.
Why is DSR important?
It’s to know if you can pay your monthly loan.
To do this, they will take your income and compare it with the financial commitments that youâ€™re paying.
To see how much you earn per month, they would need your salary slip or EPF statement.
Then you need to state how much is your monthly commitments.
Although different banks have their own benchmarks, usually the acceptable percentage is around 60% of your total net income.
How can you calculate your own DSR?
To know if you’re eligible, you have to add the total of your monthly commitments, divide it with your total monthly income and multiply it by 100.
You will also need to add the monthly repayment amount.
|Total Monthly Payment (including the housing loan) / Total Monthly Income x 100 = Your DSR|
Monthly commitments include your credit card, personal loan and car loan installments, besides non-bank commitments such student loans like PTPTN.
Letâ€™s say you earn around RM3,000, after deducting your EPF, SOCSO, etc.
Your monthly commitment is RM300 for your credit card, RM500 for your car, RM150 for your student loans, add with the monthly repayment amount, RM1,300.
|(RM500 + RM300 + RM150 + RM1,200) / RM3000 x 100 =|
|RM2150 / RM3000 x 100 = 71.6%|
As said earlier, if you have more than 60%, (or in this case, 71.6%), youâ€™re not eligible for the loan and the bank will reject your application.
Always keep in mind of DSR before applying for the loan to determine if the bank will allow your loan to be approved.
Unkempt in both stories and appearance, Hakim loves tech but tech left him on read, previously he used to write about tall buildings and unoccupied spaces that he can't afford, and legend has it that he still can't afford it to this day