If you're a freelancer earning $15,000 a month, your bank doesn't see $15,000. It sees $10,500.
This isn't a glitch. It's deliberate — and it's baked into MAS regulations that every bank in Singapore must follow.
What is the TDSR haircut?
The Monetary Authority of Singapore (MAS) sets rules for how banks calculate your Total Debt Servicing Ratio (TDSR). One of those rules: certain types of income must be discounted by 30% before counting toward your loan eligibility.
The logic is risk management. Variable income is less predictable than a fixed monthly salary. Banks need a buffer.
The rule applies to:
- Commission and variable pay — even if it's been steady for years
- Sole proprietor trade income — assessed from your Notice of Assessment (NOA), then discounted
- Dividends — from companies you direct, typically discounted 30% (some banks apply 0%)
- Foreign income — all foreign-currency income takes a 30% haircut regardless of stability
Fixed salaried income is the only type that's recognised at 100%.
An example
Say you're a consultant with this monthly income:
| Income type | Gross | Bank-assessed |
|---|---|---|
| Base retainer (salaried) | $5,000 | $5,000 |
| Variable project fees | $8,000 | $5,600 |
| Dividends from your company | $3,000 | $2,100 |
| Total | $16,000 | $12,700 |
You earn $16,000. The bank works with $12,700. That's a 21% effective discount on your total income.
At a 55% TDSR threshold, your maximum monthly repayment would be:
$12,700 × 55% = $6,985/month
With a 30-year loan at a 4% stress test rate, that translates to roughly $1.46M in loan eligibility — not the $1.84M you'd get if all $16,000 were recognised.
Why is the stress test rate 4%?
MAS requires banks to use at least 4% (or the prevailing rate plus 1%, whichever is higher) when calculating TDSR. This is to ensure borrowers can still service the loan if rates rise. The stress test rate isn't what you'll pay — it's just the computation floor.
What you can do about it
You can't change the MAS rules. But you can change your income structure.
1. Pledge financial assets
Cash, fixed deposits, unit trusts, and some securities can be pledged against your loan. Banks amortise the value over 48 months — so $200,000 in pledged assets adds $4,167/month to your assessed income with no haircut.
2. Convert variable pay to guaranteed base
If you're a director of your own company, structuring more of your compensation as fixed base salary (rather than dividends or bonuses) means it's recognised at 100%. This requires actual employment contract restructuring — not just labelling.
3. Use two years of NOA for sole proprietorship
Banks typically average your last two years of Notices of Assessment for sole proprietors. If your declared income has been rising, this works in your favour. If you've been aggressively minimising taxable income, this may hurt you.
4. Include a co-borrower
A spouse or family member with stable salaried income can co-borrow. Their full salaried income is assessed at 100%, which can significantly increase the combined TDSR headroom.
The bottom line
The 30% haircut is not negotiable per MAS rules, but how much of your income is subject to it is. The goal is to understand which of your income streams are discounted, quantify the impact, and decide whether any restructuring makes sense for your specific situation.
Use the TDSR Calculator to run your own numbers.