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Debt Servicing Ratio (DSR) / Also known as: ( Debt-To-Income ratio, DTI, ) is a core tool for financial institutions and individuals to manage debt risks. It is an indicator that measures the proportion of an individual or family’s monthly debt repayment amount to their total income. It is often used to assess a borrower’s debt repayment ability and financial risk.
How do Hong Kong banks calculate the Deposit Service Deposit Ratio (DSR) when approving mortgages?
Monthly mortgage payment ÷ monthly income × 100%, no more than half of the monthly income (50%), meets the requirements.
| Any property type | Self-use or non-self-use |
| Debt to income ratio | ≦50% |
| Contribution stress test | Temporarily canceled |
*Latest revision effective October 16, 2024 Information is for reference only. Please refer to the latest announcement by the relevant authorities.
* When approving H mortgages (HIBOR mortgages), banks use a capped interest rate (currently generally3.5%) Calculate monthly payments
example:What is the income requirement to purchase a residential unit worth NT$1,450,000?
Basic parameters
- Property prices: $5,000,000
- Mortgage amount: 70% (Loan amount $3,500,000)
- Mortgage Rates: 3.5% (H is based on the capped interest rate)
- Repayment Period: 30 years
Summary table
| project | Numeric |
|---|---|
| Loan Amount | $3,500,000 |
| Monthly payment (3.5%) | $15,715 |
| Stress test monthly payment (6.5%) | $22,131 |
| Minimum monthly income requirement | $36,885 |
| Minimum annual salary requirement | $442,620 |
Precautions
- The above calculations assume that No other liabilitiesIf you already have a mortgage or loan, the income requirement will be higher.
- Actual approval may take into account Career stability,Credit RatingAnd other factors.
- If you choose "mortgage insurance" to borrow a higher loan amount (such as 90%), the income requirement will increase significantly.
It is recommended to ask a bank or professional financial advisor for an accurate assessment.
Definition and calculation of DSR
- formula：DSR = (Monthly total debt payment Monthly total income) / (Monthly total income Monthly total debt payment) × 100%
- molecular: Includes all fixed debt expenses (such as mortgage, car loan, credit card minimum payment, personal loans, etc.).
- Denominator: Usually refers to monthly income before tax. Some organizations may use "stable income" (such as fixed salary, excluding non-fixed income such as bonuses).
Key factors affecting DSR
- Interest rate fluctuations: If you choose a floating rate mortgage (such as an H mortgage), rising interest rates may push up your payments, causing your DSR to exceed the limit.
- Repayment Period: The longer the term, the lower the monthly payment and the lower the DSR will be; otherwise it will be higher.
- Other liabilities: Such as credit card debt, personal loans, etc., the bank will calculate all debts together.
How to deal with DSR restrictions?
- Increase down payment: Reduce the loan amount and directly reduce the monthly payment.
- Extend the repayment period: For example, if the repayment period is extended from 20 years to 30 years, the monthly payment will be reduced after amortization.
- Adding a co-borrower: If your spouse or family members have a stable income, the income can be calculated together.
- Pay off other debts early: Reduce total liabilities and release DSR space.
Key factors affecting DSR
- Debt Type: Whether to cover all liabilities (such as credit cards, consumer loans) or only specific loans (such as mortgages).
- Income Recognition: Whether to include non-fixed income (such as commissions, investment income).
- Family Burden: If multiple people repay the loan together, the "total family DSR" may be used for calculation.
Limitations of DSR
- Static indicators: Does not take into account future income fluctuations (such as job loss) or increased expenses (such as medical expenses).
- Regional differences：Different countries have different calculation standards and tolerances for DSR (for example, the Hong Kong Monetary Authority requires that DSR should not exceed 70%).
- Ignore other burdens: Living expenses (such as education and insurance) are not taken into account, which may overestimate debt repayment ability.
How to improve DSR?
- Increase revenue: Increase monthly income by working part-time, improving skills, etc.
- Reducing Debt: Prioritize repayment of high-interest loans, or extend the repayment period to reduce monthly payments.
- Prudent lending: Avoid applying for multiple loans at the same time and control the debt ratio.
Precautions
- When calculating income, banks usually only accept "fixed monthly salary" or "provable stable income". Floating income such as commissions and bonuses may be discounted.
- If the DSR exceeds the limit, the bank may require an additional guarantor, increase the down payment, or even refuse to approve the loan.
suggestion
Before applying for a mortgage, you can use the "mortgage payment calculator" provided by the bank to estimate your DSR and leave a buffer space to cope with interest rate changes.
