Smart Investor Malaysia


Housing Loan In Malaysia: What Is Debt Service Ratio (DSR) And How To Calculate DSR?


Most of us are now more concerned about the rising of housing prices in Malaysia. Sometimes, we fear that with the rise in the housing price Malaysia will affect our dream to own a house.

Well, are you thinking of applying for a housing loan in Malaysia to buy the property you dream of? But, did you know whether your application will most likely be approved or not? It’s easy. You don’t have to worry. Before applying for a housing loan, you can do some self-checking of your loan eligibility based on the Debt Service Ratio.

What Is Debt Service Ratio (DSR)?

Simply put, DSR is a calculation made based on your income and your commitments. From here, the banks will calculate your DSR and see whether you can afford the loan you are applying for. It has its own formula and keeps in mind that each banks vary its DSR limit.

In terms of a housing loan in Malaysia, this formula helps the bank to get to know your commitments which then will be considered whether you’re eligible for the loan you’re applying for.

It’s based on your monthly net income and the total commitments that you have to pay every month. For instance, your car loan, student loan, personal loan, and any other loan that you need to commit monthly for payment. The bank will see and decide whether the loan you’re taking is within your financial limit.

At the end of the day, the bank has to be very selective and careful. They’re not doing some charity work but a profitable institution. DSR is one of the main factors that banks use to determine your borrowing power.

Your DSR is then compared to the bank’s maximum DSR limit. If your DSR is within the limit, then you’re one step closer to get your housing loan approval.

Remember! Every bank has its own DSR limit. DSR is not the only criteria for a housing loan to be approved but it is one of the main factors that banks consider.

How To Calculate DSR For A Housing Loan?

As explained above, DSR is calculated based on an individual’s net income. Whatever income that you gained after the deduction of income tax and EPF, then it will be divided by your total monthly commitments such as car loan, personal loan, PTPTN (student loans), credit card bills, and the housing loan that you’re applying for. From there, it will be multiplied by 100 to obtain Debt Service Ratio in percentage.

The formula is,

DSR = (Debt / Net Income) x 100

It’s very useful for you to calculate your DSR before applying for a housing loan in Malaysia. This will help you consider whether or not you’re pursuing a housing loan application.

For a better picture, let’s take RM7,000 as your net income. Your monthly commitment in total is RM3,000 while you’re now applying for a housing loan with a monthly payment of RM1,200. Both will sum up to RM4,200.

Divide the figure (RM4,200) by RM7,000, then multiply that by 100 and your DSR is 60%. Most of the banks in Malaysia has DSR limit at 60% to 75%.

It might be hard to get your loan approved but as we mentioned before, there are many other factors that banks look up to in considering your housing loan approval.

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