In my previous article, I shared that Leverage is generally a very good tool in property investment.
It will work out well if you use it carefully and prudently. So how much leverage you should take on before it becomes too excessive? Let us explore some important debt ratio here.
Total Debt Servicing Ratio (TDSR)
TDSR is the ratio that takes into account all your monthly debt repayments compared to your monthly income. Currently, the TDSR ratio is being used to assess how much loan you can take for on property. The TDSR ratio at the moment is 60%.
Meaning, if you add your monthly mortgage obligations together with all other loan obligations (e.g. Car loan etc), it cannot exceed 60% of your monthly gross income (if you are not self-employed).
This ratio helps to ensure prudence when buyers are borrowing for a property purchase.
Debt to Asset Ratio
This ratio compare the debt of a person to his assets. It indicates how much of a person’s assets is being financed by debt or financing.
The debt to asset ratio is a measure of a person’s solvency or the person is taking on too much debt. A ratio of 50% or less is considered to be safe. However, do consult an advisor for your debt to asset ratio.
Get a better understanding of yourself and do a proper risk analysis and financial planning before going into any property investment. There are also other financial ratios that you should look at to assess your current financial health, depends on your unique situation.
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