This ratio is important as mentioned in my previous article about Bank Loan Amount That You Can Borrow. When you have more and more properties/investments leveraging on mortgage, bank views that as your commitments. If we were to convince bank to loan us money to buy more properties, one way is to keep this ratio as low as possible. Again, I do not know the exact DSR of all the banks out there as it varies from bank to bank and maybe from time to time. Based on my experience, 60% is not a bad estimation.
There are 3 components in DSR,
Total commitment (D) – all kind of loans and debts such as mortgage and credit card
New commitment (N) – monthly installment of your new loan application
Net income (I) – net reported income after deducting EPF, SOCSO, KWSP etc
Debt Service Ratio (DSR) = (D+N/I)*100%
Following the guideline set, you can try to keep your DSR not more than 60% to avoid loan rejections.
How to get more or unlimited loans? Referring to DSR, you can reduce your debts through repayment or settlement. Next, the most straightforward way is to increase your net income. Besides career advancement, you can declare your rental income, part time income, freelance income etc.
After understanding about housing loans, should we invest in cash?