How to calculate your Debt Service Ratio (DSR) in Malaysia
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If you’ve ever applied for a car or home loan, you’ll know that it’s not the easiest thing to do, as everything from your credit history to your employment type will be evaluated, and loan officials may be very strict when it comes to examining these factors. One of the first things your bank will look at is your debt service ratio (DSR), which has a significant impact on whether or not your loan is approved. But do you know how DSR works?
What Is Debt Service Ratio (DSR)?
The DSR is simply “a method used by banks to determine whether or not you can afford the loan you’re applying for.”
In the case of a home loan, this method effectively assists the bank in determining how much you can afford to pay in monthly installments.
Banks can determine if the property you’re trying to purchase is within your financial limits based on your monthly net income and the total fixed debt you have to pay each month for your student and car loans, among other things.
From there, they can decide whether or not you’re eligible for the loan you’re trying to apply for.
Your DSR is then compared to the bank’s maximum permissible DSR limit, and if it does not exceed the limit, you’re one step closer to getting the home loan you requested.
Now, keep in mind that each bank has its own set of standards that vary depending on the individual. As a result, while some banks may accept a DSR of up to 80%, others may only take 50%.
The DSR limit also changes depending on the individual and their level of net income. Some high-net-worth individuals are even permitted to have a DSR of 100%!
Aside from different DSR limits, calculation methods also vary from bank to bank. So don’t be surprised if your DSR at Bank A is only 40%, but 70% at Bank B!
Close up of man hand using calculator.
How Do You Calculate DSR?
In general, the formula used to calculate an individual’s DSR is the net income (after tax and EPF deduction etc) divided by the total monthly commitments including the home loan you’re applying for.
From there, simply multiply the figure by 100 to receive your final DSR in percentage (%). Here’s an example of what the formula looks like.
DSR = Total monthly commitments + mortgage you are applying for
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Nett income (after tax, EPF and SOSCO etc.)
What is the definition of a commitment?
It refers to all bank and non-bank debt in the context of your DSR.
Your auto loan, credit card bills, and personal loans are all examples of bank debt.
Non-bank debt, on the other hand, is made up of monthly payments like PTPTN.
As for income, keep in mind that banks will only consider your net income after deducting all mandatory deductions like EPF, SOCSO, and taxes.
As an example, suppose your monthly net income is RM6,000. Your entire monthly obligations amount RM2,500, and you’re looking for a loan with a monthly repayment of RM1,200.
RM2,500 + RM1,200 equals RM3,700; divide that sum by RM6,000 to get 0.617. If you multiply that by 100, your DSR is 61.7%, which is significantly high.
So it’s safe to say that you might have problems getting your loan approved.
Where Can I Find Records Of My Monthly Commitments?
Your monthly commitments will mostly consist of loans, PTPTN, and credit card repayments, among other things, and a simple way to keep track of all these data is through CCRIS, where all of your monthly commitments and study loans are traceable and easily available.
If you want to save time, you can construct your own financial spreadsheet or use one of the many financial applications available for download on your smart device. Monthly bank statements would also be useful.
