Debt Service Ratio (DSR)
The DSR is meant to show how much of a person’s income is used to service debt instalments, and is represented as a percentage (%) of income. It is derived from 2 main components:
Total Commitment + New Application
Net income (after tax & EPF, Socso Deduction)
Between different banks, there can be major differences in the final DSR amount that is calculated. This is because every bank has their respective calculation methods for income and commitment recognition.
| Type of Commitment | Type of Income |
|---|---|
| Car loan | Fixed monthly income/ salary |
| Housing loan | Rental income |
| Credit card (eg. based on outstanding X 5%=min payment) |
Justify part time income |
| Personal loan | Dividend, eg. ASB, Tabung Haji, etc |
| Study loan, eg. PTPTN | Income received from oversea |
Commitments:
Commitments are all borrowings a borrower has from any banks or creditors that will reflect on CCRIS report. If it doesn’t show on CCRIS report or payslip, you might able to omit this commitment.
Incomes:
All above income, preferably to be proof with documents from employer and bank statement.
Comparison DSR for 6 Banks In Malaysia 2018
| Bank | DSR Comparison | Housing Loan Interest |
|---|---|---|
| BSN | Net income < RM3,000, maximum DSR 60% Net income > RM3,000, maximum DSR 75% |
Property value:
RM100K to RM300K – 4.65% Above RM300K 4.55% |
| Maybank | Net income < RM3,500, maximum DSR 40% Net income > RM3,500, maximum DSR 70% |
Property value:
RM150K to RM350K – 4.65% |
| CIMB | Net income <Rm3,000, maximum DSR 65% Net income RM3,000 – RM7,999, maximum DSR 75% Net income RM8,000, maximum DSR 85% |
Property value:
RM200K to RMRM350K – 4.95% |
| RHB | Net income < RM2,204, maximum DSR 55% Net income RM2,205 to RM2,2630, maximum DSR 60% Net income RM2,631 to RM4,975, maximum DSR 75% Net income RM4,976 to RM7,615, maximum DSR 80% >RM7,615, maximum DSR 85% |
Property value:
RM100K to RM200K – 5.80% to 6.00% |
| Hong Leong Bank | Net income <RM3,000, maximum DSR 60% Net income >RM3,000, maximum DSR 85% |
Fist Home Scheme: – Property price< RM500K – Gross income <RM5,000 – Interest 4.95% |
| Bank Islam | Net income< RM3,000, maximum DSR 50% RM3,000 to RM5,000, maximum DSR 60% RM5,000 to RM7,000, maximum DSR 70% >RM7,000, maximum DSR 75% |
Interest based on scoring: 1-3 = 4.45% 4-6 = 4.5% – 4.55% 7-10 = Arrange to meet for a better rate |
Source from: sharing by Mr. Nor Eidzwan from Facebook
Common Misconceptions About DSR
- Myth #1 – Banks will only lend you up to 1/3 of your gross income
This is only a recommended guideline for borrowers. In practice, banks use more refined rule sets during credit approval.
- Myth #2 – The maximum loan amount you can get from each bank doesn’t vary much
There are enough exceptions to say that credit policies can differ greatly from one bank to another. Maximum borrowing amounts can even differ up to 3x between different banks.
- Myth #3 – Banks only lend up to 70% of your DSR
This is only another rule of thumb and not particularly exact.
Source from: Loanstreet.com.my
How To Improve Your DSR
- Reduce Your Total Debt
Try choose to consolidate multiple repayments into one loan, thereby simplifying your repayments into one. This will save on interest, and stretching out the monthly repayments will reduce the impact on their debt service ratio.
Clear off as much debt as you can and do it as soon as possible. This includes all types of bank and non-bank debt.
Bank Debt: Housing loan, car loan, personal loan, credit cards, etc.Non-Bank Debt: PTPTN loan, Debt securities, Government Programmes, etc.High credit card balances and outstanding PTPTN loans can attribute to high DSR rates. For example, if you fail to pay back your PTPTN loan, you can be in danger of getting blacklisted on the CCRIS list and rejected by banks.Do not take for granted repayments of non-bank debts as banks will look at these repayments in the same way as other bank debts. This will be reflected in your CCRIS & CTOS records, explained below. - Keep A Good Credit Score/History
Your credit history will be an indicator and proof to banks whether you are a good paymaster or at risk of defaulting/missing loan repayments.Banks will refer to two primary sources to check your credit history:- Central Credit Reference Information System (CCRIS)
- Credit Tip-Off System (CTOS)
If you have been making your repayments on time and in full, there is little that you have to worry about. However, it’s always a good idea to check both your CCRIS & CTOS status periodically.
- If You Don’t Have A Credit Record, Start One Now
Not having a credit history can be just as bad as having a poor credit record.
Banks are very likely to reject your application if they do not have any form of proof to support your ability to make repayments.This is especially true for graduates or first time loan applicants. Get started by applying for a credit card, keep your balance low and pay in full every month. If you can’t make the full payment, try to pay as much of the balance as you can. - Keep Low Credit Card Balance
Having a high balance can look bad – banks will question why you have a lot of debt in the first place and it can imply that you are not managing your personal finances responsibly. - Show That You Have Savings
Banks like people with savings. Individuals with savings are considered to be at low risk of defaulting payments as they are able to show that they have sufficient finances to fall back on. This includes all types of fix-deposits, funds, bonds, etc.Keep all your documentations up-to-date when submitting your loan application. Loans can still be rejected if you do not present the necessary documentation. - Combine Incomes
Another way to improve your DSR is to increase your nett income by combining your income as ‘joint-purchasers’ with a spouse or partner in your loan submission. Be sure that both of you fully understand your individual legal rights to the property as joint-purchasers.
Source from: LoanStreet.com.my
