{"id":53680,"date":"2022-08-15T15:32:08","date_gmt":"2022-08-15T07:32:08","guid":{"rendered":"http:\/\/wordpress-my-161844363.ap-southeast-1.elb.amazonaws.com\/articles\/?p=53680"},"modified":"2024-02-08T17:51:28","modified_gmt":"2024-02-08T09:51:28","slug":"what-is-dsr","status":"publish","type":"post","link":"https:\/\/www.imoney.my\/articles\/what-is-dsr","title":{"rendered":"What Is A DSR And Why Does It Matter?"},"content":{"rendered":"

Do you have your eye on a dream home or car? Thinking of taking out a loan to finance it? Well, you might want to take a step back first as different banks have different debt service ratio (DSR) limits. As such, you will probably want to do a little research first to avoid getting your home loan rejected.<\/span><\/p>\n

<\/span>What is a debt service ratio?<\/b><\/span><\/h2>\n

At first glance, DSR is fairly easy to define. It is what proportion of your household income goes into paying debt. In general, it is a measure of a person\u2019s ability to manage and settle their debt. It is a key part of financial health as your DSR is one of the three major factors that affect your risk profile as a borrower.<\/span><\/p>\n

<\/span>What is a good DSR to have?<\/b><\/span><\/h2>\n

If you want to get your hands on some new property, your DSR should generally not exceed 30%. <\/span><\/p>\n

While this is a rule of thumb and not written in stone, for the most part, banks are very unlikely to favour borrowers that exceed this limit. Some banks may accommodate borrowers with a <\/span>DSR of up to 70%<\/span><\/a>, but this is at the extreme end of the spectrum as it is extremely risky to be spending that much of your income on servicing loans. Ideally, you will want to keep your DSR at around 30% to be safe.<\/span><\/p>\n

Banks utilise your DSR to help them determine how much of your income is being used to pay off your debts and other obligations. It is also used to determine if you are in a good enough position<\/a> to afford taking up the housing loan you are applying for. <\/span><\/p>\n

Having a low DSR signals to banks that you are more likely to be able to pay back your monthly instalments on time and that there is a lower risk of you defaulting on said payments.<\/span><\/p>\n

<\/span>Calculating your DSR<\/b><\/span><\/h2>\n

Figuring out your DSR is rather easy. All you need to do is divide how much debt you owe each month by your net income. This amount is then expressed as a percentage.<\/span><\/p>\n

You can also follow this formula:<\/span><\/p>\n

DSR % = Debt \u00f7 Net Income X 100<\/div><\/div><\/span><\/p>\n

Debt refers to the total of all your existing financial obligations. These can include credit card repayments, personal loans and student loans. On the other hand, net income refers to your income after deductibles, such as income tax and EPF contributions.<\/span><\/p>\n

Let\u2019s assume your household income is RM8,000 per month (this can be the income of a single professional worker or the total combined income of a couple). After deducting EPF, income tax and SOCSO, you should get a net income of approximately RM6,500.<\/span><\/p>\n

Therefore, in order to meet a DSR of 30%, your household\u2019s total debt cannot exceed RM1,950. <\/span><\/p>\n

How to calculate your DSR<\/div>
<\/span><\/p>\n

DSR of 30% = RM1,950\/RM6,500 X 100<\/b><\/p>\n

Now let us assume that you have the following monthly financial obligations:<\/span><\/p>\n

Car loan: RM500<\/span><\/p>\n

Credit card repayments: RM400<\/span><\/p>\n

PTPTN Loan: RM100<\/span><\/p>\n

Total<\/strong> financial debt = RM1,000<\/b><\/p>\n

So if your gross household income is at RM8,000 and your net income is approximately RM6,500; then when you take up a new housing loan, your monthly home loan instalment figure should not be more than RM950.<\/div><\/div><\/span><\/p>\n

<\/span>How will DSR affect you home loan approval<\/b><\/span><\/h2>\n

The maximum DSR limit varies widely from one bank to another. Even within the same bank, there could be different guidelines depending on what kind of loan you are applying for, resulting in different DSR requirements.<\/span><\/p>\n

For first time home-buyers, you should be in a good spot if your DSR is within the 30% range. The last thing you want to be doing is dedicating almost all of your income for housing expenses, leaving no room for savings.<\/span><\/p>\n

If you are still unsure of what you are getting yourself into, you can utilise <\/span>iMoney\u2019s home loan calculator<\/span><\/a> to calculate monthly repayments, interest charges, and other details on your own.<\/span><\/p>\n